IRS Official Talks ‘Digital Transformation’ Goals

For the IRS to effectively shift the taxpayer experience to a fully digital landscape, it must leverage teams across different functions to achieve smaller but more frequent victories, according to an IRS official.

IRS Commissioner Danny Werfel has “roughly a 10-year vision” for taxpayers to eventually be able to satisfy all their tax obligations and communicate with the IRS online if they so choose, said IRS Chief Transformation Officer David Padrino.

Speaking remotely June 5 at the 9th International Conference on Taxpayer Rights hosted by the Center for Taxpayer Rights at the University of Antwerp’s DigiTax Center in Belgium, Padrino said the commissioner’s vision is “the North Star” for the agency’s “digital transformation” efforts using the now roughly $60 billion in additional funding under the Inflation Reduction Act (PL 117-169).

As Padrino explained, the Transformation and Strategy Office was established in light of the funding to create a “central team” that helps coordinate modernization projects. He said data shows that without such a central entity designed to facilitate cross-departmental collaboration, “you have a much lower chance of success.”

Per the IRS’ Strategic Operating Plan on how the Inflation Reduction Act funds will be used — and the recent update on how those efforts are progressing — modernization entails creating electronic versions of tax and information returns, allowing taxpayers to respond to notices online, developing portals for certain tax credits, and consolidating tax account information in an accessible format.

Given the technological elements of making these goals possible and the unique function of the IRS as not only the federal government’s tax collector but also tax administrator, Padrino said the Office must partner with IT teams, business leaders, and other sources of outside support to bridge internal silos.

“We know that our organization is not set up around the taxpayer journey or experience, and so processes cut across and they have gaps and issues,” he said. “But when we focus on those outcomes and that journey, we’re better able to identify solutions that work.”

Padrino added that the success of the Direct File pilot this tax season has been used as a “recruiting tool” to attract talent to the agency’s open IT roles. Direct File, he said, showed that the IRS is capable of delivering a successful, taxpayer-facing product under a “high-priority” and public deadline.

“It was a can’t-fail project, and we were able to put a rope around it in many ways and make sure that it was successful,” said Padrino on the pilot’s launch.

However, Padrino cautioned that the Direct File pilot was a “special case” and that most transformation efforts will be approached differently “because you have to create structures that are actually repeatable, sustainable, and bring along the rest of the organization.”

According to Padrino, the IRS is “getting momentum” behind other projects by identifying leadership roles, product managers, and business sponsors. Consistent among these ongoing projects is the philosophy of “incremental delivery” as opposed to going long periods between rollouts. This is a departure from the traditional idea of picking an “end state and building everything towards it,” he said.

Rather, the IRS hopes to be more adaptive by “accelerating” after identifying an end state in recognition that it may change while still demonstrating results. The agency does not want to spend too much time developing “deep end state architecture,” said Padrino, “only to learn that the moment has passed us by.”