By the 2024 tax filing season, the majority of taxpayers will have the option to transition to a fully digital approach. As announced by the IRS today, it is targeting a comprehensive “paperless tax return process” by 2025. Under the IRS Paperless Processing Initiative, up to 200 million paper documents will be rendered obsolete each year, halving processing times and accelerating refund distribution by several weeks. The initiative is financially supported by President Biden’s Inflation Reduction Act of 2022.
This digital transition is set to streamline the current process which involves some digital document transmission, but still requires mailing of certain paper documents. “For numerous years, taxpayers have been required to reply to verification notices and similar requests by mail. IRS workers then manually input figures from these paper returns into the computer system, causing considerable taxpayer delay and staffing difficulties,” the US Treasury Department communicated today.
Starting with the 2024 tax filing season, all correspondence, including many non-tax forms, can be submitted digitally by taxpayers. At least 20 additional e-File tax forms are slated to become digitally available at that point. The IRS predicts that over 94 percent of individual filers will not need to mail in any more tax forms or documents. This shift is estimated to save taxpayers from sending around 125 million paper documents each year.
In the 2025 tax filing season, “another 150 most commonly used non-tax forms will be digitally and mobile-friendly accessible.” (The IRS indicates that approximately 15 percent of Americans depend entirely on their phones for internet access.) It plans to process all paper-filed tax and information returns – approximately 76 million documents per year – digitally upon receipt. Similarly, half of the paper-submitted correspondence, non-tax forms, and notice responses (another 60 million paper docs) will be digitized. Furthermore, the IRS intends to convert up to one billion archival documents into digital format, simplifying access to historical filing data for both customer service agents and taxpayers.
According to the IRS, its Paperless Processing Initiative will help reduce mistakes stemming from manual data entry, speed up processing times, and allow for more resources to be directed towards taxpayer support. The Treasury Department stated that “customer service employees currently lack easy access to information from paper returns and other mail-based correspondence. Digitization and data extraction will grant them the required access to serve taxpayers more effectively.”
The IRS also expects that the digital transformation will assist them in holding the ultra-wealthy and corporations to account. “The combination of an improved data platform, digitization, and data extraction will empower data scientists to apply advanced analytics and pattern recognition techniques to pursue cases that can help reduce the tax gap. This includes wealthy individuals and large corporations employing complex structures to dodge taxes,” the agency explained.
Frequently Asked Questions (FAQs) about IRS Paperless Processing Initiative
When does the IRS plan to go fully paperless for tax returns?
The IRS plans to go fully paperless by the 2025 tax filing season.
What is the IRS Paperless Processing Initiative?
The IRS Paperless Processing Initiative is a project that aims to transition all tax return processes to a digital format, which will eliminate up to 200 million pieces of paper annually, cut processing times in half and expedite refunds by several weeks.
How is the IRS Paperless Processing Initiative funded?
The IRS Paperless Processing Initiative is funded by President Biden’s Inflation Reduction Act of 2022.
How will digitization help the IRS improve their services?
Digitization will help the IRS improve their services by reducing errors from manual data entry, speeding up processing, and allowing the agency to allocate more resources towards taxpayer support. It will also provide easy access to information from returns and other correspondence, enabling IRS customer service employees to serve taxpayers more effectively.
How will the digitization effort aid in closing the tax gap?
The IRS expects that digitization, combined with an improved data platform, will enable data scientists to implement advanced analytics and pattern recognition methods. This will help in pursuing cases involving wealthy individuals and large corporations who use complex structures to evade taxes, thereby addressing the tax gap.