"Hey ChatGPT, is the IRS ready to modernize?"
When asking that question, ChatGPT said: "Modernizing the IRS has been a topic of discussion for several years, and various initiatives were underway to improve technology infrastructure, enhance taxpayer services and increase efficiency."
That's true. In 2019, the IRS published its modernization plan that focused on four main pillars — the taxpayer experience, core taxpayer services and enforcement, modernized IRS operations, and cybersecurity and data protection. While about a quarter of the initially proposed budget was rescinded, the IRS still has tens of billions of dollars to put these modernization plans into practice. The service has stated it plans to use "innovative technologies and processes" in the coming years to further modernize operations.
The ChatGPT response wrapped up with a shoutout "to consult with tax professionals or government sources for the most current information." Well, that's what I did during a recent conversation with Chuck Rettig, former IRS commissioner and board member for K1x. And it seems as if the IRS is attuned to the problems and is searching for solutions.
"You have technology that can streamline a process," Rettig said, "which, when you have a shortage of accountants, is huge."
What it will take to modernize
For the IRS to modernize and meet evolving taxpayer expectations, a few things need to happen. First, there needs to be skilled internal staff ready to advance the organization. Second, the budget needs to continue to support the proposed efforts. Third, the IRS needs to want to modernize and have the technology available to do so.
When there is limited staff available to process tax returns, anything that can streamline the process will help considerably. There is modernized e-filing available for organizations with smaller partnerships, but what if we took this a step further and fully automated the filing process?
"The IRS had the same issues with respect to processing information [stuck in forms]. When you streamline that and digitize it, you significantly reduce the error rate. That allows electronically filed documents to process through the system at lightspeed." Rettig said. "That helps the resources in the tax community and it helps the resources in the IRS. It reduces errors and people get their refunds faster."
That's an all-win situation! Getting there will take serious effort, though.
Preparing for new tech
If old and new technology come together, it can make a difference for the tax professional and the IRS. Retting believes it will happen. The IRS created a digitization office in 2021 loosely referred to as Team DG. This requires a tremendous amount of contractor effort outside of the IRS. During his tenure at the IRS, Retting reached out to fintech for help in modernization, and he uses e-file as an example of change that would not have happened without private sector help.
"Technology people like a challenge and the IRS provides that challenge," Rettig said.
As for the timeline for any change, "We have to watch the way the wind blows," he explained, but he estimates it won't happen before fiscal year 2024 or 2025. When it does, Rettig believes it's going to make a difference for real people. He's confident the IRS is headed in the right direction.
There are over 1.2 septillion possible ways to file a 1040 alone. Full digitization to speed up the filing and return process would have a huge impact on the industry! Just imagine all the things you could do when you are not buried in the details.
Having the right people and resources
It's hard for you to do what you need to be doing when you are so focused on the details. Luckily, there are a large number of cool new tech solutions that can help with the grunt work, freeing up time for you to do higher-level work. Because of that, tax professionals realize they are now at the bridge of technology and want the IRS to change with the profession — to make their lives so much easier. Retting believes this is coming.
"I think the acceleration over the next 10 years is going to far exceed us going from no computers, almost no internet access, etc.," he said. "I think that we're about ready for an explosion in the tax world. An explosion that will help people and get more people into the field."
But what about the concerns with technology, especially AI, replacing skilled workers? The good news is that, according to Rettig, the plan is not to replace workers with automated solutions. He shared a story about when Secretary of the Treasury Steven Mnuchin talked to IRS employees about modernization and how an employee said he took modernization to mean replacing them.
"Mnuchin looks up and says, 'Do you think in your lifetime or mine, we're ever going to have too many employees at the IRS? It's not going to happen,'" Rettig said. Mnuchin then transitioned into talking about there being a focus on upskilling and career advancement for current employees in the coming years.
"I think that both public and private should look at technology like that," he said.
While the IRS may not be the most glamorous place to work, it could be the perfect fit for tax professionals looking to grow their careers. Rettig emphasizes that technology is ultimately driven by people. Even with technology powering your work, you still need human oversight to ensure accuracy and relevance. And you need humans to continue advancing your work. By leveraging AI to its fullest potential, you can even use technology to improve human experiences.
Of course, no one can see the future, so you'll have to stay tuned to see what happens at the IRS in the coming years. But for now, focus on the positive potential of technology in tax and the important role of human expertise in driving it forward!
