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IRS sets paperless tax goals for 2024, 2025

Paper overload_cropped
New IRS digital tax plans aim to get both taxpayers and tax agency employees out from under such paper piles.

It's not your grandparents' Internal Revenue Service anymore.

The Treasury Department today announced that a new IRS paperless processing initiative will be available to taxpayers by the 2024 tax filing season.

The following year, the IRS will more fully digitize its side of the tax paperwork equation.

The multiyear moves, according to the Treasury press release, will eliminate up to 200 million pieces of paper annually, cut processing times in half, and expedite refunds by several weeks.

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, noted Treasury and IRS officials, who also posted the announcement as a fact sheet on IRS.gov

Double paper trouble: Despite steps to increase digital tax options, the agency's continued reliance on hard-copy filings has frustrated not only IRS employees, but taxpayers.

The challenges created by paper are two-fold, according to Treasury and the IRS.

First, taxpayers have been unable to digitally submit many forms and correspondence beyond their annual 1040 tax return. Second, the IRS has not been able to digitally process paper tax returns it receives.

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

This duplicative process, say tax officials, creates significant delays for taxpayers and challenges for IRS staff.

Tax times, they are a-changing: However, things will change, starting in 2024.

First, taxpayers in 2024 will be able to go paperless. This includes, according to Treasury and the IRS —

  • Taxpayers will be able to digitally submit all correspondence, non-tax forms, and responses to notices. That will mean that, per IRS estimates, more than 94 percent of individual taxpayers will no longer ever need to send mail to the IRS.

  • Taxpayers also will be able to use non-tax forms to request or submit information on a range of topics. This will include identity theft notification, as well as proof that they are eligible for key credits and deductions designed for lower-income households.

    These two digital changes will enable up to 125 million paper documents to be submitted digitally per year, according to the IRS.
  • Taxpayers will be able to e-file 20 additional tax forms. Achieving this milestone will enable up to 4 million additional tax documents to be filed digitally every year. This includes amendments to Forms 940, 941, 941-SS and 941 (PR), which are some of the most common forms taxpayers file when amending returns.

  • At least 20 of the most used non-tax forms will be available in digital, mobile friendly formats. This will make the forms accessible for the large number of taxpayers who rely on mobile devices. These forms will include a Request for Taxpayer Advocate Service Assistance, making it easier for taxpayers to get the help they need.

Not mandatory: You probably noticed that the Treasury and IRS announcement emphasize that the ability to interact more digitally next year when it comes to taxes is a choice made by each taxpayer.

It's an option, not a requirement. (Yet.)

Taxpayers who want to submit paper returns and correspondence can continue to do so.

I suspect that there will be a lot of eager all-digital converts. And following the pattern set by electronic filing, more people will join the online tax world each year.

Made possible by more money: The coming digital tax shift is thanks to the added funds provided by the IRS in the Inflation Reduction Act.

Already, says Treasury, taxpayers are able to respond to more notices online, and the IRS has made significant progress adopting new technology that automates the scanning of millions of paper returns.

In the next phase of its modernization, with a 2025 target date, the IRS is accelerating paperless processing efforts.

IRS' digital turn in 2025: Once taxpayers get into the digital tax swing of things, the IRS is aiming by filing season 2025 to achieve paperless processing. It will digitize all paper-filed returns as soon as they are received.

The shift will go beyond tax returns. The agency will convert all paper tax correspondence into digital form upon the materials' arrival at IRS offices.

This will include —

  • Making an additional 150 of the most used non-tax forms available in digital, mobile friendly formats. An estimated 15 percent of Americans do not have broadband at home and rely solely on mobile phones for their Internet access. Making more tax forms available in mobile-friendly formats is key to serving these taxpayers.

  • IRS will digitally process all paper-filed tax and information returns. Achieving this milestone will enable up to 76 million paper documents to be processed digitally every year, improving service, cutting processing times in half, and expediting taxpayer refunds by several weeks.

  • Half of paper-submitted correspondence, non-tax forms, and notice responses will be processed digitally. Achieving this milestone will enable up to 60 million paper documents to be processed digitally every year. All paper documents — correspondence, non-tax forms, and notice responses — will be processed digitally by filing season 2026.

  • Up to 1 billion historical paper tax documents will be digitized. This should improve customer service, by giving taxpayers quicker access to their data. It also will save federal dollars, since storing this huge stash of paper cost approximately $40 million a year.

Helping taxpayers and IRS: Treasury and the IRS say this wide-ranging digitization effort is a win-win.

Digitizing paper returns will eliminate the errors that result from manually inputting data from paper returns. That will in turn, says the IRS, will speed up return processing (and refund issuance), reduce storage costs, and allow agency staff to focus more resources on customer service.

As for customer service, IRS personnel will be able to more quickly find digital taxpayer data to help answer taxpayer questions and resolve issues in a timelier manner. Currently, IRS customer service employees do not have easy access to information from paper returns and other correspondence submitted by mail.

Finally, when combined with an improved data platform (another IRS goal to be financed by the new money), digitization and the ability to extract data will allow data scientists to implement advanced analytics and pattern recognition methods.

That's techspeak for giving the IRS a better idea of tax avoidance and evasion techniques used in many cases by wealthy individuals and large corporations. Once the IRS has a better idea of the complex structures used to sidestep taxes they owe, auditors can go after them.

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