June 25, 2024

In my capacity as a former IRS Commissioner, I cannot help but fear for the challenges the IRS and the taxpayers are set to face in this taxing season. In two short years since my exit from the service, tax fraud threats conducted via emerging artificial intelligence (AI) technologies have grown exponentially. The threats are alarmingly real, immediate, and persistent.

Government functionalities and aging IT systems are being severely tested by the rapid strides in technology innovation. Bots, armed with stolen identity data, are carrying out fraudulent claims for government benefits at unprecedented rates, facilitated solely by automation and algorithms.

Busting the Fraud Cycle – A Daunting Challenge

This alarming surge in fraudulent activity, coupled with the ever-evolving strategies employed by fraudsters, could rapidly turn into a formidable obstacle for all federal bodies, the IRS included. They have a herculean task ahead of them as they need to efficiently process millions of requests while ensuring taxpayers’ sensitive information and resources are safeguarded. The increasing dependency of criminals on AI-powered tools has even prompted some top administration officials to caution about a new wave of “turbocharged fraud.” 

A Much-Needed Protective Shield

For a safe and secure public sector, a solid state response backed by comprehensive federal norms is of paramount importance. Agency heads must be receptive to modern, inventive ideas and work persistently to uncover effective solutions.

In hindsight, the pandemic brought forth unexpected challenges to us at the IRS. Amid the global crisis, we managed to dispense over 500 million payments, thereby providing over $830 billion in crucial economic relief to millions of American citizens, setting a record in fast delivery, all the while battling unprecedented tax fraud. The IRS was well-prepared with contingency plans for a host of crisis scenarios. However, the scale of the pandemic took everyone by surprise.

Our accomplishments owe their success to an exceptional workforce at the IRS that exhibited creativity and innovation in their relentless pursuit of optimal solutions for American citizens. Our undertakings were guided by two crucial principles.

Leadership Principles Guiding Our Efforts

First and foremost, we were resolute in making challenging decisions when mission-critical. We stepped up our internal operations, automated processes involved in resolving problems with individual pandemic recovery payments, resulting in a seven-fold increase in processing speed. This allowed for quicker payments and a reduction in backlog.

Our next step involved an extensive search for the ideal solutions to our challenges. We turned to the private sector for advanced technology and cost-effective fraud prevention methods. Despite the federal government’s preference for developing its own technology solutions, they often fall short in keeping up with evolving threats and prove expensive in terms of maintenance and development. It has been observed that the private sector possesses a higher capability to quickly churn out ground-breaking and effective technology solutions.

An Unconventional Route to Success

For instance, during my tenure, ensuring an improved and secure process for taxpayers to verify their identities was crucial to access their tax returns and prevent fraudulent activities. Despite the IRS’s commitment towards deploying public and private sector options for login, provided they meet the federal standards for privacy and security, we refrained from deploying the government’s own system, Login.gov. Compliant with the federal standards for digital identity and security, this tool was not equipped to handle the speed and scale of the IRS’s online operations.

Given the daunting reality that the IRS encounters over 1.4 billion cyber-attacks annually, protecting taxpayer data amidst the increasing usage of online tax filing systems is of utmost importance. It became evident that implementing the best solution available was crucial for safeguarding taxpayer funds and facilitating easy access to their accounts.

Color Outside the Lines

So we decided to think outside the box. We ditched the government-developed product for a leading Virginia-based company’s state-of-the-art identity verification tool, ID.me. We were familiar with this solution that had successfully verified numerous beneficiaries’ identities within the Veterans Affairs and the Social Security Administration departments. To date, it remains the only solution, public or private, that aligns with the government’s strict norms for safety, privacy and scalability to suit the needs of the IRS.

Dare to Be Different

While our decision to overlook a government-developed product not meeting standards did not necessarily win applause from D.C. insiders, it was undeniably the right move to secure taxpayer data and fast-track access to vital IRS services, thus benefiting both the IRS and the U.S. public.

As agency leaders face the challenges presented by AI, I urge them to boldly make difficult choices and welcome innovative approaches offered by America’s private sector, encompassing both large and small enterprises. Only a combination of decisive leadership and the best of American creativity can effectively counter this new wave of threats.

Charles Rettig served as U.S. Commissioner of Internal Revenue during 2018-2022.

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