Early efforts by the IRS to deploy Inflation Reduction Act (PL 117-169) funds towards expanding electronic filing tools and implementing paper return scanning have contributed to a much smoother tax filing season compared to recent years, according to Treasury and IRS officials.
On April 17, IRS Commissioner Danny Werfel told reporters that Werfel said that for the first time since tax season 2019, the IRS is on “normal footing” and that this year was “solid” by “any measure.” The IRS is “fully caught up” with tax year 2022 individual tax returns filed without errors, Werfel stated. “We have zero backlog.”
He clarified that the agency is continuing to work through amended returns and resolving errors. Yet, the IRS has had “significant reductions since the last tax filing season started.”
The COVID-19 pandemic caused disruptions at the IRS in many areas of the agency, particularly delays in return processing and taxpayer correspondence. A backlog of millions of paper returns piled up over a three-year period, prompting a hiring spree of return processors and reallocating staff from other departments to help chip away the slog of manual clerical work required to key in information into IRS systems.
Recently, the IRS updated its COVID-19 mission-critical operational status webpage to reflect that all paper and electronic individual returns received before January 2023 are done. “As of April 1, 2023, we had 2.26 million unprocessed individual returns,” the IRS said. “These include tax year 2022 returns, 2021 returns that need review or correction and late filed prior year returns. Of these, 1.7 million returns require error correction or other special handling, and 558,000 are paper returns waiting to be reviewed and processed.”
Reuters reported that the IRS entered 2023 with a backlog of unprocessed individual and business returns totaling 1.4 million—which have since been cleared.
A key difference this year has been the launch of a new initiative called Digital Intake, Werfel said, which allows processors to digitally scan paper returns to reduce the need for manual, digit-by-digit entry. Return scanning is being used beyond just individual income tax returns, including paper Forms 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, according to Werfel, who said that over 410,000 paper Forms 940 have been scanned so far, with more forms to be added in the future.
In general, the IRS hopes to use the $80 billion funding through 2032 to transition to a “fully digital correspondence process,” Treasury Deputy Secretary Wally Adeyemo said during Monday’s press call. This in part means eliminating and preventing paper backlogs by moving to e-filing options for more forms, according to Adeyemo. “The progress on scanning responses and shows the IRS is well on its way towards that goal.”
So far, the Inflation Reduction Act funds have been used to launch an online portal called the Information Returns Intake System (IRIS). Eligible businesses can apply to electronically file Forms 1099 through IRIS, a shift that “helps save time and effort for both businesses that issue these forms and the taxpayers that receive them,” Werfel said.
Taxpayers can also now respond to notices online and receive refunds via direct deposit. So far, this applies to “nine of the most common notices for credits like the earned income tax credit,” said Adeyemo, adding that the goal is to eventually increase that number to 72.
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