Leveraging AI to unleash the future of Tax Agencies

AI can revolutionize tax administration for a more efficient, personalized, and ethical future?

by Paul Dommel , IBM Consulting Partner, Federal Tax and Finance?

Artificial Intelligence is the biggest technology trend today. It’s already whipped up a storm of news coverage, transformed enterprises, and accelerated regulatory changes.??

Although AI tools are already being used by almost half (42%) of businesses , governments have been slower in implementing AI and generative AI capabilities. In big part, the public sector lags behind the commercial sector when it comes to innovation due to financials, but also because of the greater responsibility of governments to ensure ethical, trusted implementation and transparency in the use of new technologies.?????

As public funds for innovation are made available, interest and action in furthering the use of automation and exploring with generative AI is piquing. An interest we’re increasingly seeing manifest in Tax Agencies as modernization becomes a greater priority.??

In January, the IBM Center for The Business of Government , in collaboration with the American University Kogod School of Business Tax Policy Center released a report exploring AI and taxes in the modern age, drawing on insights from academics and Tax Agencies from around the world to understand how agencies like the U.S. Internal Revenue Service (IRS) can harness the technology to improve efficiencies, and, most importantly, create a better experience for tax payers.??

I was fortunate enough to spend some time with American University’s Caroline Bruckner and my colleague Daniel Chenok, to discuss how we can leverage AI to unleash the future of tax agencies in some more detail.??

First up, we acknowledged that risks are inherent with the introduction of any new technology, regardless of sector or industry. In the world of government agencies and AI, those risks present themselves as: data bias, unethical use of data, lack of transparency, and in the worst-case scenario – breaches of taxpayers’ privacy. However, when managed and mitigated correctly, with proper AI governance tools, the responsible implementation of the technology is attainable.????

The potential benefits of scaling the use of AI by Tax Agencies are many, including:?

1. Enhancing customer service: Globally, tax agencies are increasingly using AI to answer taxpayer questions, faster. Using AI chatbots enables taxpayer questions to be answered in real time around the clock, not only creating major efficiencies, but also relieving the anxiety and headache many people have around filing their taxes.??

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1. Detecting threats and tackling tax scams: Tax agencies, like the IRS, have identified tax fraud and scams as one of their major priorities, dedicating considerable investment into tackling the issue. AI has a vital role in enforcement and has the potential to transform how quickly and effectively we detect tax scams, helping security and IT teams know where to pinpoint efforts and valuable resource to minimise negative impact.?

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1. Delivering best practice: AI can support governance, risk management and delivery of best practices across federal agencies. With the Biden administration recently initiating an executive order stating that every federal agency should be incorporating AI into both external and internal operations, this issue of governance is top of the agenda.?

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1. Accessing benefits faster: AI can help expedite getting money into the hands of those eligible through fast and responsible data analysis. For instance, two thirds of taxpayers in the US are entitled to refunds, and for many it’s the largest check they receive all year. AI will bring greater confidence amongst taxpayers that they’re filing their returns accurately, enabling them to better plan their critical expenditure and life choices– housing decisions, healthcare expenses, and college education to name a few.??

Tax Agencies can deploy AI to help revolutionize tax administration. As agencies around the world deploy AI, they must also develop oversight and governance structures to ensure ethical use, mitigate risks, foster transparency, and build trust with taxpayers.?This month, we’ll continue the discussion of this important topic with a second roundtable hosted by the IBM Center for the Business of Government and Kogod Tax Policy Center at American University.

Thanks again to Caroline and Daniel for a brilliant conversation on this, and I look forward to seeing AI deployment accelerate and help revolutionize tax as we currently know it.?

For further reading, please see the full report here .??