Former IRS Commissioner Mark Everson draws a parallel between the IRS’s transition to digital processes and the construction of the interstate highway system in the 1960s from his childhood memories.
In an interview with JofA, Everson recollected, “Back when I was a child, living in New York, I-95 would take you up to Providence. You’d be cruising smoothly, and suddenly, there’d be no more interstate.”
Everson likened this to the IRS’s approach, explaining that certain forms and tasks have been automated while others haven’t.
However, a significant change is on the horizon. The IRS recently announced with great enthusiasm that starting in the 2024 filing season, taxpayers will have the capability to submit most returns and documents electronically. Furthermore, by the 2025 filing season, the IRS aims to digitize all paper-based returns upon receipt.
If successful, these initiatives will substantially reduce the massive volume of paperwork inundating the IRS annually. The agency contends with approximately 76 million paper tax forms and 125 million pieces of paper correspondence each year. Scanning these paper returns will eliminate the need for manual data entry, keystroke by keystroke.
Mark Everson, who led the IRS as commissioner from 2003 to 2007 and currently serves as a vice chairman at alliantgroup—a tax and business consulting group collaborating with over 4,000 CPA firms nationwide—highlighted the significance of this development. He stated, “We’re on the cusp of a momentous shift that will genuinely impact taxpayer service.”
During a visit to an IRS facility in McLean, Va., Treasury Secretary Janet Yellen and IRS Commissioner Danny Werfel underscored the improved taxpayer service that the paperless processing initiative will bring. Yellen expressed, “This initiative will open the door to other enhancements in customer service. Taxpayers will gain access to their documents securely, manage their data, and save time and money. Moreover, the IRS can use these digital copies to expedite refunds, minimize errors in tax processing, and offer a more seamless and responsive customer experience.”
The announcement by Yellen and Werfel wasn’t the initial mention of a paperless IRS. Erin Collins, National Taxpayer Advocate, disclosed during the AICPA & CIMA ENGAGE 2023 event in June that the IRS would fully transition to a paperless system by 2025. She emphasized that any paper files received from taxpayers will be digitized before processing.
In addition to the electronic filing and digitization of incoming paper forms, the initiative also encompasses the digitization of older documents. This measure will grant taxpayers access to their information and allow the IRS to save approximately $40 million annually in storage costs.
The shift toward a paperless IRS has been in progress for at least 25 years. In 1998, Congress passed the IRS Restructuring and Reform Act, P.L. 105-206, which designated “paperless filing as the preferred and most convenient means of filing federal tax and information returns.” The act set an objective of achieving at least 80% electronic filing for such returns by 2007.
Presently, approximately 94% of individual tax returns are filed electronically, while millions still opt for paper filing. This, coupled with budget constraints, staff shortages, and the repercussions of the COVID-19 pandemic, contributed to a telling image of the IRS’s paper backlog—a photograph depicting thousands of paper documents crammed into what was originally an IRS campus cafeteria in Austin, Texas.
During his remarks in Virginia, Commissioner Werfel referred to this photo. He stated, “The volume of paper still in use within the IRS often harks back to the 1970s and 1980s rather than the 21st century. During the pandemic, the images of the IRS cafeteria in our Austin campus, filled to the brim with paper, showcased a scene reminiscent of bygone eras, not the modern age. Tens of millions of paper documents needing manual processing inundate our facilities and offices. It’s time to ensure that no IRS cafeteria ever resembles that again.”
The advancements are facilitated by the Inflation Reduction Act, P.L. 117-169, which allocates $80 billion to the IRS over a decade. The debt ceiling agreement earlier this year reduced this amount by about $20 billion.
Werfel highlighted, “The intention behind the Inflation Reduction Act’s funding was to move from a paper-based IRS to a digital one, and our present announcement demonstrates our commitment to fulfilling that promise.”
During his tenure as IRS commissioner, Everson mandated that large corporations and not-for-profits electronically file their returns. Subsequently, the Service has made consistent progress toward electronic filing. However, the challenge has often been the fluctuations in the regular budget, he explained.
Sustained and assured funding translates to an improved IRS, Everson emphasized. He commented, “The advantage of this is that they have a dedicated budget, and they’re confident that they’ll have the resources needed to see projects through.”