2024 filing season could be paperless, IRS says

Former IRS Commissioner Mark Everson compares the efforts of the IRS to go paperless to the interstate highway system of the 1960s, when he was a child.

“You would drive from New York, where we lived, and I-95 ended in Providence,” he said in an interview with JofA. “You’d be doing great and then, all of the sudden, bingo, there was no more interstate.

“That’s how the IRS has been operating. It’s got certain forms and activities that have been automated and others have not.”

Until this week, that is. With much fanfare, the IRS announced Wednesday that by filing season 2024, taxpayers will be able to file most returns and documents electronically. And by filing season 2025, the IRS will digitize all paper-filed returns when they are received.

If the IRS can meet these goals, the Service will curb the deluge of paperwork that overwhelms it each year. The IRS receives about 76 million paper documents each year. Scanning those paper returns will put an end to the work of entering the information by hand, keystroke by keystroke.

“This is a big watershed moment that’s approaching,” said Everson, who served as IRS commissioner from 2003 to 2007 and now is a vice chairman of alliantgroup, a tax and business consulting group that works with over 4,000 CPA firms nationwide. “And it will make a difference to the taxpayer service.”

Treasury Secretary Janet Yellen and IRS Commissioner Danny Werfel emphasized the improved taxpayer service when they provided details of what they have dubbed paperless processing initiative during a visit Wednesday to an IRS facility in McLean, Va.

The initiative “is the key that unlocks other customer service improvements,” Yellen said in prepared remarks. “It will enable taxpayers to see their documents, securely access their data, and save time and money. And it will allow other parts of the IRS to rely on these digital copies to provide faster refunds, reduce errors in tax processing, and deliver a more seamless and responsive customer service experience.”

The announcement by Yellen and Werfel was not the first word of a paperless IRS. National Taxpayer Advocate Erin Collins told participants at the AICPA & CIMA ENGAGE 2023 in June that the IRS would be paperless by 2025. The Service will convert any paper files from taxpayers to digital before processing them, she said.

Besides the electronic filing and digitization of incoming paper forms that are part of the initiative, older documents will also be digitized, which will give taxpayers access to their data and save the IRS about $40 million in annual storage costs, officials said.

The move toward a paperless IRS has been at least 25 years in the making. In 1998, Congress passed the IRS Restructuring and Reform Act, P.L. 105-206, that said “paperless filing should be the preferred and most convenient means of filing federal tax and information returns.” It set of goal of having at least 80% of all such returns filed electronically by the year 2007.

And while approximately 94% of individual tax returns are now e-filed, millions still file on paper. Coupled with budget cuts, staffing shortages, and the effects of the COVID-19 pandemic this led to what was one of the most telling images of the IRS paper backlog: a photo of thousands of pieces of paper packed into what was supposed to be a cafeteria at the IRS campus in Austin, Texas.

Werfel referred to that photo in his remarks Wednesday in Virginia.

“The amount of paper still being used inside the IRS often feels more like the 1970s and 1980s than the 21st century,” he said. “During the pandemic, you saw the photos of the IRS cafeteria in our Austin campus with racks and racks of paper absolutely filling the room not normally used for storage. Tens of millions of pieces of paper that require manual processing flood our campuses and offices. It is time to ensure that no cafeteria in the IRS ever looks like that again.”

The improvements are courtesy of the Inflation Reduction Act, P.L. 117-169, which provided the IRS with $80 billion over 10 years. The debt ceiling deal reached earlier this year deleted about $20 billion from that amount.

“A digital IRS rather than a paper IRS is exactly what the was intended when Congress provided new funds under the Inflation Reduction Act, and our announcement today shows that we are taking steps to make on that promise,” Werfel said.

Early in his tenure as IRS commissioner, Everson said he mandated that large corporations and not-for-profits file their returns electronically. Since then, the Service has made “regular strides” toward electronic filing, but “the problem has been the ups and downs of the regular budget,” he said.

Continued, guaranteed funding equals a better IRS, he said. “The reason this is good is they have this pot of money, and they have the confidence that they’ll have enough money to finish things,” he said.

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