This transcript has been edited for clarity.

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: modern times.

At the beginning of February, President Trump signed a government funding package cutting the IRS budget by 9 percent for fiscal year 2026, including a 23 percent cut to the technology and operations unit.

It remains to be seen how these funding cuts will interact with the IRS's long-term digital modernization goals. The agency's legacy IT systems are among the oldest in the federal government, and in late 2025, Treasury announced that the IRS would be engaging contractors such as Palantir and Salesforce to upgrade those systems. So how is the agency pursuing digital modernization, and what does a more automated IRS mean for practitioners?

Here to talk more about this is Rozeta Atlas, director for product enablement and adoption at HubSync. Rozeta, welcome to the podcast.

Rozeta Atlas: Thank you. Great to be here.

David D. Stewart: So why don't we start off first with: What do we know is changing at the IRS in terms of digital modernization?

Rozeta Atlas: So, since the prior administration, the IRS has been undergoing significant changes in its digital modernization efforts. There are quite a few initiatives that are planned. There are also a bunch that are already in the works at different places of completion, but a lot of them are underway and a lot of really great stuff that, if they do get completed in a timely manner, I think will be amazing.

So the intended focus of these initiatives is primarily improving how services are provided to taxpayers, just the general interactions with the agents and the taxpayers who come to them with questions, things like that. And then also enhancing cybersecurity and strengthening compliance.

So, in that respect, the IRS is looking to give taxpayers more options on how they can interact with the IRS. So, for example, they're expanding electronic filing options. The IRS is also looking to eliminate manual processing of paper tax returns and the correspondence.

In addition, a huge initiative is around the zero-paper initiative. So, basically, going paperless. It includes things like doing away with paper checks, as well as enabling various paperless authorizations. In general, it is really going paperless by digitizing paper documents, so whatever we used to do on paper, we're going in the direction of completely doing away with that, having everything digitized so that it can be managed more easily. You can find data more easily in those documents and really be able to act on it quickly.

In addition, the IRS is working on enhancing and improving what they call the integrated data retrieval system, IDRS. This houses a lot of taxpayer information in order to streamline taxpayer data access and improve service efficiency.

The intent here is to replace many of the current systems that manage different types of taxpayer data and bring it all in one place. That way, you have agents that are dealing with clients that call them up, and they need to be able to access a lot of different data for that client in order to answer any questions, or address, maybe, where's their refund sitting, or how's the audit going, or how to manage a notice, anything like that. All of that information will be all in one place, which I think is a really, really huge improvement once they're able to get there.

The other thing that they're looking to do is around data integrity and the technical infrastructure where the IRS is contracting with industry partners to improve data integrity and the technical infrastructure. From a risk perspective, with this comes cybersecurity risk.

To date, the IRS has done a pretty good job of staving off hackers. Any time systems and IT infrastructure changes, you need to go through a whole new risk assessment process, which would take quite a bit of time and may not necessarily be bulletproof from day one. So I think that there's a lot of work that needs to get done there. That's a big risk, and I think it's a huge undertaking. So, all of these things, I think that the IRS has been making really great strides, whether actually actioning the improvements or planning to proceed with a bunch of similar types of initiatives.

That said, though, there have been concerns raised by many related to data sharing and around personal data privacy. They're sharing sensitive data with officials from the Department of Government Efficiency, as well as with DHS. That, of course, raises a lot of concerns around privacy and what people can do with that data, especially around the immigration piece of it. I know there's controversy around how that data is going to be used, around deportations and things like that.

David D. Stewart: So, in addition to data sharing, another major question that's come up in the last year has been about losses in staff at the IRS. The IRS has seen significant reductions. How does modernization affect that? Will modernization replace a certain level of the workforce? What can we expect there?

Rozeta Atlas: It's an interesting conundrum in my opinion, because on the one hand, yes, there's a huge initiative to reduce costs. The funding has been reduced substantially over the last year. A lot of staff has been let go. Of course, the effects of that, you're not going to have the same type of support for agents or people who are dealing with the taxpayers who are calling up with questions. So, there's going to be a reduction in the kind of service that taxpayers would receive.

On the other hand, in theory, once you have the modernization from the IT infrastructure go into effect, then theoretically you're going to have a lot of cuts from a budget perspective, because you're not going to need to have all these individuals doing the work.

Now you're going to have a lot of things automated, going to be using AI for a lot of the functions, but at the same time, you need to be able to get it to that point. They actually need to invest today in order to get there, but to eliminate a lot of the staffing who are not there yet in terms of standing up the new infrastructure, developing the necessary processes to streamline all of the work that needs to get done. If that's not in place, then you're not going to achieve the eventual reduction in cost that you're trying to achieve.

David D. Stewart: Have these reductions also hit the staff that's actually working toward the modernization project?

Rozeta Atlas: It definitely has. Obviously, in order to stand up this new modernized IT infrastructure, you need people who are going to be able to build this. If you don't have staff, obviously not going to be able to achieve that, at least maybe not in a timely basis. So the end effect of the modernization is that eventually, you're going to reap the benefits of better efficiencies, less need for human interaction, automation, all the great stuff that comes with that.

But if you don't have those individuals in place, you're not going to be able to get there, at least not very quickly. And the thing to remember is the fact that you have infrastructure that's sometimes 50 years old. You have systems that have been around since the [19]70s or 80s. They have been built on old technology that a lot of folks don't use anymore. There have been a lot of advancements around technology since then, and there are not a lot of [employees] who can actually manage those old systems.

So there's a lot of different factors that go into the effects of these cuts. You have the loss of the individuals who are currently maintaining those old systems who know the programming language, who can maintain them, but then you need, actually, individuals who will actually build the new infrastructure that can handle the requirements of the future.

David D. Stewart: So, with more IRS records being digitized, more of this process being digitized, does that pose additional risks for taxpayer privacy?

Rozeta Atlas: I believe that it does, especially with the fact that data is now being made available to certain organizations in the government that might be able to use that information for certain reasons. You have the DHS who's able to now access information about taxpayers and use it in different ways related to immigrations and maybe deportations. So a lot of people view that as a detriment and a big risk.

You have security around, just, data privacy. If somebody is now able to get the data that traditionally was never made available outside the IRS, [other than] due to a court order, now you're going to have individuals that might be able to get their hands on things that then they can use for their personal benefits. So, there's definitely a big risk, I think.

David D. Stewart: So, within the modernization efforts, some work has been outsourced, including the scanning of documents. Does that raise concerns for you?

Rozeta Atlas: Not as a general matter, I would not consider that as a risk. The only risk is who is able to see that information.

I think that, as a general matter, it's a good thing that we are going paperless. I think it's a great initiative for many reasons. There are environmental reasons for that. There's also efficiencies. There's also the ability to analyze data using AI or any other kinds of technology tools. But the fact that it's being done by certain particular people, I think that might be a potential risk.

David D. Stewart: So what areas are there where the IRS could find more efficiencies through these modernizations? Can AI make up for staff losses?

Rozeta Atlas: I think it could definitely help. Of course, you do need to have the infrastructure and all the capabilities around AI stood up, but once it is, I think there are tons of opportunities. For example, it's a great tool for taxpayers when they call up for questions and they need to speak to an agent.

They might be sitting there for many hours, potentially waiting for someone to answer the phone, to answer a very simple question, a typical question that usually comes through from a lot of different taxpayers. So having AI manage that and very quickly, and have it at each taxpayer's fingertips, that's a huge, huge benefit. So I definitely see a huge benefit around that.

The other area that I think would be hugely impacted is around the audit cycles, having the information digitized and the use of AI on top of it, and then also looking at the initiative around pulling all the data together from all these different systems that have been around forever, and where you need to look at system A and system B and system C to really get a full picture of where a taxpayer stands, what their tax positions are, where they're all filing their personal returns, their business returns. Just kind of having one view of all of that information, I think AI would be a huge benefit to really analyze and bring all that data together. It makes it more efficient to really better understand those tax positions. So, that one, you can either identify some potentially questionable transactions that the taxpayer has been entering into, and then maybe focusing on those, determine that that's something that you want to audit.

And then also, there could be some things that are typically audited that may not need to be audited because the IRS agent may not have all the information that they need to determine that, "Hey, you know what? I have all the information at my fingertips and everything looks kind of in line with what I would expect to see. Therefore, I don't think I need an audit." So it's kind of a double-edged sword in that respect as well.

David D. Stewart: What does a more automated IRS mean for tax practitioners?

Rozeta Atlas: What it means is, I would say being able to have parity in terms of how one side operates versus the other.

You have a lot of firms, tax preparers who may not be as advanced from a technology perspective, don't have a lot of automation in place. Maybe they're still using Excel for a lot of their processes, black and white standardization, processes that are not streamlined. In those cases, what happens is they may potentially work well with the way the IRS currently operates.

But if the IRS proceeds with the modernizations and what they're doing from an IT perspective, these tax preparers are going to need to be able to keep up with that. So there needs to be that parity so that they can work well together and mesh in how they're managing data going across from one end to the other, how it's analyzed so that everybody can be on the same page. So I think that would be the greatest impact.

David D. Stewart: My last question for you is: What sort of general advice would you give to firms and professionals who need to adapt to this new modernized IRS?

Rozeta Atlas: Yeah, it's really a continuation of my last point. It's really for tax preparers and firms that are in the business of preparing tax returns. I think they really need to take a step back and assess where they are from a technology landscape. Also look at the processes, look at the data quality. Are they managing things efficiently?

This is a very fast-changing world, and for a lot of reasons, not just the IRS, they need to stay up to date on a lot of different things, whether it's staying on top of tax laws, staying on top of requirements, where the due dates are being accelerated for various things. They just need to get into the modern world. They need to embrace that new way of doing the work.

The world is moving fast. IRS is now trying to catch up to everyone. So my advice is that they need to be able to be on parity with them. Data is key, and being able to manage data really well is going to be super important.

David D. Stewart: Well, Rozeta, thank you so much for being here. This has been a great discussion.

Rozeta Atlas: Thank you so much for having me.