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December 4, 2022

Busy Season Problems: Somebody Please Get the IRS a Damn Scanner

We usually reserve this space on Going Concern for our tax preparer friends who have to deal with mostly client-initiated and other unexpected problems on a daily (hourly?) basis during busy season. And we’ll get to them next week as they near the home stretch of the April 15 18 filing deadline.

Erin Collins

But today I wanted to bring to your attention a blog post from National Taxpayer Advocate Erin Collins. We’ve written in the past about the antiquated technology at the IRS (remember the catastrophic system failure on Tax Day 2018?), and things aren’t much better there four years later.

And you know what is screwing the IRS the most right now? Paper tax returns. Yes, people still do their taxes on paper! In fact, according to Collins’s blog post yesterday, the paper return backlog stood at nearly 15 million as of March 18. Fifteen million! If only there was some piece of technology that could help these poor overworked souls at the IRS process these paper returns. Something like, oh I don’t know, a scanner:

The reason paper returns are so challenging is that the IRS still has not implemented technology to machine read them, so each digit on every paper return must be manually keystroked into IRS systems by an employee.

It doesn’t have to be that way. During the past two decades, state tax agencies have been using scanning technology to automate the processing of paper tax returns. During that time, the IRS has considered, rejected, proposed, reconsidered, partially implemented, and deferred the question of whether to implement scanning technology.

Yesterday, I issued a Taxpayer Advocate Directive (TAD) directing the IRS to work with the tax software industry to implement 2-D barcoding for next filing season. The TAD also directed the IRS to implement optical character recognition (OCR) or similar technology for next filing season if possible or, if not, for the following filing season.

Collins wrote that even though the pandemic has caused delays for some taxpayers who e-filed their returns, the overwhelming majority of lengthy delays have been experienced by taxpayers who filed original returns on paper or who have filed amended returns, which are generally processed as paper returns even when submitted electronically. Last year, the IRS received nearly 17 million paper 1040s, over 4 million 1040-X forms, and millions of paper business returns. She continued:

The delays in processing these returns result from the IRS’s archaic data intake process. The IRS’s submission processing function today evokes images of what data transcription looked like in the 1960s – prior to the information age. Employees manually transcribe all paper tax returns. Transcription consists of keystroking each digit and each letter on the return. For a moderately complex return, several hundred digits may need to be transcribed. For longer returns with more forms and schedules, the number of digits may approach or exceed 1,000 digits.

In the year 2022, this doesn’t just seem crazy. It is crazy.

“Crazy” isn’t a strong enough word to describe it, Erin. How about we use two words: fucked up.

Getting Rid of the Kryptonite: The IRS Should Quickly Implement Scanning Technology to Process Paper Tax Returns [National Taxpayer Advocate Blog]

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