The IRS Works to Innovate While Implementing Tax Reform
Juggling priorities, the nation’s tax collection agency is considering how to incorporate big data analytics, cloud and automation, among other information technology innovations.
Faced with a decreasing workforce, budgetary challenges and the annual mammoth effort of collecting, processing and enforcing the nation’s taxation, U.S. Department of Treasury’s Internal Revenue Service (IRS) is also implementing the tax reform Congress mandated in December under the Tax Cuts and Jobs Act, the largest tax reform in 30 years. At the same time, the bureau must innovate to continuously improve the taxpayer experience and lessen the burden of filing taxes, said IRS leaders at the IRS Fiscal Year 2018 Industry Conversation event on July 10 in Washington, DC.
“We have to find a way to modernize with what is going on,” stated Kevin Bierschenk, acting director, IRS Enterprise Program Controls.
The IRS Deputy Commissioner for Services and Enforcement, Kirsten Wielobob, was quite frank about the challenges that the bureau is facing. “Our human capital resources have been particularly depleted,” she said. “And with that we’ve been given the biggest change to the tax code in 30 years, [to implement] in an insanely compressed timeframe.”
The IRS is working to revise hundreds of forms, instructions and publications to reflect the tax code changes. They are also modifying 140 systems for the filing season that begins in early 2019, Wielobob explained. “We have to train our employees, especially those on the front line facing taxpayer questions, because when you call the IRS you hope the IRS is going to know about the tax,” she laughed. “And we also are having to integrate and explain the law in the form of legal guidance. It is honestly a massive undertaking. At this point we’ve made really good progress, but there is a whole lot left to do.”
Wielobob stressed that while the IRS is implementing tax reform over multiple years—and pulling resources from various parts of the bureau to get it done—the bureau “can’t let our drive towards future tax administration stop,” she said. “We have to keep going.”
One key area is data. “From where I sit, it is all about the data,” Wielobob noted. “The IRS, we have a lot of data, and so for me the future is in good data management, robust data and analytics, and rock solid data protection and security. We have to protect taxpayer data. That is one of our highest priorities.”
Another area of improvement to the taxpayer experience is a move by the bureau to “secure electronic communications and features similar to that of the financial services industry,” including secure online accounts, Wielobob said. “For consumers who want online tools for self service that they already use in the rest of their daily lives, we want to provide similar tools to them going forward.”
"Our future is in good data management," says IRS Deputy Commissioner for Services and Enforcement Kirsten Wielobob @IRSnews FY18 Industry Conversation event— Kimberly Underwood (@Kunderwood_SGNL) July 10, 2018
Additionally, the IRS still has to maintain and improve non-electronic channels to communicate with taxpayers. Here, the bureau is working on a telephonic customer callback system and creating an appointment management system for in-person visits. “We have to communicate with taxpayers where and how they want to communicate with us,” Wielobob noted. “We don’t have the option to say no more paper, no more walk in service.”
To Bierschenk, “the IRS is a complex ecosystem that is ever-changing.” The bureau has more than 80,000 employees and $3 trillion in revenue collected for tax administration. “We are the largest bank and law firm wrapped up in one,” he said.
Information technology is an important part of that equation. In 2018, the bureau fielded 23 million taxpayer phone calls, assisted 860,000 taxpayers in person and had 419 million visits to their IRS.gov website, he reported. They received 141,531,000 tax returns.
Given the current climate, the IRS IT department has to “leverage every dollar we have,” Bierschenk said. The IRS does have a significant amount of dollars in IT operations and maintenance (O&M) and Bierschenk suggests that O&M should include not just maintenance but modernization. To get that modernization, the IRS needs to transform how they write task orders to vendors, “so that it's not the same task order year and year out.”
Tax reform has thrown a monkey wrench into some of their IT plans. Moving to the cloud is one example. “Do we want to go to the cloud with IT, yes, absolutely,” Bierschenk stated. They are already in the cloud in some ways with “portal infrastructure and other aspects.” The plan for cloud was approved last fall, Bierschenk shared, and it was a plan that “we wanted to accelerate this year. Now, with the impacts of tax reform implementation, we just don’t have the bandwidth.”
Automated transactional processing, including robotics and process automation, is an option as well, “but we have to have organizational readiness in order to incorporate that kind of technology with our existing architecture,” Bierschenk said. It doesn’t stop industry from sharing white papers or having conversations to help inform automation in the future for the IRS, he offered. In addition, aging infrastructure is still a concern for IRS IT. Assembly language is still part of the bureau’s ecosystem for every filing season, Bierschenk said, adding, “We clearly know that we are not going to maintain that forever.”
The IRS IT platform also has to support IRS operations globally, including its criminal investigations, added Eric Hylton, deputy chief, Criminal Investigations (CI), IRS. The bureau has offices in the world’s major financial centers. The objective of “working smarter with limited resources,” also applies to the IRS’ CI division, Hylton said. They have 2,900 employees, including 2,100 special agents, the lowest number of agents in 30-40 years.
Hylton confirmed that “this is the era of big data” for the IRS. In 2018, they seized 2.9 petabytes of data. The bureau needs industry “to help triage that info,” he said. The CI deputy chief noted that the cornerstone of their enforcement strategy was publicity and raising public awareness of the outcomes of IRS criminal investigations. CI is also “very proud” of their conviction rates for tax fraud—92.2% so far in fiscal year 2018. “So if the IRS is knocking on your door for tax fraud, there is a good chance you’ll be convicted,” Hylton said.
With a conviction rate of 92.2% of federal tax criminal investigations and 2.9 perabytes of seized data, the IRS needs advanced data management says— Kimberly Underwood (@Kunderwood_SGNL) July 10, 2018
Eric Hylton, IRS deputy chief, Criminal Investigation, @IRSnews pic.twitter.com/5sjnMldecH
Additionally, other IRS leaders suggested that one way to succeed in the challenging environment was to have a clear picture of the bureau’s goals. The agency has developed a detailed strategic plan, according to George Contos, acting associate chief financial officer for Corporate Budget, and Jeffrey Wallbaum, senior advisor to Deputy Commissioner Wielobob. Contos urged the vendors interested in working with the IRS to take a look at that plan.
“In working with the IRS, the plan can help you understand the background of what we do and how its related to the big picture,” Contos said. The plan identifies the IRS’ six equal goals: empower taxpayers, protect the integrity of the tax system, collaborate with external partners, cultivate an engaged workforce, advance data access, usability and analytics, and drive agility and efficiency in operations.
Speaking to the goal of improved data analytics, Wallbaum suggested that building data science techniques as one of the core capabilities of the IRS would help the bureau make the best use of its resources. They have used some techniques so far, when identifying emerging issues that taxpayers are having and linking the issues across sectors. In addition, harnessing behavioral insights also could help, for example, in designing tests of collection notices to achieve the best taxpayer response, Wallbaum said.
The IRS is looking into what the cloud could offer, how to trasition to the cloud, what does that mean, and separating out hardware costs, says— Kimberly Underwood (@Kunderwood_SGNL) July 10, 2018
Jeffrey Wallbaum (r), senior advisor to the Deputy Commissioner for Services and Enforcement, @IRSnews FY18 Industry Conversation event pic.twitter.com/e72PCPkS65
On the procurement front, the bureau is continuing to improve its processes, said IRS Chief Procurement Officer Shanna Webbers and Deputy Chief Procurement Officer Harrison Smith. Over the last two years, the IRS procurement team has taken more steps to engage with industry, holding events and growing the dialogue with possible vendors.
The IRS procurement team is working hard to defeat the reputation, real or perceived, that incumbents have a hold on IRS contract awards. A key part of that is training and educating the procurement staff, Webbers said. “We are actively out there looking for opportunities for our staff, to engage the staff directly. It shows them that we are invested in them.” And it is not just formal training that is helping the IRS procurement team, Smith added. The bureau is also looking at certifications within the federal workforce that are required for IT efforts.
Webbers and Smith also are trying to show the value to the procurement staff of being involved early on in bureau-wide planning, so that they can learn, have a seat at the table with the program offices and see what the offices are considering for procurement, Webbers stated. “Instead of them doing the research independently and coming in and saying here is what I want you to buy, the procurement folks have become an integral part of that team,” she noted. “We can help influence the acquisition strategy going forward much earlier on in that process.”
In addition to speaking with the industry, the procurement staff is also engaging with fellow federal agencies to leverage lessons learned and to make sure that the IRS is not making the same mistakes already made, Smith shared.