IRS Promises to Digitize All Taxpayer Documents by 2025 (Updated)

Today it is the US Treasury Department announced that taxpayers will have the choice to go paperless for all correspondence from the Internal Revenue Service (IRS) in the upcoming 2024 filing season.

By 2025, the IRS plans to achieve paperless processing of all tax returns, still accepting paper documents but immediately digitizing them, to “cut processing times in half” and “speed up refunds by several weeks,” the Treasury Department said.

“The IRS receives approximately 76 million paper tax returns and forms and 125 million pieces of correspondence, notice responses and non-tax forms each year, and its limited ability to accept these forms digitally or digitize paper it receives has prevented the IRS from providing that service world-class taxpayers deserve,” the Treasury said.

By speeding up paperless processing, the IRS expects to simplify how Americans access their taxpayer data and save millions historically spent on storing more than a billion documents. Digitization can also help eliminate errors, the Treasury Department said, which can “result from manually entering data from paper returns.” And it will help taxpayers get answers to questions faster, since IRS customer service agents “currently do not have easy access to the information from paper returns.” From 2024 they will.

Next filing season, taxpayers will have the option to e-file 20 additional tax forms among the most commonly filed when amending returns, including forms used to submit information about things like identity theft or proof of eligibility for “key credits and deductions that help to create -income households.”

“Taxpayers who wish to file paper returns and correspondence may continue to do so,” the Treasury Department said, but “all paper will be converted to digital form as soon as it arrives at the IRS.” By 2024, the IRS estimates that “more than 94 percent of individual taxpayers will no longer ever need to mail the IRS.”

When taxpayers arrive for the 2025 filing season, they will have the option to e-file “an additional 150 of the most commonly used non-tax forms,” ​​the Treasury Department said, which “will be available in digital, mobile-friendly formats that make them easy for taxpayers to complete and submit.”

The IRS prioritized mobile-friendly formats because the agency estimates that “15 percent of Americans rely solely on cell phones for their Internet access.”

Crushing data to audit wealthy tax evaders

Apparently, not everyone will be thrilled to see the IRS go completely paperless. The Treasury Department said the combination of paperless processing with “an improved data platform” will make it easier for data scientists to extract and analyze data – potentially detecting tax evasion that the IRS has long overlooked due to a lack of resources.

“When combined with an improved data platform, digitization and data mining will enable data scientists to deploy advanced analytics and pattern recognition methods to pursue cases that can help close the tax gap, including wealthy individuals and large corporations that use complex structures to to evade taxes they owe.”, the Ministry of Finance states.

In April was This is stated by the Ministry of Finance that “enhancing enforcement among high-income and high-net-worth individuals, complex partnerships and large corporations that don’t pay the taxes they owe” could end up flagging $160 billion owed but evaded annually.

“Due to a lack of resources and the loss of top talent, audits of the wealthy and large corporations have plummeted over the past decade, and the amount of tax evaded by the top 1 percent has exploded to $160 billion a year,” the Treasury Department . reported in April. “Millionaire audit rates fell 77 percent, large corporation audit rates fell 44 percent, and partnership audit rates fell 80 percent between 2010 and 2017.”

Treasury Secretary Janet Yellen said updating IRS technology was critical to reducing the tax gap and ensuring “high earners play by the same rules as working and middle-class families.”

Ars reached out to several organizations representing tax professionals and accountants to see how the IRS going paperless will affect individuals and businesses during the next filing season, and will update this report as more information becomes available. (Update: Senior Manager for Tax Policy and Advocacy for the American Institute of CPAs (AICPA), Peter Mills, told Ars that the IRS’s paperless processing initiative reflects recommendations submitted by the AICPA and the AICPA-led coalition, Tax Professionals United for Taxpayer Relief Coalition. Mills said the AICPA is “encouraged to see the IRS taking steps to modernize its operations” by increasing the number of documents that can be submitted electronically and digitizing the documents it receives. The AICPA is “optimistic that these steps will lead to reduced processing times and better experiences overall for taxpayers,” Mills said.)

The IRS updates are funded by provisions included in the Inflation Reduction Act (IRA), which provides separate funding from the IRS’s annual budget appropriations, which Republicans in Congress are actively seeking to cut. This was reported by Reuters. Last month, however, IRS Commissioner Danny Werfel warned that budget cuts could reduce the IRS’s ability to “increase the tax collection of millionaires.” This was reported by Reuters.

Yellen has said budget cuts could also slow the digitization process and hamper efforts to improve customer service.

Strengthens IRS data security

Recently, popular e-filing services have come under fire due to data privacy concerns. Last month, Congress said H&R Block, TaxAct and TaxSlayer could face billions in fines for “recklessly” sharing potentially hundreds of millions of taxpayers’ sensitive personal and financial data with Google and Meta “for years” in apparent violations of the laws.

For some taxpayers, e-filing and conducting all correspondence online directly with the IRS could provide more assurances of data privacy and security.

The Treasury Department said in April that the latest technology investments include funds that “will also allow the IRS to continue to meet and enforce industry- and government-wide cybersecurity standards and ensure continued protection of taxpayer data.” That includes “system-wide technology upgrades that the IRS has lacked the resources to do” in the past.