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Streamlining Tax Administration: How the IRS is Leveraging Automation

January 16, 2023
Bianca Reusch

automation

The IRS uses automation in various ways to improve its operations and better serve taxpayers. The use of computer programs, specifically “tax return processing systems,” plays a crucial role in this process. These systems are designed to handle the vast number of tax returns received annually, automatically checking for inaccuracies and inconsistencies and highlighting the ones that require further examination streamlines not only the process but also guarantees a higher degree of accuracy in the processing of returns.

IRS Taxes automation picture by Leelo TheFirst

Another way the IRS uses automation is through the use of automated correspondence. The IRS sends out various forms of correspondence to taxpayers, such as notices and letters, throughout the year. By automating the process of generating and sending these letters, the IRS can reduce the burden on its customer service staff and ensure that taxpayers receive essential information on time.

Given the recent backlogs in return processing and errors on the behalf of the IRS, these automated letters have led to some confusion amongst taxpayers. Some taxpayers have received these automated letters in error thus leading towards longer phone hold times for taxpayers and tax professionals.

Additionally, the IRS uses automation to identify and prevent fraud. The IRS receives millions of tax returns each year, and a significant amount of those returns are fraudulent. By using an Automated system, IRS can analyze large amounts of data and identify patterns indicative of fraud, allowing the agency to flag suspicious returns for further investigation quickly.

The IRS also uses automation to improve the accuracy and efficiency of its operations. For example, the IRS uses automated data matching to compare information on tax returns to information from third-party sources, such as W-2 forms and 1099s, to identify discrepancies helping ensure that taxpayers report their income accurately and that the IRS can collect the taxes owed.

In this article, the author argues that the policy embedded in IRS systems is as important as written policy and should be subject to similar review. The report suggests that IRS decision systems should use artificial intelligence and include a continuous feedback mechanism. Additionally, it is proposed that the IRS document any new systems and changes made through artificial intelligence and disclose Non-Official Use Only (OUO) changes to provide transparency to taxpayers. The National Taxpayer Advocate offers several recommendations, such as expanding the Servicewide Policy, Directives and Electronic Research (SPDER) clearance process to include a review of IRS systems that include embedded policy decision tools and programs, requiring an artificial intelligence support system of continuous feedback in new IRS systems to continually assess and improve programming, planning and allocating funding for information technology hardware, software, and support of artificial intelligence and continuous feedback in new programs, and providing for the public disclosure of non-OUO embedded policy decision tools and programs for transparency.
source: https://www.irs.gov/pub/irs-utl/2010arcmsp5_policythruprogramming.pdf

IRS Taxes automation picture by Leelo TheFirst

In summary, the article highlights the ways in which the IRS is utilizing automation to enhance its operations and improve service to taxpayers, including the use of “tax return processing systems,” automated correspondence, fraud detection, and data matching, among others.

The IRS also recognizes that artificial intelligence and machine learning are powerful tools that can be used to improve decision-making. The mentioned article advocates that these systems should be subject to a similar review as written policy and that the IRS should document and disclose non-OUO changes to provide transparency to taxpayers. The National Taxpayer Advocate also offers recommendations for the IRS to continually assess and improve the programming, planning, and allocating of funding for information technology and artificial intelligence. Like the report suggests the agency should include a continuous feedback mechanism and provide for the public disclosure of non-OUO embedded policy decision tools and programs for transparency. There is still a long way to go in driving efficiency of use of it’s automation technologies but the IRS is taking this process seriously and incremental improvements to these systems are currently ongoing.

“Non-OUO” stands for “Non-Official Use Only.” It refers to information or data that is not considered confidential or sensitive and can be shared with the public. This type of information does not require any special restrictions or clearance for its release and can be disclosed without any legal or regulatory concerns. In the context of the IRS, non-OUO information would refer to information about its decision-making systems, processes and programs, which are not considered sensitive and can be shared with the public to provide transparency and ensure accountability.

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