Advisory panel urges sustained IRS funding, expanded AI, tax simplification

The IRS’s outside technology advisory panel called on Congress to provide stable, multiyear funding; expand the use of artificial intelligence; and simplify tax administration. It also warned that resource constraints and complexity risk undermining recent modernization gains.

In its 2026 Annual Report to Congress issued Wednesday, the Electronic Tax Administration Advisory Committee outlined a broad set of recommendations aimed at modernizing the tax system, improving compliance, and strengthening taxpayer service.

Central to the report is a warning that sustained funding is critical to maintaining progress on technology upgrades and meeting growing demands on the agency.

“Our recommendations reflect a consistent focus on continuing the IRS’s technology transformation through secure application programming interfaces (APIs), real-time data sharing, and modernized taxpayer and practitioner account platforms,” committee Chair Amy Miller wrote in the report.

“We urge Congress to provide adequate and reliable funding to sustain these critical investments,” wrote Miller, senior director of government affairs at ADP and a former public accountant. “We also call on the IRS to place taxpayers and tax professionals at the center of system design; expand the use of human-centered design and artificial intelligence with appropriate transparency and governance; and improve outreach and education on tax law.”

Funding seen as ‘single biggest challenge’

The committee urged Congress to provide “flexible, sustainable, predictable, multi-year funding,” describing resource uncertainty as the IRS’s most pressing obstacle.

Workforce reductions and recent budget cuts have strained the agency’s ability to deliver services and implement major legislative changes, the report said. The IRS has lost roughly a quarter of its workforce since early 2025, even as its responsibilities expanded significantly because of extensive tax law changes under H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act.

Without stable investment, the IRS risks falling short on core priorities, including modernizing aging systems, maintaining service levels, and supporting enforcement efforts, the committee said.

“The IRS workforce has historically taken on whatever Congress assigns it and used heroic effort to meet taxpayer needs,” the report said. But with staff cuts and a budget reduction of 9% from the 2025 fiscal year to the 2026 fiscal year, “that reservoir of capacity is no longer something Congress can assume.”

The group also warned against relying on remaining supplemental funding from the Inflation Reduction Act of 2022, P.L. 117-169, which is expected to run out in coming years, urging lawmakers to establish a long-term funding baseline.

AI expansion backed with safeguards

The advisory committee strongly endorsed broader use of AI across IRS operations, particularly for fraud detection, identity verification, and workflow improvements.

At the same time, it emphasized that AI deployment must be paired with transparency and governance to maintain public trust. The report recommends a public-facing dashboard explaining how the IRS uses AI, what functions it performs, and how risks are mitigated.

AI also is highlighted as a tool to reduce errors and accelerate service. For example, the committee recommends using AI to improve identity theft filters, which currently generate high false-positive rates and delay refunds for many taxpayers.

Beyond compliance, the report links AI to broader modernization goals, noting that updated core systems and stronger in-house technical expertise are essential to safely scaling AI capabilities.

Push for tax simplification and clearer guidance

Simplifying the tax system is another key theme, with the committee recommending the elimination of unnecessary filings and clearer communication with taxpayers.

The proposals include removing requirements to submit extension forms that are already automatically granted and reducing redundant administrative steps that create confusion and delays.

The AICPA also has recommended several changes to achieve tax simplification, including matching rules’ complexity to the sophistication of the targeted taxpayers and providing safe-harbor alternatives.

The report also calls for more timely and consistent guidance on tax law changes, warning that delayed or unclear instructions can lead to errors, increased workload, and diminished confidence in the tax system.

Improved outreach and education — including plain-language resources — would help taxpayers comply correctly the first time and reduce downstream enforcement burdens, the committee said.

Broader modernization and compliance efforts

In addition to its focus on funding, AI, and simplification, the report outlines a wide range of operational recommendations tied to modernization and compliance.

The committee called for continued upgrades to the IRS technology stack, including expanded use of APIs and real-time data sharing with states and industry partners.

It also recommended strengthening fraud prevention through earlier access to information returns and enhanced identity verification tools, along with stronger oversight of paid preparers to address misconduct and improve return accuracy.

Other proposals include expanding online account functionality, improving digital filing systems, and allowing broader electronic delivery of tax documents to reduce reliance on paper processing.

Digital-first vision

Underlying the recommendations is a push toward a fully digital tax administration system designed around taxpayers and practitioners.

The committee said a “digital-first IRS” built on modern systems, real-time data sharing, and user-centered design would improve accuracy, reduce costs, and enhance the overall taxpayer experience.

But achieving that vision, the report concludes, depends on sustained investment, disciplined modernization, and careful integration of emerging technologies such as AI.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.