Data Warehousing and Organizational Change at the IRS: Increasing Taxpayer Compliance Without More Taxpayer Audits

Abstract

Data warehouses provide a remarkable source of data to organizations. They offer the possibility of radical changes in the ways organizations think about and use information to accomplish their mission. However, these changes do not come about solely because an organization installs a data warehouse. In order to achieve these maximal benefits from a data warehouse, an organization's structure, culture, individual roles and incentive systems, and management processes often must all change together. This article illustrates these ideas using a case study of a data warehousing initiative at the Internal Revenue Service. Historically, 14 percent of the taxes owed are not collected, yet it is neither physically nor politically feasible to increase compliance through more audits. The IRS's emerging approach strives to increase voluntary compliance by emphasizing market segmentation analysis (identiaing whole groups of non-compliant taxpayers) and taking actions that affect the whole group, rather than its historical approach of auditing individual taxpayers. The implementation of this approach is dependent on a data warehouse, but also requires a shift in the culture of the IRS. The events of the case are interpreted through the lens of structuration theory, which helps shed light on the difficulty of this type of organizational change.