“Frankly, there aren’t enough places for agencies to go across government when they have technical questions or need technical help, so we get a huge array of requests,” USDS Administrator Mina Hsiang said in an interview with FedScoop.  

Those requests, many of which are detailed in the 2024 impact report USDS released Thursday, can’t all be addressed. Hsiang said USDS works to fulfill “over a quarter” of the agency requests for partnership, with consultation but not full engagement provided on approximately 10% of those asks. 

“We do a lot of work to contemplate the size of the population impacted, the vulnerability of the population impacted, the change it will have on the service and how critical the service is for people’s livelihood,” she said.

In its report, USDS outlined progress on 10 different projects across agencies, covering topics including digital service accessibility, building veteran trust, federal benefits for families and more. 

A closer look at USDS projects

In its partnership with the Social Security Administration, USDS worked with the agency to “observe customers” and learn how the public engaged with SSA’s website. According to the report, the project would save an estimated $285 million over five years for infrastructure expenses. 

The partnership with SSA has “created momentum to improve service delivery” through transforming the agency’s static homepage, the report noted, replacing “complicated” policy language with a conversational eligibility screener and building development infrastructure that involves a content management system and more.

The USDS is currently working with the Department of Veterans Affairs’ Office of the Chief Technology Officer to develop software intended to improve the lives of veterans. In teaming with the agency on VA.gov, USDS aimed to build veterans’ trust in the VA. Per the report, veterans’ trust in the VA climbed from 70.4% in FY18 — the year of VA.gov’s relaunch — to 79.3% in FY23.

“The Veteran Experience Office does a very comprehensive work of engaging veterans and building an array of metrics together,” Hsiang said.

The impact report also touted USDS’s partnership with the Department of Health and Human Services to help modernize and implement services that support an interagency Life Experience Research Team, aiming for “simpler, more accessible and equitable” digital experiences. Specifically, the organization conducted research with a nationwide group of participants, documenting their experiences throughout pregnancy and childbirth along with any relevant interactions with the federal government. 

Working with an HHS Life Experience Research Team that included  representatives from the General Services Administration, the Department of Labor, the Department of Housing and Urban Development and others, USDS piloted three digital programs to support families, including a text message service called Notify.gov that allows government partners to send texts about benefits and support programs to the public.

“This is one of those places where we can partner very closely with an agency that’s building out a shared capability for more folks and give them direct feedback,” Hsiang said. “The team had a very good experience with it.”

Though not listed in the impact report, the USDS also worked “extremely closely” with the IRS on the implementation of its Direct File pilot program. Hsiang said the partnership was not included in the report due to a timing issue, but noted that USDS assisted in technical expertise, user research, product management and more. Direct File was utilized by over 140,000 taxpayers in its inaugural run, according to the IRS. 

“This pilot is only with 12 states, but obviously there’s real opportunities for growth there because building out that capability so that folks in every state can have this option will be important,” Hsiang said. “The tax code is huge and incredibly complex, so there were almost 20 million people who were eligible for this pilot, but it will be important to expand that capability to encompass more individuals.”

A busy year followed by more to come from USDS

For Hsiang, who has led USDS since September 2021, the release of the impact report represents what she views as “a year of launching things.”

“There’s a lot of programs here that are a demonstration of incredible value in themselves, but also a proof of concept of a new model working,” Hsiang said. 

USDS is investing in hiring both internally and with agency partnerships, Hsiang said, in an effort to capitalize on momentum to build long-term capacity within agencies. She confirmed that the USDS is working to support agencies in hiring more talent, including as part of efforts called out in the White House’s artificial intelligence executive order.

“I think there’s a lot of interest, but the talent moves quickly, gets hired quickly, looks for competitive salaries and opportunities,” Hsiang said. “That will definitely be a challenge, but one we’re excited to take on.”

Hsiang said her hope for this report is a “clear illustration” of what government talent is able to accomplish, and stressed the importance of USDS’s investment in technology-centered work.

“I think the report starts to give a real detailed window into the range of different types of work that we do and the short- and long-term impacts that it can have,” Hsiang said. “One of the things that we hear across government regularly is that technology ends up slowing people down instead of speeding them up, if it’s not implemented right. That is not what anyone intends and that’s not what we’re investing for.”

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The IRS said that the pilot — which allowed for taxpayers in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming to electronically file their federal returns in 2024 directly with the agency at no cost — “started out small” and picked up “steadily increasing interest” from filers in those 12 states. 

“From the very beginning of the Direct File pilot, we wanted to test new ways to give taxpayers an easy, accurate and free way to file their taxes online directly with the IRS,” Commissioner Danny Werfel said in a statement. “We saw a strong response from the pilot, and Direct File’s users generally found it fast and easy to use. This is an important part of our effort to meet taxpayers where they are, give them options to interact with the IRS in ways that work for them and help them meet their tax obligations as easily and quickly as possible.”

Werfel added that the agency will now review results from the pilot, take in feedback and make a decision on Direct File, with the expectation of “an announcement about future plans later this spring.”

“We will consult a wide variety of stakeholders to understand how lessons from Direct File can help us improve the entire tax system as well as assess next steps,” Werfel said.

The IRS said usage of Direct File surpassed expectations and “far exceeded what was necessary to provide sufficient data for the agency to evaluate.” The pilot program ran as the agency embarked on broader IT and customer service modernization initiatives fueled in part by billions in Inflation Reduction Act funds. 

The IRS’s decision to develop a free tax filing tool represents a major challenge to the highly lucrative tax preparation industry. The development of a free tax filing tool — something most taxpayers have access to in developed countries — could eat into the revenues of firms like H&R Block and Intuit, the maker of TurboTax.

In a statement Friday, an Intuit spokesperson questioned some of the statistics cited by the IRS in its Direct File statement. 

“IRS claims of $90 million in refunds to Direct File filers acknowledges that those that filed their taxes with Direct File potentially received average refunds of around $640 which is thousands of dollars lower than the IRS’s own data showing the nation’s average refund is around $3,000,” Intuit spokesperson Rick Heineman said. “This means filers using Direct File not only paid for an already free service with their tax dollars but on average also got a substantially smaller refund.”

The IRS said in its press release that the total amount spent by the agency on Direct File was $24.6 million, a figure that Heineman said was “clearly low, inaccurate, and the IRS even acknowledges conveniently leaving out necessary costs to build and run the pilot.”

A Government Accountability Office report issued earlier this month found that the IRS’s budget estimates for Direct File didn’t include start-up costs for the technology behind the system. The congressional watchdog said the IRS would need “a comprehensive accounting” of Direct File’s costs if the agency decided to extend the program beyond 2024.

This story was updated April 26, 2024, with comments from an Intuit spokesperson.

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The Government Accountability Office said pricing estimates for Direct File — the electronic filing program made available this tax season for payers in 12 states — didn’t include start-up costs, including for the technology underpinning the system.

“A review by the Treasury Inspector General for Tax Administration found that IRS had no documentation to support the underlying data, analysis, or assumptions used for Direct File cost estimates. We found this as well. A best practice for economic analysis is a transparent methodology, including analytical choices and assumptions,” the GAO wrote, adding that start-up tech costs for “a novel system” of this kind “could be substantial.”

The tax agency, which received tens of billions of dollars from the Inflation Reduction Act to improve the taxpayer experience, budgeted $114 million for Direct File for fiscal 2024. Those funds, which came from appropriations accounts, included $50 million for business systems modernization, $38 million for taxpayer services and $26 million for operations support.

While acknowledging “several uncertainties in the estimates” for the Direct File pilot, the IRS projected an annual price tag to run the program of between $64 million and $249 million, with approximately $21 million in tax preparation cost savings for filers.

The GAO said that a May 2023 report from the IRS to Congress “did not fully align with best practices for cost estimation.” The agency now risks missing several “time-sensitive opportunities” for estimates connected to Direct File, including in cost categories such as customer service, the integration of state returns, supporting additional tax situations and extra labor.

Estimates for technology costs appear to be an especially unwieldy target. In its report to Congress, the IRS said that Direct File would require “frequent updates” given changes to tax law. The underlying technology may also need updating based on customer feedback, the report noted.

In a letter to the GAO’s director of tax policy and administration, IRS Commissioner Danny Werfel said the agency’s cost estimate shortcomings were due in part to “the lack of a baseline or comparable data available.” Information collected during the pilot, Werfel added, “will allow us to develop an accurate baseline for this novel government service.”

Werfel left the door open in his letter for Direct File to be a one-and-done program. Agency officials told the GAO in February that senior IRS leaders “had not decided on the future of the pilot beyond the 2024 tax filing season,” pointing to mitigating factors such as a “lengthy” hiring process to properly staff the program, especially if “new capabilities are to be added.”

Assuming the IRS does move forward with Direct File for the 2024 tax year, the GAO offered three recommendations to the commissioner regarding how the agency can ensure best practices on cost estimates, proper documentation on the program’s benefits and the leveraging of data to inform future decisions about the system. 

“Without collecting the information needed during the 2024 pilot to inform a comprehensive assessment of the costs associated with Direct File and its benefits, IRS risks making longer-term decisions without full information,” the GAO wrote. “Taken together, these steps should help support data-driven evaluation by IRS leadership and members of Congress.” 

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Fortunately, advances in process automation and AI are giving government agencies new capabilities to identify system bottlenecks and streamline business and operations processes in ways that can improve business and mission outcomes in a fraction of the time and cost of traditional IT modernization projects.

Today’s business process mining and automation tools allow “executives to shift their dependence on outsourced knowledge to in-house control for continuous problem-solving,” according to Todd Schroeder, formerly a U.S. Department of Agriculture IT systems chief who is now vice president for public sector at UiPath. “That translates into a radically different time-to-value modernization quotient — and a radically lower cost structure,” he says in the report produced by Scoop News Group and underwritten by UiPath.

The report “How Automation and AI are Changing the Traditional Approach to Government IT Modernization” highlights how robotic process automation has evolved from a tool to streamline redundant tasks such as financial accounting work to what has increasingly become an enterprise-wide effort to improve mission outcomes.

One example cited in the report is the work underway at the USDA’s Intelligent Automation Center of Excellence office. The office is automating routine processes across the department and fostering a rising generation of “citizen developers” to automate work processes in individuals’ respective jobs.

The report also highlights how automation work that began in the Navy’s Financial Management and Comptroller’s Office is now expanding to improve operations in other Naval support offices and between different departments in government.

Schroeder says agency leaders are on the verge of realizing even greater capabilities with UiPath’s push into AI. UiPath’s AI Trust Layer platform, he says, provides customers with a new level of “auditability, traceability, observability, and replicability” when applying AI to business processes.

“This is the moment,” says Schroeder, “when agency leaders not only have the means to rethink how they modernize but reimagine how federal workers can accomplish their work in new and more effective ways. And that’s critical if the government is to catch up and meet the needs of society’s requirements.”

Download and read the full report.  

This article was produced by Scoop News Group for FedScoop and sponsored by UiPath.

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Previous projections for how IRA funding would impact the IRS’s revenue only took into account revenues that were directly connected to increased enforcement staffing. The new analysis added modernization investments — as well as information reporting for digital assets, enhanced services to boost voluntary compliance, advances in analytics to improve productivity and other activities — to the equation.

With the “diversified revenue strategies” assessed in the analysis, Treasury projects the IRS to take in $851 billion from fiscal year 2024 to fiscal year 2034. Accounting for IT modernization, the report noted, reveals “a wide array of potential revenue benefits.” 

“Expanded data intake capacity and productivity will help increase compliance; improved audit selection and collection planning can increase the productivity of enforcement activities,” the report stated. “IT investments can also increase the productivity of auditors by providing them with better access to data during the audit process and allow for quicker and more efficient communication between auditors and taxpayers. 

“IT and customer experience investments can also facilitate voluntary compliance by making it easier for taxpayers to communicate with us, enabling taxpayers to complete more tasks online, reducing the demand for direct contact with customer service representatives and allowing us to process returns more quickly and efficiently,” it said.

The analysis noted specifically how investments in IT infrastructure will better position the IRS to handle IT-related outages. During the 2018 tax season, for example, a massive outage took the system offline for 11 hours, leading to processing delays for millions of returns. 

The Treasury highlighted California’s Enterprise Data to Revenue initiative as a case study in how the IRS’s modernization funding infusion could play out. The Golden State saw an approximate 1% increase in collections during the initial phase of its project, which a senior state official attributed mostly to “technical and process improvements that allowed for increased taxpayer self-service.”

If the 1% efficiency increase held for the IRS, the agency would be looking at an extra $43 billion annually, the report said.

While the potential is there for a significant revenue boon for the IRS, the analysis notes that the agency must be prepared for the downside to “the integration of technology in administration.”

“While it significantly enhances government capability to reduce tax evasion through enriched data access, it concurrently presents sophisticated taxpayers, particularly those with high incomes, with novel opportunities to evade taxes,” the report said. “Therefore, as we modernize our IT infrastructure, we must also devise strategies to close these new loopholes, ensuring that the digital transformation leads to a more equitable tax system.”

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In guidance shared with Scoop News Group that was issued Monday, the IRS’s Office of Safeguards noted that these changes would match agency protocols with the best practices detailed in NIST SP 800-63B, a document titled “Digital Identity Guidelines: Authentication and Lifecycle Management.”

The Office of Safeguards noted that these password changes were “different from traditional guidance.”

“Most notably: complexity requirements do not apply, and passwords should not be changed periodically,” the IRS guidance stated. “Additionally, the guidelines for maintaining a list that contains values such as passwords commonly-used, expected, or compromised has changed.”

According to the office of Sen. Ron Wyden, the Oregon Democrat prodded the agency to implement these changes following a tip from his state’s Department of Human Services. Oregon DHS told Wyden staffers on Jan. 8 that the federal cybersecurity rules that the IRS had been following were hindering the agency’s updates to its Supplemental Nutrition Assistance Program website, making it tougher for state residents to apply for the benefits.

Wyden’s office said that it reached out to the IRS later that day and urged the agency to update its password protocols.  

“Every American deserves government services that are accessible, simple, and secure,” Wyden said in a statement to Scoop News Group. “I’m glad that the IRS fixed its outdated password policies to align with federal cybersecurity standards, following discussions with my office. I remain committed to pushing all agencies to adopt modern cybersecurity best practices to make Americans’ data more secure, improve their experience with government websites, and uphold their dignity.”

The Office of Safeguards noted in its guidance that these “mitigating requirements do not eliminate risk associated with non-compliance, [and] findings may still be issued if these mitigations are in place.” The agency also signaled to staff that additional changes can be expected in the future.

“Ultimately, agencies should move towards a Zero Trust Architecture (ZTA),” the guidance stated. “As such, agencies should plan and begin to implement multifactor authentication (MFA), ideally, phishing resistant, for all system components at the application layer, not just at the network layer or for initial network access. This may be facilitated through the implementation of single sign on (SSO) technology.”

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The Barcode Automation for Revenue Collection to Organize Disbursement and Enhance (BARCODE) Efficiency Act, introduced Thursday by Sens. Tom Carper, D-Del., and Todd Young, R-Ind., would require paper returns that are prepared electronically to include a scannable 2D barcode that the tax agency could easily convert to digital form, simplifying the processing of returns.  

The bill calls for the use of allocated Inflation Reduction Act funding to implement the technology. The $80 billion infusion from the 2021 law has so far been used on everything from the IRS’s electronic Direct File pilot program to leveraging artificial intelligence to better identify tax avoiders. 

“The main thing here is that this legislation will help the IRS conserve their resources, minimize processing errors and reduce delays in refunds to taxpayers,” a spokesperson for Carper told FedScoop. “And that’s really the core of what Sen. Carper cares about.”

Leading up to the launch of the IRS’s free electronic filing pilot program, which is available this year to select taxpayers in 13 states, Carper urged the agency to make the process more equitable and accessible, including in letters that he and Sen. Elizabeth Warren, D-Mass., sent to Commissioner Danny Werfel.

“As government officials, we have a responsibility to be good stewards of taxpayer dollars. That includes ensuring that tax returns are processed accurately and in a timely manner,” Carper said in a statement. By implementing “commonsense technology” called for in the bill, the IRS will be more efficient and ultimately “make a big difference for millions of American taxpayers,” he added. 

The Government Accountability Office and the National Taxpayer Advocate have previously made calls to reduce paper returns and improve the processing of such returns. The 2D barcode method, which would eliminate the agency’s current manual transcription process, has been used by several state tax agencies, some for 20-plus years. 

While more than 4 in 5 tax returns are now filed electronically, those who still choose the paper route represent a substantial cost and efficiency problem for the agency. The IRS’s Taxpayer Advocate Service in 2022 estimated that 50%-60% of the individual income tax returns submitted on paper and processed in 2021 and 2022 were prepared with tax return software and would not have required manual transcription if the 2D barcodes had been included.

Young, who has previously prodded the IRS on privacy and transparency issues from his time on the Senate Finance and Banking Committee, said in a statement that the bill will go a long way toward reducing the time it takes for the tax agency to process individual returns.

“Millions of Americans are forced to wait months — and sometimes years — for the IRS to process their tax returns,” Young said. “Our bipartisan bill will better serve taxpayers by improving the processing of paper returns, reducing errors, and requiring the IRS to operate more efficiently.”

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OMB’s “No TikTok on Government Devices” guidance was issued last February, but the Treasury Inspector General for Tax Administration’s review revealed that the tax agency’s CI division hadn’t cut off workers’ access to the app as of August, nor had it sought an exemption from the rule from the Treasury Department. 

Criminal Investigation officials told TIGTA that they did not plan to pursue a law enforcement exception for the 900 employees who could access TikTok via agency computers because the app could only be used “via a third-party software, which does not directly connect IRS devices to TikTok.” 

With regard to the 2,800 mobile devices within CI that are in violation of the OMB guidance, IRS management recommended that the unit move its phones over to device management software that the rest of the agency uses. That software, the report noted, does have the ability to block access to TikTok.

The IRS said it disagreed with TIGTA’s recommendation that the CI chief should coordinate with the agency’s chief information officer to ensure that TikTok access is cut off, saying that it “instead is establishing an internal process to adjudicate limited exceptions” and requests will be considered by IRS Commissioner Danny Werfel “or his designee.”

Aside from the access issues highlighted in the CI division, TIGTA found that the IRS was largely compliant with the TikTok ban, and in the cases where it wasn’t, corrective action was taken.

For example, TikTok was accessible on 23 mobile devices that were used by the agency’s Communications and Liaison group to monitor social media, but when informed of the oversight by TIGTA, the agency moved the devices over to the existing software, in the process cutting off access to the app.

The IRS also agreed to update its “Bring Your Own Device” policy — which allows agency employees to use personal devices for business purposes — to align with OMB guidance by October 2024. Prior to the TIGTA report, the agency’s guidance did not connect the TikTok ban to participants in that program.

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The agency will now have one deputy commissioner instead of two, and four chiefs, who will be charged with managing taxpayer service, tax compliance, information technology and operations. Rajiv Uppal is set to join the agency next year as its chief information officer and will oversee the IRS IT unit, which is currently helmed by Kaschit Pandya.

“Our work in the technology arena is critical to our current work on everything from filing season to our phone lines and our online tools,” IRS Commissioner Danny Werfel said in a statement. “And we must continue to make foundational improvements in this area to ensure the success of our transformation work and bringing new tools to help taxpayers. 

“Creating this position will be critical to making sure information technology works closely with our business units and our transformation teams to create successes for taxpayers and the tax system, now and in the future,” he said.

Doug O’Donnell, who currently serves as the IRS’s deputy commissioner for services and enforcement, will transition to the new overarching deputy commissioner role for the agency. He served as acting commissioner from November 2022 through March 2023 and has been with the agency for more than 37 years.

In addition to Uppal, the three other chief roles will be filled by Ken Corbin (taxpayer service), Heather Maloy (taxpayer compliance) and Melanie Krause (chief operating officer).

“This new governance model better supports the agency’s mission as well as giving heightened importance to these four key areas of taxpayer service, tax compliance, IT and operations,” Werfel said. “These are critical areas we need to focus on, and this structure will reflect those priorities.”

In comments last week at the ACT-IAC/DCI CX Summit in Arlington, Va., Werfel said the agency is making progress on its digitization push, a move largely made possible by IRA funds that will “benefit taxpayers of the nation, not do something that anyone should be concerned about.”

The IRS’s move toward a paperless future includes a pilot program next year that will allow eligible taxpayers in 13 states to file their returns using a free online system. The agency is also currently seeking information to scale up its robotic processing automation program.

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The RPA program, which sits within the IRS’s IT branch, is in project-planning mode and will be in need of software engineers, architects, business analysts and technical document specialists tasked with supporting the agency’s Center of Excellence/Program Management Office, Software Development and Technical Platform Support teams, per a request for information published last week.

Federal agencies have increasingly looked to RPA “bots” to offload basic but cumbersome processes to free humans up to focus on higher-quality work.

The automations, which require basic knowledge of IRS and accounting protocols, run the gamut in terms of complexity and frequently call for coordination between multiple external systems. RPA’s increased use of optical/intelligent character recognition is intended to chip away at the IRS’s stockpile of paper forms and also lessen the need for human processing and data entry of the forms into agency systems.

The RFI notes that vendors should have significant experience with robotic processing automation, but since the RPA program falls under the IRS’s general IT umbrella, staffers cover non-RPA areas such as responsibilities tied to the Federal Information Security Management Act of 2002, authority to operate, application program interfaces, data input and scraping with mainframes, the automation of daily tasks and the digitization of paper forms.

The RFI comes amid the IRS’s multi-pronged modernization push, fueled by $80 billion in fresh funding via President Joe Biden’s Inflation Reduction Act of 2022. The agency has embarked on a hiring spree to support its efforts, which include improved online customer services, leveraging AI to identify prime audit targets and launching its electronic Direct File pilot program in 13 states this tax season.

Responses for the RFI will be accepted until Jan. 2, 2024.

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