The IRS has released a request for information from contractors about how they can help the agency use big data to address noncompliance.
In a July 6 draft performance work statement, the IRS Office of Research, Applied Analytics, and Statistics (RAAS) said it is looking for a contractor to help with its use of data analytics and other technology.
The office said it “envisions a combination of services including examining past activities, assessing current functional needs, and making assessments and recommendations based on scientific research and analysis to support future business performance metrics.”
The document says, “Contractor services will include well-conceived executive dashboards, user-friendly dynamic workflows, and forward-looking predictive analytics.”
Travis W. Thompson of Sideman & Bancroft LLP told Tax Notes that few personnel are working in RAAS. “What they’re looking for is to expand it dramatically” because of the added funding from the Inflation Reduction Act (P.L. 117-169), according to Thompson.
Thompson said the request for information indicates that the IRS acknowledges that it lacks the staffing or knowledge to bring artificial intelligence and other technology to scale, but that it sees the value in its use for compliance and enforcement efforts.
“If you don’t want to hire people in-house because you’re having an issue with paying them the same amount of money that they would make . . . in Silicon Valley, then you have to issue these performance work statements because you still need to build out your systems, you still need to grow, and you still need to use this technology because that’s where the world is going,” Thompson said.
David Kautter of RSM US LLP said that since the IRS still has more than $55 billion to spend under the Inflation Reduction Act, it is seeking outside help on several fronts.
Kautter, a former acting IRS commissioner and a member of Tax Analysts’ board of directors, said that for decades, the IRS has used outside contractors to supplement its workforce.
“This to me is the IRS saying, ‘We want to better protect data and analyze the data effectively and figure out where to put our resources,’” Kautter said.
Kautter says he reads the request as an effort to hire a large contractor to help RAAS carry out its responsibilities. “IRS has worked extensively over the years with Deloitte and Mitre, for example, and my guess is that is the type of organization they are looking for to respond to this,” he said.
The document lists several projects RAAS would want the contractor to support. One of those would support the Large Business and International Division in efforts to accurately select returns for audit, which the IRS says could help reduce the no-change rate.
Caitlin R. Tharp of Steptoe & Johnson LLP said she views the request for information as the IRS “acknowledging that they don’t have as many resources for audit and for compliance, both with selecting which taxpayers to audit and then following through on identifying issues.”
Tharp said the IRS is “clearly trying to solve that shortfall by looking into data analytics” to figure out which returns should be selected for audit and to identify emerging issues while conserving its scarce human resources.
The performance work statement also says that “supervised and unsupervised algorithms have various applications across the IRS” — including in LB&I, the Small Business/Self-Employed Division, and the Criminal Investigation division — and that “recommendation systems are well-suited to problems such as case selection, issue identification, and issue sensing.”
Tharp said the IRS has been using data analytics, but that it’s difficult to get information about how it’s using them.
“This is an acknowledgment that they’re already using recommendation system algorithms, and that they want to try and expand on that to try to get more data,” Tharp said.
The IRS declined to provide any additional information.