IRS Commissioner Danny Werfel details his hefty tech to-do list

IRS Commissioner Danny Werfel testifies at a May 7, 2024 budget hearing on Capitol Hill. In an interview with Nextgov/FCW, Werfel detailed plans to modernize tech at the tax agency.

IRS Commissioner Danny Werfel testifies at a May 7, 2024 budget hearing on Capitol Hill. In an interview with Nextgov/FCW, Werfel detailed plans to modernize tech at the tax agency. Kevin Dietsch/Getty Images

Enabling taxpayers to fully interact with the IRS digitally is a “generational imperative,” the agency head said.

People and tech are the to-do items taking up the most of IRS Commissioner Danny Werfel’s bandwidth as he zeroes in on the organizational health of the United States’ tax agency.

He recently sat down with Nextgov/FCW in his office to talk through technology and how the agency intends to actualize a vision for taxpayer service “where any taxpayer can do any transaction with the IRS digitally if they choose.”

“It’s a generational imperative,” he said. “We need to meet that imperative. Otherwise, we’re not meeting our mission to help taxpayers with their tax obligations effectively if we are stuck in a previous decade or a previous century from where taxpayers are in terms of how they get stuff done.”

The conversation happened as the IRS is still spending an influx of tens of billions from Congress in 2022 under the Inflation Reduction Act — initially $80 billion, although that was later cut to $60 billion — and asking lawmakers for more money. 

Many of the agency’s goals for that funding rely on technology, as the IRS looks to connect data across the agency, use artificial intelligence and advanced tech for its enforcement of wealthy individuals and large organizations and address racial bias in its audit selections.

Addressing “underlying dependences”

Among Werfel’s biggest priorities to get to his vision of an online IRS are adding functionality to and improving online accounts so that taxpayers can use them to get things done, he said. 

Upcoming to-do items listed in the recent update to the IRS’ Strategic Operating Plan include allowing individuals to view copies of most IRS notices on their online account, offering status updates on things like refunds, expanding two-way messaging and letting people view the prior year’s tax return forms.

“Then the question becomes, what are the underlying dependences?” Werfel said. “In order to achieve those outcomes, we have to go down the various layers of data and technology and figure out what changes we need to make.”

“We have a lot of old technology and old language and non-standard data that gets in the way of that vision,” he noted.

Among the oldest pieces of tech is the 1960s-era Individual Master File, the agency’s authoritative data source for individual tax filers. The IRS is testing a new system now.

The agency’s Enterprise Data Platform will also represent “a single source of truth” as the Grand Central Station of IRS data, Werfel said. 

That’s historically been a tough issue for an agency where a customer service representative might need to log into multiple systems with different information to get a single answer for a taxpayer, said Jessica Lucas-Judy, a director at the Government Accountability Office who works on tax policy and administration.

“If a customer service agent wants to look at one part of somebody’s record, it's in one kind of system. If they want to look at … another form, it's in this other system, and then they have to get access yet another system to see some scanned version of the return itself,” she said. 

Securing agency data and improving cybersecurity are also priorities.

“We have — almost since the first day I got here — been updating a significant number of new security procedures, controls, tracing so that we have a much more sophisticated understanding of when and how information is moving and sirens going off if information is moving in a way it shouldn't” to counteract an “underinvestment in other parts of data security… including whether there are inadvertent disclosures of taxpayer information or intentional actors seeking to disclose taxpayer information,” said Werfel.

Deploying best practices

For all of these efforts, the IRS is looking to “normalize” around best practices, said Werfel, pointing to the agency’s recently-wrapped Direct File pilot — which gave certain taxpayers a way to file their return online with the IRS directly for free — as an example of a focus on agile development, user analytics and good governance over the product. 

“We learned a lot from going through Direct File that we can learn and deploy those best practices and how we deployed that technology to other parts of the IRS technology journey that we're on,” he said.

Among the lessons learned is not tying too many dependencies to the project, he said. 

“That's about having a really good diet and exercise around requirements and not trying to go too big too quickly,” said Werfel. “If you try to take on too many requirements, you create more risk.”

Werfel also said that the IRS has reshuffled where its tech head sits in the org chart, as a reflection of the importance of technology for the organization.

The chief information officer at the agency was moved “to have a more direct line of reporting to me,” said Werfel, and the position now sits among three other chiefs for operation, tax compliance and tax services at the same level. The CIO previously reported to the COO, not the IRS commissioner. 

Stabilizing funding

Werfel has also been on Capitol Hill with lawmakers to discuss the agency’s recent budget request for fiscal 2025, which warns of upcoming cliffs for tech and taxpayer service money from the IRA.

The IRS wants Congress to sustain IRA funding through 2034 for a total of $104 billion in mandatory funding over a 10-year window.

Most of that money wouldn’t be spent until the 2030’s, said Werfel, to sustain operations and adapt to a growing tax system. 

IRA funding from the IRS’ Business Systems Modernization and Operations Support accounts have been going to digitization work, efforts to improve online IRS accounts and more.

The IRS estimates that the BSM account is about $3 billion short through FY 2031, according to the strategic operating plan update, without additional funding. Lawmakers zeroed out that account in 2023 and 2024 appropriations.

So far, the tax agency has spent a total of $3.35 billion on tech from IRA funding, according to the IRS, which estimates that IRA funding for BSM will be spent by 2026, “at which point automation solutions will be scaled back, leaving taxpayers without the ability to have up-to-date account information when they want it; cyber and cloud work will be truncated, increasing the risk for failure of IRS systems and cyber-attacks; and work on digital solutions… will be stopped.”