Ten steps to tax systems modernization

Read part one of this series

I recently re-read the April 2019 IRS Integrated Modernization Business Plan and then pored over the IRS Inflation Reduction Act Strategic Operating Plan FY2023-2031. I was reminded how comprehensive the prior plan was (and that the IRS employed two outside consultancies who validated the plan’s feasibility), and impressed by the thoughtfulness of the latter—especially given the short time the IRS had to assemble it.

At the center of the prior plan is taxpayer experience, with three pillars to support it: modernized operations, core taxpayer services enforcement and cybersecurity & data correction. A nice balance. The newly released SOP identifies five key objectives, which I won’t repeat in their entirety here. To summarize, the new objectives are:

1. Dramatically improve services
2. Quickly resolve taxpayer issues
3. Focus expanded enforcement
4. Deliver innovative technology, data and analytics
5. Attract, retain and empower a highly skilled, diversified workforce

I’ve also looked at some of the early commentary around the newer plan, and it appears I’m not the only one who thinks both plans are solid. They each capture iterations from plans published over the past three decades, even though they each take a different approach.

So why has it been so difficult over these recent decades to truly modernize the IRS?

Consistent and adequate funding has often been cited as the biggest single impediment. Administrations change and priorities change and so do funding priorities. That said, the Government Accounting Office and the Treasury Inspector General for Tax Administration (TIGTA) regularly identify executional challenges largely in this author’s opinion the result of age and scale of the systems needing modernization as well as attempts to keep pace with technology.

With the passage of the IRA and a commitment to 10 years of funding, the progress that the IRS has made over the last couple of decades can accelerate.

Here are my thoughts—eight questions and two final steps—to get tax system modernization accelerating forward finally, and, more importantly, to secure continuing Congressional commitment:

1. Why? Alignment on the need to modernize is critical to setting the vision. Is it because the taxpayers expect a different, easier-to-engage experience? Is it because modernizing will save money? Is it because the people who maintain these old systems are retiring? Is it because more modernized systems means more revenue. Is it all four? Of course it is. Our legislators will appropriate funding only when the reason is compelling and we can measure success. The most recent plan essentially addressed this, excepting the identification of measurable and explicit metrics – but I’m confident those are forthcoming. Let’s hope our legislators stay the course.
2. What? So what does a modernized federal tax system look like? This too is critical to convincing our legislators to fund and stand firm. They need to see a vision of the future that is achievable and addresses the needs to collect the proper amount of tax according to the law without burdening taxpayers. The vision also must be efficient to operate, affordable to maintain and safe and secure. What a mouthful. This painting of the future needs to be explicit. Abstract art isn’t going to sell in this case. The new plan identifies several initiatives, but adding a dozen or so use cases showing what that future experience would look like could improve it.
3. Where? I don’t mean where we will do the work, but where are we? We need to understand the current systems and experience landscape. Knowing where you want to go is of course critical. However, metaphorically, you also need to know where you are in order to map your course. Neither of the plans paint a clear picture of the present; rather, they interpolate the present from the future.
4. Who? Identify all the players affected and all the players needed to drive a successful multi-year program. This is much more challenging than it might appear. It’s not just taxpayers who have a stake in a simple, fast and accurate compliance experience; it’s also tax preparers who represent them, payroll service providers, state tax administrators, other government agencies, the financial services industry and the systems integration industry. Tax collection is an ecosystem with many players and many moving parts. Tax systems modernization is not just learning to play one instrument or one section very well; it is also conducting a symphony with all the instruments in the orchestra playing well and in alignment. While the earlier plan didn’t address this, the newer plan does begin to appreciate this challenge.
5. When? Will this be a big bang or an incremental effort? This too is quite the challenge. No one has the patience to wait for a large-scale cutover several years in the future. Incrementally improving with incremental success and benefits is the least risky road. However, that is something like trying to overhaul a jetliner while it’s in flight; you can’t take both engines out of service at the same time. (I do like the new plan’s identification of activity and milestone by year. As befits an agile approach, the milestones are more explicit in the earlier years, fuzzier in the out years.)
6. How? This is the solution to the conundrum raised in step 5. You have to lay out the roadmap of what you will do when, and in what order, while preserving the flexibility to course-correct. Adopting an Agile approach is not necessarily easy, but it does enable the incremental execution that provides value both early and later. What the new plan doesn’t fully contemplate is all the activity and collaboration of the ecosystem. Can the ecosystem keep pace?
7. How much? This a two part question. First is what will it cost, and second, what benefits will it bring? Interestingly, the IRS business case includes the opportunity to drive more revenue and reduce (or at least control) operating expenses. The more recent plan identifies a high-level socialization of need; however, there is more work to do here. Then again, could we rationally have expected a 10-year budget in so short a time?
8. How to govern? Oversight is a given, but oversight is not governance. It is a regular cadence of reporting to Treasury, and in turn, to Congress, to demonstrate progress and fiscal responsibility. Governance is a matter of putting structure and leadership in place inside the agency to help direct the management, planning, execution and coordination of work. I’d be remiss if I didn’t point back to Step 4. Governance includes constructs to coordinate parallel and supporting efforts of all the stakeholders in the ecosystem.
9. Execute. Said differently, this is go time.
10. Celebrate. Take time to celebrate and acknowledge success along the way. We overlook this step too often. Everyone in this crusade is human. A little acknowledgement and celebration along the way goes a long way, a very long way. And having had the great fortune to have served in the IRS, I know how hard it is to celebrate when just as one tax season ends, another begins.

Read part three of this series