IRS pursuing paperless processing for all tax returns by 2025 filing season

An Internal Revenue Service (IRS) paperless processing initiative will eliminate up to 200 million pieces of paper annually, cut processing times in half, and expedite refunds by several weeks.

Paper-based processes have long hampered the IRS and frustrated taxpayers. The challenges created by paper are two-fold: taxpayers are unable to digitally submit many forms and correspondence beyond their annual 1040 tax return, and the IRS is unable to digitally process paper tax returns it receives.

For decades, taxpayers had to respond through the mail to notices for things like document verification and IRS employees had to manually enter numbers from paper returns into computers one digit at a time, creating significant delays for taxpayers and challenges for IRS staff.

The IRS receives about 76 million paper tax returns and forms, and 125 million pieces of correspondence, notice responses, and non-tax forms each year, and its limited capability to accept these forms digitally or digitize the paper it receives has prevented the IRS from delivering the world-class service taxpayers deserve.

The IRS also has more than 1 billion historical documents, the storage of which costs $40 million per year.

The Inflation Reduction Act provided resources that allow taxpayers to respond to more notices online, and the IRS has made significant progress in adopting new technology that automates the scanning of millions of paper returns.

As the next phase of its modernization, the IRS is accelerating paperless processing efforts but Lisa McCormick, a consumer advocate who ran for US Senate in New Jersey’s 2018 Democratic primary, said government officials pursuing the idea should make provisions for citizens who lack Internet access.

“It would be great to reduce expenses and streamline services by applying new technology but some Americans are not able to access or use it,” said McCormick. “The internet represents a fundamental shift in how Americans connect with one another, gather information, and conduct their day-to-day lives.” 

“Today, 93% of American adults use the internet but the seven percent of the people who are not online deserve to be respected as citizens and guaranteed the full benefit of citizenship,” said McCormick. “Seniors who never became proficient with technology and poor, impoverished Americans who are economically divorced from such luxuries must not be left behind and the government certainly has the resources to enable access to vital services through post offices and local government buildings.”

McCormick also cautioned the agency to install redundant systems to protect against computer crashes and other unanticipated disasters.

“If the IRS goes paperless, it must take care to ensure that the massive amount of information it processes is protected from exploitation and loss,” said McCormick. “At around 3 a.m. EDT on April 17, 2018 — Tax Day — the IRS ran into trouble caused by a firmware bug that IBM initially discovered in June 2017, resulting in an 11-hour outage that was embarrassing and forced the tax agency to extend the filing deadline by one day. ”

Using IRA resources, the IRS is launching an ambitious plan to ensure that by filing season 2024, taxpayers will be able to go paperless if they choose to do so, and by filing season 2025, the IRS will achieve paperless processing digitizing all paper-filed returns when received.

In effect, this means all paper will be converted into digital form as soon as it arrives at the IRS.

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