In a crucial move to enhance its customer service experience, the IRS recently announced a paperless processing initiative, which is expected to be fully implemented by 2026. The program will implement systems that enable taxpayers to file various forms and correspondence online conveniently, usable with mobile-friendly devices. Furthermore, the IRS aims to digitally process all correspondence, minimizing the longstanding inefficiencies brought about by paper-based processes.
The numbers are indicative of the magnitude of paper-usage that the IRS has been handling. Annually, the IRS receives approximately 76 million paper tax returns and forms, and 125 million pieces of correspondence, notice responses, and nontax forms. Digitizing these processes is expected to have a significant impact on reducing substantial delays for the taxpayers and the IRS staff.
The proposed timeline for this digitization process is spread out over the next few years. By 2024, taxpayers will have the ability to digitally submit all correspondence to the IRS, and the IRS estimates that more than 94% of individual taxpayers will no longer need to send mail to them. By the same year, the ability to e-file 20 additional tax forms will be enabled, including employment tax returns, also known as Form 941s, for businesses with employees.
The decision to digitize comes in the wake of the COVID-19 pandemic, which resulted in a massive backlog in the processing of paper documents including tax returns. This has further delayed the process of refunds, which can take six to eight weeks to process.
Progressing into 2025, another 150 of the most used nontax forms will also be available digitally, making them easier for taxpayers to access and submit. Digitizing all paper-filed tax and information returns will be also initiated. It’s estimated that up to 1 billion historical documents are to be digitized, ultimately saving the IRS approximately $40 million in annual storage costs.
While the initiative by the IRS is a significant positive shift for the organization, its success could be subject to change with shifting priorities and budget cuts as seen in the past like the $21 billion budget cut following debt ceiling negotiations in May. That said, the paperless processing initiative marks a critical transition in the IRS’s approach to handling tax returns and documentation, potentially bringing about significant efficiency and cost savings.