AI tax fraud will be a nightmare this year; creative thinking is needed to thwart it

Artificial intelligence has launched threats of fraud and theft against taxpayers on a scale previously unimaginable.

As a former IRS Commissioner, I am concerned for today’s IRS leaders and taxpayers during this year’s tax season. Since my departure from the service less than two years ago, artificial intelligence has launched threats of fraud and theft against taxpayers on a scale previously unimaginable. The threats are real, imminent, and ongoing.

The pace of innovation is testing government operations and legacy IT platforms more than ever before. Bots armed with stolen personally identifiable information are launching fraudulent claims for government benefits at a pace and volume made possible only by automation and algorithms.

This explosion of fraudulent claims, paired with the ever-evolving tactics of fraudsters, can be a recurring nightmare for all federal agencies, including the IRS. They must swiftly and accurately handle millions of requests, while simultaneously protecting taxpayers’ confidential information and dollars. The proliferation of criminal use of artificial intelligence tools has some administration officials predicting a new era of “turbocharged fraud.” 

The public sector needs a robust response, guided by clear federal standards, to ensure Americans receive government services that are safe and secure above all else.  Agency leaders must be creative, open to new and innovative ideas, and dogged in seeking out true solutions.

During the pandemic, we also faced unprecedented challenges at the IRS. We successfully delivered 500 million payments, totaling more than $830 billion in historic economic relief to millions of Americans in record time, while combating fraud on an unimaginable scale. The IRS had contingency plans in place for a wide range of crises. But there was no playbook for such an unprecedented shock to the system.

Our success resulted from the creativity and innovation of a dedicated IRS workforce bending every effort to find the best solutions for American citizens.  Two key principles guided our efforts.

First, we were not afraid to make tough decisions for the sake of the mission.  One example was our effort to revamp internal operations.  We automated the process to resolve problems with individual pandemic recovery payments, so they would be processed in just one-seventh of the time as previously.  This meant faster payments and a smaller backlog.

Second, we sought out and found the best solutions for the problems we were facing. That meant turning to the private sector for the best technology and cost-effective methods to prevent fraud. The federal government likes to create its own bespoke products to address technology problems, but those products often do not keep pace with evolving threats and are costly to build and maintain. The private sector tends to be more adept at creating innovative and effective technological solutions quickly. 

For example, it was necessary to improve the process for taxpayers to verify their identities to access their tax returns to prevent fraud. For years, the IRS had been committed to deploying public and private sector options for login, as long as those solutions meet the federal standards for security and privacy. But we did not deploy the government’s own system, Login.gov, because it failed to meet those federal standards for digital identity and security. It also lacked the capacity to handle the speed and scale of the IRS’s online operations. 

The IRS faces more than 1.4 billion cyber-attacks every year. The increased use of online tax filing systems means increased risk of unauthorized access to taxpayer data. We knew we had to deploy the best available solution to protect taxpayer funds and allow taxpayers easy access to their accounts.

And so instead of using the government’s home-grown product, we chose to partner with a Virginia-based industry leader in identity verification, which you have probably seen if you have created an account on the IRS website to view your tax history and records or make estimated payments. We had already seen this company's product, called ID.me, verify the identities of millions of beneficiaries through the Department of Veterans Affairs and the Social Security Administration. It was the only solution, public or private, that met the federal government’s strict standards and security requirements and could be scaled to meet the needs of the IRS.

Our decision not to use a government-created product that doesn’t meet standards was not popular among D.C. insiders. But it was the right choice to protect taxpayer data and accelerated taxpayer access to important IRS services (including the then-monthly Child Tax Credits) — a win-win for the IRS and the American public.

As agency leaders grapple with challenges posed by AI, I encourage them to be willing to make the tough decisions and seek innovative solutions from America’s private sector, large and small businesses alike. Only strong leadership and the best of America’s creativity will enable us to combat and defeat this next generation of threats.

Charles Rettig served as U.S. Commissioner of Internal Revenue from 2018 to 2022.