Lawmakers and tax experts today emphasized the compelling need to upgrade outdated IT systems at the IRS and leverage emerging technologies like AI to enhance the taxpayer experience.
At the same time, many Democratic members on the House Ways and Means Oversight Subcommittee voiced near-term worries about the Department of Government Efficiency’s (DOGE) access to taxpayer data.
Debate at the Tuesday subcommittee hearing centered on the IRS’s modernization efforts, and witnesses shared potential solutions to upgrade the agency’s tech systems.
“Modernization isn’t a choice, it’s an economic necessity,” said Minesh Ladwa, a global solution manager for tax and revenue management at SAP. “The opportunity in front of us is to turn the IRS into the intelligent, AI-driven tax agency that provides unified taxpayer views internally and externally, uses AI and automation to enhance compliance, and delivers seamless digital taxpayer services.”
“By adopting proven, commercially available solutions, the opportunity is now for the IRS to modernize at scale,” Ladwa said, adding, that the agency can become “the global benchmark for technology-first tax administration.”
Ladwa is a United Kingdom-based expert with two decades of experience leading technology-driven transformations for global tax agencies. He explained that governments across Europe and Asia are leveraging commercially available, scalable IT solutions to increase efficiency – not building IT systems from scratch.
He offered similar advice to the United States, suggesting that the IRS transform “into a technology-first agency, moving beyond fragmented, custom-built IT solutions.”
Additionally, Ladwa recommended “leveraging AI automation and digital services to reduce administrative burdens whilst improving compliance.”
When asked by Chairman David Schweikert, R-Ariz., how difficult it would be to build an AI voicebot to help handle the IRS’s telephone assistance lines, Ladwa said, “I don’t think it’s that difficult.”
In fact, the IRS has already begun deploying such technology. During the 2024 filing season, the IRS said its new voicebot technology helped about two million taxpayers who called the IRS’s toll-free 1040 line get answers to their questions.
Nina Olson, the executive director at the Center for Taxpayer Rights, told the subcommittee that these type of technology upgrades were made possible by the 2022 Inflation Reduction Act (IRA). Congress provided the IRS with about $79 billion in additional funding over a 10-year period in the IRA to help with modernization efforts.
However, Congress rescinded $20 billion of that funding in 2023, and it recently repealed another $20 billion when it approved the latest continuing resolution funding bill in December.
“Through 2024, using IRA funding, there has been significant improvements to taxpayer service on the phones and online account to the fairness of the tax system by focusing on areas of complex non-compliance and to efficiency and effectiveness through digitalization,” Olsen said.
While Democrats and Republicans disagreed on the effectiveness of the IRA funding and whether more funding is needed, they did agree that more IT modernization is needed at the IRS.
“The IRS’s need for information technology modernization is critical,” said Rep. Nicole Malliotakis, R-N.Y. “With the potential to reallocate IRA funds from enforcement to IT improvements, it’s a key priority of the newly established Department of Government Efficiency.”
Democrats Voice DOGE Concerns
DOGE also took center stage at the hearing, where Democratic members expressed concerns that billionaire Elon Musk and his team have access to taxpayer data through the Treasury Department’s payment systems.
“DOGE’s takeover of the Federal payment system is an egregious invasion of the privacy of every American, especially every American taxpayer,” Ranking Member Terri Sewell, D-Ala., said.
“Federal tax law specifically ensures that Americans tax return information is confidential. As you know, unauthorized disclosure of this information is a felony,” she added. “Elon Musk and DOGE should not be rummaging around in the confidential information of private taxpayers and private citizens.”
Olsen explained that the American people don’t know if what the DOGE is doing is “actually pursuant to some legally authorized exception or it’s not.”
“We have to have greater transparency on this, and I think the question marks are creating uncertainty and concern among taxpayers about how their information is being used and who’s getting it,” Olsen said, adding, “That will erode trust in the tax system.”
Rep. Steven Horsford, D-Nev., added that this is “the largest data breach in U.S. history.”
“This should be the priority of this committee and every other committee until it’s resolved. It is not authorized. It’s illegal. Elon Musk and his hackers have caused the largest data breach in U.S. history, and they need to be held accountable now,” Rep. Horsford said.
A Federal judge in New York has temporarily blocked DOGE’s access to the Treasury Department systems, with a hearing set for Friday to further argue the order.
