Business

IRS pledges paperless tax processing by 2025

by Taylor Giorno - 08/02/23 3:50 PM ET

FILE - The exterior of the Internal Revenue Service (IRS) building in Washington, on March 22, 2013. That big infusion of cash that Congress approved last year to shape up the beleaguered IRS is having an unexpected side benefit. The funding increase has helped the agency to catch up on processing new and backlogged tax returns. And that, in turn, has allowed federal bean-counters to give policymakers a more precise picture of when the Treasury could run out of money — the so-called X-date. (AP Photo/Susan Walsh, File) — FILE – The exterior of the Internal Revenue Service (IRS) building in Washington, on March 22, 2013. That big infusion of cash that Congress approved last year to shape up the beleaguered IRS is having an unexpected side benefit. The funding increase has helped the agency to catch up on processing new and backlogged tax returns. And that, in turn, has allowed federal bean-counters to give policymakers a more precise picture of when the Treasury could run out of money — the so-called X-date. (AP Photo/Susan Walsh, File)

Taxpayers may finally get relief from paper-based processes that have long frustrated filers and the Internal Revenue Service (IRS) alike.

The IRS is aiming to allow taxpayers to digitally submit all agency correspondence by 2024 — the next tax filing season — and achieve paperless processing capabilities by the 2025 filing season, the Treasury Department announced Wednesday.

By 2025, the IRS will also digitize the estimated 1 billion historical documents in its catalog, which cost around $40 million per year to store.

The Paperless Processing Initiative “marks a significant step in our efforts to digitize IRS operations,” Treasury Secretary Janet Yellen said during a visit to an IRS facility in McLean, Va., on Wednesday.

Yellen described the initiative as a “massive transformation” that will save 200 million pieces of paper each year, significantly reduce processing times and expedite refunds.

The initiative is voluntary: Taxpayers who prefer to submit paper returns and correspondence may continue to do so. The IRS says that by 2025, all paper documents will be digitized upon arrival.

An $80 billion infusion over the next 10 years awarded to the IRS under the Inflation Reduction Act (IRA) is funding the new initiative.

“Thanks to the IRA, we are in the process of transforming the IRS into a digital-first agency,” Yellen said. “This ‘Paperless Processing Initiative’ is the key that unlocks other customer service improvements.”

But nearly a quarter of the new funding was slashed in a deal struck between the White House and House Republicans during debt limit negotiations.

“Recouping these funds will not only save billions in inflationary spending right now, it also reduces the size of a weaponized agency and protects hardworking American families and businesses,” Rep. Chip Roy (R-Texas) wrote in a memo to fellow Republicans during negotiations.

Yellen called on Congress to provide “stable and sufficient” annual funding for the IRS to continue the modernization of the agency during her remarks Wednesday.