The Internal Revenue Service's Electronic Tax Administration Advisory Committee issued its annual report containing a set of recommendations for the IRS, including improved technology and data sharing, sustained IRS funding amid cutbacks at the agency, AI and human-centered design, digital filing and payments, tax simplification and outreach, fraud prevention and preparer regulation.
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"A central priority is real-time, secure data sharing across the tax ecosystem," said the report. "ETAAC recommends accelerating the exchange of information with state tax agencies and industry partners, including near real-time delivery of key information returns and the development of API-based "pull" models. Improved data sharing will enhance compliance, reduce duplication, strengthen fraud detection, and lower taxpayer burden."
The report also called for more sustained IRS funding amid
"ETAAC underscores that predictable, multi-year funding is essential to sustaining modernization and delivering quality taxpayer service," said the report. "Recent workforce reductions and budget uncertainty have strained the IRS's ability to meet expanding responsibilities, including implementation of major legislative changes. The report urges Congress to provide flexible, stable funding that supports technology modernization, workforce capacity, enforcement, and taxpayer service. Without sustained investment, the IRS will be unable to complete critical system upgrades, retain technical talent, or meet growing service expectations."
The report also called for the responsible use of AI and human-centered design to improve service delivery, compliance, and operational efficiency. It recommended expanding AI applications in areas such as fraud detection, identity verification, and workflow optimization, paired with strong governance and transparency.
"To maintain public trust, ETAAC calls for a public AI disclosure framework, including a plain-language dashboard explaining how AI is used, how risks are mitigated, and how taxpayers can seek recourse," said the report. "Across all technology initiatives, the IRS should design systems with taxpayers and practitioners at the center, ensuring usability, accessibility, and clarity."
The report also pointed to the need to "accelerate the transition to a fully digital, end-to-end tax administration experience." The committee's recommendations focus on improving e-filing systems, expanding the functionality of IRS online accounts, and enabling authorized tax professionals to access taxpayer information securely online. Some of the main improvements include clarifying reject codes in the Modernized e-File system, prioritizing e-filing for additional return types, enhancing transparency in return processing, and enabling digital delivery of forms such as the Form W-2 to employees. "These steps will reduce reliance on paper, lower processing costs, and improve speed and accuracy for taxpayers and practitioners," said the report.
The ETAAC report also recommends reducing unnecessary complexity and strengthening communication to help taxpayers comply accurately the first time. That includes eliminating redundant filings, such as extension requests that are already automatic, as well as simplifying processes where possible. The report also urges timely, clear, and consistent guidance on tax law changes, along with improved outreach and education strategies.
"Enhancing communication channels, modernizing reporting tools, and providing plain-language resources will reduce confusion, improve compliance, and build trust in the tax system," said the report.
The report also calls for better fraud prevention and tax preparer regulation. "Protecting the tax system from fraud remains a top priority," said the report. "ETAAC recommends a comprehensive approach that includes earlier access to information returns, expanded identity verification tools, and greater use of AI to detect fraudulent activity before refunds are issued.
"The committee is also calling for stronger oversight of the tax preparation industry, including statutory authority for the IRS to regulate paid preparers, real-time validation of Electronic Filing Identification Numbers and Preparer Tax Identification Number credentials, along with enhanced enforcement tools to address ghost preparers and abusive tax schemes. "These measures will improve return accuracy, safeguard taxpayer data, and protect the integrity of revenue collection," said the report.
IRS CEO Frank Bisignano praised the committee's work. "ETAAC members have devoted significant time and expertise in identifying and analyzing electronic tax administration issues," Bisignano said in a statement Wednesday. "We appreciate the significant work the committee put into this report and look forward to reviewing its recommendations."
