Corporate tax departments today are facing an increasingly complex and rapidly evolving landscape, shaped by dynamic regulatory frameworks, heightened audit activity, and internal resource constraints. These departments are responsible not only for ensuring compliance with tax laws but also for managing vast amounts of financial data — all while often working with limited staff and tools that may be underutilized or poorly integrated. To meet these challenges, tax teams must adopt strategic approaches to better leverage existing internal systems and data without necessarily resorting to additional costly technology investments.
The Growing Complexity of Corporate Tax Functions
Corporate tax departments face a rapidly evolving landscape, marked by:
- Compliance demands and regulatory changes,
- Heightened and more sophisticated tax authority audits,
- Increasing volumes of financial data, and
- Resource and staffing constraints.
Tax regulations are in a constant state of flux, often driven by evolving economic policies, global initiatives on tax transparency, and shifting political landscapes. The introduction of new reporting obligations — such as country-by-country reporting, Base Erosion and Profit Shifting (BEPS) compliance, and tax reform measures — requires tax professionals to stay agile and adaptable. Simultaneously, audit activity is becoming more intensive and technology-driven, compelling tax departments to be prepared for detailed and complex inquiries from authorities like the Internal Revenue Service (IRS).
The Impact of Increased Tax Authority Scrutiny and Sophistication
In recent years, the IRS has significantly increased its scrutiny of large corporations. Since the passage of the Inflation Reduction Act, the IRS has nearly tripled its audit rates for large corporations, targeting those with assets exceeding $250 million. The rate is projected to rise to 22.6% in 2026, up from 8.8% in 2019.1 Recent Organization for Economic Co-operation and Development (OECD) statistics show 80% of tax administrations reported using big data in their work, and of those, nearly all are using it to improve their compliance work.2
This heightened enforcement and sophistication is supported by tax authorities' adoption of advanced data analytics, which enables more targeted and comprehensive audits. Consequently, audit information requests have become more detailed, requiring tax departments to reconcile data across multiple systems and financial reports, often under tight deadlines.
Traditional Responses: Are They Enough?
In an effort to address these growing demands, many corporate tax departments have historically turned to increasing headcount or investing in new tax-specific technologies. A 2024 survey of corporate tax departments found that over 50% of respondents felt under-resourced, with an equal number expecting to increase technology budgets in the near future.3
However, while technology is an important component of modern tax management, simply acquiring more tools is not always the most effective or sustainable solution. Many companies already have robust enterprise resource planning (ERP) systems, data warehouses, and business intelligence (BI) tools in place that maintain valuable financial information. The real challenge is often a lack of visibility into existing data and underutilization of current systems.
Instead of defaulting to purchasing more software — which may not be a long-term solution due to software becoming outdated, system changes, or not being a one-size fits all solution — tax departments can realize significant efficiencies by focusing on how to better access, manage, and analyze data using tools that are already part of the organization's infrastructure.
The Case for Data-Driven Efficiency
Rather than focusing exclusively on adding new resources, corporate tax departments should prioritize building internal capabilities to efficiently leverage existing systems and data. Understanding where critical data resides — whether in ERP systems, subledgers, trial balances, or external filings — and developing processes to access and reconcile that data are essential steps toward operational efficiency.
Often, tax professionals face barriers because key data is controlled by information technology (IT) or finance teams, and they may not be fully trained to retrieve or analyze that data independently. Overcoming these silos and upskilling tax teams to directly engage with internal systems can drastically improve response times to audits and reduce reliance on external help.
Addressing Complex Audit Information Requests: A Real-World Example
Consider a scenario where a corporate tax department receives an audit information request for revenue details broken out by invoice and customer, fully reconciled to the general ledger, trial balance, and published 10-K reports. A request like this will likely not be readily available and can be a heavy burden. But there are several steps that can be taken to use existing solutions within the organization:
- Start with a Top-Down Approach: Gather high-level revenue figures from the trial balance and general ledger that tie directly to the externally reported 10-K, ensuring alignment from the outset. This is a crucial step in building credibility with the provided information and will avoid issues in the long run.
- Leverage Internal Expertise: Collaborate with IT or finance personnel familiar with the ERP system to identify where transaction-level revenue data resides.
- Map and Access Relevant Data: Locate and define relevant tables and fields within the ERP system that hold invoice and customer-level revenue data.
- Reconcile and Analyze the Data: Use relational database tools such as Structured Query Language (SQL), often already available internally, to reconcile large datasets efficiently, cross-checking transaction-level data against summary balances. The data will likely be voluminous, so other programs may not do the job.
By building the skills to handle these steps internally, tax departments can reduce turnaround time on audit information requests and improve audit readiness — all without additional technology purchases.
Empowering Tax Departments Through Training
An effective and sustainable way to meet rising expectations is through strategic training and cross-functional collaboration. By empowering tax professionals to:
- Access and query ERP and financial data independently,
- Perform complex reconciliations, and
- Leverage existing analytics tools (such as SQL or existing BI platforms),
Tax departments can operate more independently and efficiently while avoiding unnecessary technology sprawl.
In essence, the goal is not to avoid technology, but to maximize the value of what already exists within the organization, systems that may be underutilized due to a lack of training or cross-department coordination.
A Strategic Path Forward
As regulatory scrutiny continues to rise, corporate tax departments should rethink their approach to compliance and audit readiness. A path forward could be to enhance internal capacity to manage data, train staff, and streamline processes using existing tools and resources.
This strategic approach includes:
- Investing in cross-functional training that brings together tax, IT, and finance teams,
- Standardizing processes for data retrieval and reconciliation,
- Fostering better communication between departments, and
- Prioritizing better use of current technologies over constant acquisition of new ones.
In conclusion, while corporate tax departments face increasing pressure from regulators and internal limitations, focusing on data access, staff empowerment, and process optimization provides a proactive path to resilience and success. By shifting the focus from acquiring more tools to better utilizing existing data and infrastructure, tax teams can become more agile, cost-effective, and audit-ready.
Investing in people and processes, supported by optimal use of available technologies, positions tax departments to handle today's demands while building capacity for future growth and compliance needs.
Footnotes
1. IRS, "IRS Releases Strategic Operating Plan update outlining future priorities; transformation momentum accelerating following long list of successes for taxpayers," May 2, 2024. https://www.irs.gov/newsroom/irs-releases-strategic-operating-plan-update-outlining-future-priorities-transformation-momentum-accelerating-following-long-list-of-successes-for-taxpayers
2. OECD, "Tax Administration 2024 Comparative Information on OECD and Other Advanced and Emerging Economies," November 13, 2024. https://www.oecd.org/en/publications/tax-administration-2024_2d5fba9c-en.html
3. Thomson Reuters Institute, "2024 State of the Corporate Tax Department," 2024. https://tax.thomsonreuters.com/en/corporation-solutions/c/state-of-corporate-tax-report/form?gatedContent=%252Fcontent%252Fewp-marketing-websites%252Ftax%252Fgl%252Fen%252Fcorporation-solutions%252Fc%252Fstate-of-corporate-tax-report
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