Published August 3, 2023 – In the next two years, the Internal Revenue Service (IRS) plans to transition all tax correspondence, notice responses, and nontax forms to digital processing. This effort aims to significantly decrease the volume of time-consuming paper mail the IRS currently receives.
Starting in 2024, you can totally go paperless for all the stuff they send you. No more paper headaches! And wait for it, by 2025, they want all tax returns to go paperless too! Crazy, right? Anyway, the IRS got some extra money from the Inflation Reduction Act last year, and they’re using it to level up their service and tech game.
“Today, we are announcing that — by the next filing season — taxpayers will be able to digitally submit all correspondence, nontax forms and notice responses to the IRS,” said Treasury Secretary Janet Yellen. “Of course, taxpayers will always have the choice to submit documents by paper.”
Digital Submission of Form 1040
The Treasury Department highlighted an issue with digital submissions of forms and correspondence, restricting taxpayers to only submitting their annual 1040 tax return online. Additionally, the IRS is unable to process paper tax returns digitally, leading to delays and manual data entry for their staff. This has been a long-standing problem, with taxpayers responding to verification notices via traditional mail, which poses challenges for both the taxpayers and the IRS.
According to the Treasury, the IRS receives approximately 76 million paper tax returns and forms, along with 125 million pieces of correspondence, notice responses, and nontax forms each year. Unfortunately, the agency’s limited capacity to accept digital forms or digitize incoming paper has resulted in a failure to meet taxpayers’ service expectations. Moreover, storing over 1 billion historical documents incurs a staggering cost of $40 million annually.
Next tax season, taxpayers will have the convenience of digitally submitting all their correspondence, nontax forms, and responses to notices. The IRS estimates that at that point, 94% of individual taxpayers will no longer need to use traditional mail to communicate with the agency. Instead, up to 125 million paper documents will be submitted digitally each year. Of course, those who prefer the traditional paper method can continue to do so.
Taxpayers will gain the ability to e-file 20 additional tax forms by the 2024 filing season, leading to a potential 4 million more tax documents being filed digitally every year. These additional forms will include amendments to Forms 940, 941, 941-SS, and 941 (PR), which are some of the most common forms that taxpayers utilize when amending their tax returns. Moreover, there will be at least 20 frequently used nontax forms available in digital, mobile-friendly formats, providing taxpayers with the convenience to complete and submit their documents, including a Request for Taxpayer Advocate Service Assistance when required.
Preparing for 2025
In the upcoming filing season of 2025, taxpayers will have access to 150 frequently used non-tax forms in user-friendly digital formats, allowing easy submission through mobile phones. The IRS plans to fully digitize paper-filed tax and information returns by then, aiming to process up to 76 million paper documents digitally each year, leading to quicker taxpayer refunds. Furthermore, around 60 million paper documents will be processed digitally annually, encompassing half of paper-submitted correspondence, nontax forms, and notice responses.
As per the IRS’s projections, by filing season 2026, all paper documents, including correspondence, nontax forms, and notice responses, will undergo digital processing. Concurrently, the IRS plans to digitize up to 1 billion historical documents, resulting in an estimated annual savings of $40 million in storage costs.
Tax experts, including Mark Everson, the former IRS commissioner and current vice chairman at Alliantgroup, have expressed concerns over the IRS’s ambitious technology modernization plans. They recommend adopting a cautious approach to avoid significant risks associated with meeting strict deadlines.
Observers wish IRS funds improve taxpayer service and technology, not enforcement.
In his statement, National Taxpayers Union president Pete Sepp emphasized that the IRS requires a significantly enhanced customer service and business systems infrastructure compared to the one envisioned in its strategic plan. Sapp stated, “The IRS will need to build a much more robust customer service and business systems infrastructure than even the one envisioned in its strategic plan.” The commissioner has warned about potential funding issues that could arise within a year for recent customer service improvements. To address this concern, Congress must redirect the funding infusion received by the IRS in 2022, directing it towards modernization efforts that prioritize taxpayer rights while encouraging voluntary compliance. The emphasis going forward should be on prioritization.
Despite facing considerable resistance from certain members of Congress who are opposed to certain enforcement measures, the IRS is resolutely forging ahead with its initiatives.
The Inflation Reduction Act leads the IRS to enhance the customer experience for American taxpayers. Senate Finance Committee chairman Ron Wyden, D-Oregon, endorses this advancement, emphasizing that with clear goals and adequate funding, the IRS accomplishes its objectives. In contrast, Republicans favor deep budget cuts, which, over the past decade, have negatively affected taxpayer service, potentially aiding tax evasion by the wealthy. Democrats stand firm against this approach.
Yellen pointed out that the additional funding from the Inflation Reduction Act resulted in a substantial improvement in the IRS’s performance. The agency’s service level with live assistance reached an impressive 87% this filing season, representing a more than five-fold increase compared to the previous year. Additionally, the IRS handled 3 million more phone calls during the past tax season than in 2022, and wait times were reduced from an average of 28 minutes to three minutes. As a direct consequence of the supplementary funding, the IRS successfully recruited over 5,000 new personnel.
Inflation Reduction Act
In her statement, she expressed gratitude to the IRA for their instrumental role in converting the IRS into a digital-first agency. Yellen said, “Thanks to the IRA, we are in the process of transforming the IRS into a digital-first agency.” The implementation of the ‘paperless processing’ initiative serves as a pivotal step towards enhancing customer service. This initiative will empower taxpayers by providing secure access to their documents, resulting in time and cost savings. Furthermore, it will enable other IRS departments to leverage digital copies for quicker refunds, improved tax processing accuracy, and a seamless customer service experience. She earnestly urged Congress to allocate stable and sufficient annual appropriations for the IRS to sustain and expand on this positive trajectory.