The Internal Revenue Service (IRS) has announced its ambitious paperless processing initiative to revolutionize its operations and go entirely paperless by 2025.
Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel revealed the plan, which is backed by an $80 billion infusion of cash for the IRS over ten years.
The Inflation Reduction Act, passed into law last August, paved the way for this transformation, aiming to reduce paperwork and enhance efficiency. By the next filing season, taxpayers will have the option to digitally submit most tax documents and communications to the IRS, streamlining the tax-filing process.
IRS Aims To Move Forward With Paperless Processing
According to Fox, Treasury Secretary Janet Yellen expressed her enthusiasm for the IRS's transformation into a "digital-first agency."
The paperless processing initiative will allow taxpayers to submit all correspondence, non-tax forms, and notice responses digitally. While taxpayers will retain the choice to submit documents on paper, the IRS aims to encourage digital submission to reduce paperwork and streamline operations.
According to CNBC, the IRS receives an annual influx of 76 million paper tax returns and forms, alongside 125 million pieces of correspondence, responses to notices, and other various forms. This sheer volume of paperwork has been a contributing factor to delays in service and mounting backlogs.
To compound matters, the agency spends approximately $40 million each year to store an extensive collection of 1 billion documents.
In light of these challenges, Treasury Secretary Janet Yellen highlighted the significance of paperless processing in a recent address. She emphasized that this initiative serves as a crucial catalyst for driving additional improvements in customer service.
By transitioning to a digital-first approach, taxpayers will gain the ability to access their documents securely, view their data conveniently, and save valuable time and money.
The proposed changes are anticipated to expedite the process of issuing tax refunds, minimize errors during tax processing, and ultimately offer a smoother and more responsive customer service experience.
In 2024, most taxpayers will be able to submit everything except their tax returns digitally.
Additionally, the agency will pilot its new electronic free-file tax return system in 2024, with the goal of processing all documents, including tax returns, digitally by 2025. This step is expected to significantly reduce the $40 million annual cost incurred by storing over 1 billion historical documents.
Boosting Efficiency and Faster Refunds
Over the years, the IRS has faced challenges processing tax forms due to an overwhelming influx of paper documents and inadequate funding. However, the new initiative promises to expedite refunds by several weeks, according to the IRS.
According to the Associated Press, with approximately 81.2 percent of all filings already being submitted electronically, the agency's capacity to handle digital submissions will be a game-changer. The IRS has demonstrated progress in handling paper tax returns, reducing its backlog significantly.
In 2022, the agency had 13.3 million unprocessed paper tax returns, which dropped to 2.6 million at the end of the 2023 filing season. Despite these improvements, the IRS remains vulnerable to funding cutbacks, with House Republicans proposing a $1.4 billion reduction as part of the debt ceiling and budget cuts package.
The White House's separate agreement to divert $20 billion from the IRS to other non-defense programs further adds to the challenges faced by the tax administrator.
Nevertheless, the IRS is determined to forge ahead with its paperless processing initiative, embracing technology to become more efficient and taxpayer-friendly.
