Remarks by IRS Commissioner Danny Werfel on the paperless processing initiative


August 2, 2023

Thank you very much, Secretary Yellen. I am grateful for your leadership and for your consistent focus on holding the IRS accountable to modernize and make it easier for Americans to navigate our complex tax system.

The scanning of paper 1040s that Secretary Yellen and I observed was history in the making for the IRS. It's the future, and it's a critical step to help us take a giant step forward.

This has been a team effort. Before I get started, I want to recognize the IRS's Office of Enterprise Digitalization – who we fondly refer to inside the IRS as "Team Digi -- as well as the various IRS operating divisions that are participating in the scanning initiative that has been a long time in the making. They include:

  • Wage and Investment;
  • Information Technology;
  • Privacy, Governmental Liaison and Disclosure; and
  • Procurement
  • There are many other parts of the IRS involved in this effort, including the Taxpayer Advocate Service.
  • And a central part of this effort will be our new Transformation and Strategy Office, which is helping put in place scanning as part of the new Strategic Operating Plan.

I deeply appreciate all their hard work to get us where we are today and to keep us moving forward in this vital area.

When I became Commissioner nearly five months ago, one of my top goals was to find new ways for the IRS to use technology to help taxpayers. And the work underway with the Strategic Operating Plan, with funding provided by the Inflation Reduction Act, has us exploring numerous ways that we can better use technology to make the entire tax process more efficient.

As the Secretary noted, we've seen some major accomplishments, and many more are in progress as we work to modernize the way we serve taxpayers through improved technology, better service and fairer enforcement.

But the paperless process initiative we're launching today stands out as a special one out of all these projects. It is a very clear example of how with the right funding and the right priorities, we can relatively quickly move the IRS operations decades forward.

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

As the taxpayer advocate, who is here today has noted, paper is the agency's kryptonite. When our operations are flooded with paper, we are slower and more prone to errors. To counter that kryptonite, there are emerging technologies that will make it possible for us to convert the oceans of paper that arrive at our doors into a digital format before it leaves our "mail room."

Specifically, it is now our goal that by the 2025 filing season, the IRS will achieve paperless processing, which means digitizing all paper-filed returns as soon as they are received.

Achieving this milestone will enable up to 76 million paper documents to be processed digitally every year.

And more immediately for the 2024 filing season, we are giving taxpayers new tools that will help them go paperless should they choose. We are launching web-based solutions for the upcoming filing season that will allow virtually all correspondence to be uploaded by taxpayers rather than mailed in. Being able to digitally submit their correspondence and responses and other paper means taxpayers will have the potential to digitally submit up to 125 million paper documents each year.

In addition, we will be adding more non-tax forms in digital, mobile friendly formats that will make it easier for taxpayers to complete and submit.

All of this means the IRS will improve service, cutting internal processing times and even speeding refund delivery for taxpayers still submitting a paper 1040.

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

Here's an example. Although the vast majority of people file electronically, millions of households still file paper returns. And although we'd prefer for people to file electronically, people should be reassured they can still file a paper tax return under this scanning effort.

Up to now, our only option was to manually process these paper returns, which means people are keystroking numbers by hand. This is very time-consuming and costly when compared with electronically filed returns.

Scanning is a game-changer for taxpayers and for our tax administration. To the extent we can scan and electronically process paper returns, we can significantly shorten the processing time for those returns. This means refunds from tax returns filed on paper can then be issued more quickly, and any issues with the returns can be resolved much faster. We're also able to gather more information from those forms, allowing us to provide better service and better enforce the tax code. This has many implications, including having more current information in the hands of our customer service representatives to help taxpayers.

Scanning paper forms has actually been going on at the IRS for a long time – more than 35 years. But it's been piecemeal, and the IRS has not gotten to where it needs to be. Until recently, reductions in funding and personnel for the agency combined with a lack of certainty in our future funding made it impossible to take a more comprehensive approach to scanning -- and to fully tackle the enormous volume of paper that comes to the IRS each in every day.

Thanks to the IRA funding during the past year, we are now accelerating and scaling our scanning capabilities. We started by scanning paper Forms 940, the employment tax return sent in by businesses each year. We expanded this effort to include Form 941, the quarterly tax return sent in by employers, and then began scanning the 1040.

One of the reasons it's so exciting to see the 1040 scanned is that it wasn't easy to do – we had to build up to it, which is why we started with those two simpler forms, the 940 and 941. With all its attachments and schedules, the 1040 was a much bigger job, so reaching this milestone was very important.

Now that we're scanning individual taxpayer returns, I want to point out that the scanning process we've developed is completely safe and secure. Each scanned 1040 is saved into a zip file that includes a digital copy of each document submitted. We will continue monitoring and evaluating our process to ensure that it remains secure, and we will do everything we can to ensure taxpayers' return data will remain protected.

So far this year, we have scanned more than 700,000 paper forms. These include Forms 940 and 941 as well as some Form 1040s. As this project progresses, we will build on that momentum.

One important thing I should note from the taxpayer's standpoint. We describe this as a "paperless IRS." But that refers to what we want to have happen on the IRS side of the tax equation. People can still send paper in, but once it gets to the IRS, we want to be able to scan and digitalize these forms - reducing paper and adding efficiency.

While being able to scan paper tax returns is a major milestone, it's still only one piece of a much broader effort to modernize the agency – as well as bring the IRS fully into the digital age. Digitalization has far-reaching implications for how the IRS can improve service.

But improving service isn't just about online capabilities. Transforming the IRS also means continuing to improve service on the phones and in person. And we have also been stepping up our efforts on enforcement. For example, we're expanding our work to ensure millionaires play by the same rules as everyone else. In this area, we are already starting to see results – holding millionaire tax delinquents accountable and collecting hefty amounts of owed taxes. Tax evaders shouldn't be driving Maseratis and Bentleys while other people are playing by the rules.

The bottom line is an IRS after the Inflation Reduction Act is a very different IRS than before. This is good for taxpayers and good for the nation. We have a unique opportunity – a once in a generation chance – to envision and realize the future of tax administration. We continue to make progress on this, and we will continue to focus on both short-term and long-term wins as we move forward.

We will build on the successes we have already seen this past filing season and continue to put in place improvements to help taxpayers, ensure fairness in tax compliance and improve technology.

For these improvements to continue and accelerate, a consistent, reliable funding stream remains critical for the agency – both in our annual appropriations process and in maintaining Inflation Reduction Act funding.

This concludes our event, and thank you for attending.

For more information see IRS launches paperless processing initiative.