Nationwide Taxpayer Advocate Erin Collins issued a directive calling on the Inner Income Service to implement scanning know-how as a strategy to cut back the backlog of unprocessed tax returns by 2023.
Collins wrote in a weblog publish Wednesday concerning the Taxpayer Advocate Directive she issued Tuesday, which urges the IRS to leverage optical character recognition, 2-D bar coding and different machine-reading scanning know-how inside the subsequent two submitting seasons. Collins refers to paper returns because the IRS’s Kryptonite that has been bogging down the processing of tax returns this tax season. As of March 18, 2022, the IRS nonetheless has 15 million tax returns backlogged from the 2020 and 2021 submitting seasons, she famous.
“The delays in processing these returns outcome from the IRS’s archaic knowledge consumption course of,” Collins wrote. “The IRS’s submission processing perform as we speak evokes photos of what knowledge transcription regarded like within the 1960s — previous to the data age. Workers manually transcribe all paper tax returns. Transcription consists of keystroking each digit and each letter on the return. For a reasonably advanced return, a number of hundred digits could have to be transcribed. For longer returns with extra kinds and schedules, the variety of digits could method or exceed 1,000 digits. Within the yr 2022, this doesn’t simply appear loopy. It’s loopy.”
Nationwide Taxpayer Advocate Erin Collins testifying earlier than a congressional committee in October 2020.
Tasos Katopodis/Bloomberg
An evaluation by the Taxpayer Advocate Service that Collins leads discovered that between 50 and 60% of the person revenue tax returns submitted on paper over the previous two years had been ready with tax return software program and wouldn’t have to be transcribed if 2-D barcodes had been added.
“Scanning know-how would velocity return processing, considerably cut back or eradicate transcription errors, and allow the IRS to reassign staff from knowledge entry jobs to different positions, in the end saving tens of hundreds of thousands of {dollars},” Collins wrote.
The Biden administration in its finances request this week requested Congress for $14.1 billion for the IRS in fiscal yr 2023, a $2.2 billion increase over the 2021 stage. (This yr, Congress just lately agreed to a $675 spending enhance for the IRS as nicely). The finances proposal would offer $310 million for IRS enterprise techniques modernization, which might be 39% above the 2021 enacted stage, to speed up growth of latest digital instruments to allow higher communication between taxpayers and the IRS.
The Skilled Managers Affiliation, a bunch of administration officers on the IRS, agreed with the additional funding request. “The IRS has longstanding know-how and workforce points that stop it from functioning as effectively and successfully because the American individuals want,” mentioned PMA govt director Chad Hooper in a press release Wednesday. “Our members depend on a 60-year-old laptop system to do their jobs and workers use sorting tables final up to date within the Kennedy Administration to course of paper tax returns. The proposed $14.1 billion in funding with $310 million for techniques modernization will help the IRS in addressing some obstacles to success. PMA maintains {that a} single-year funding enhance is inadequate to offer the IRS with the sources wanted for long-term modernization. When PMA counseled Congress for growing funding to $12.6 billion in FY 2022, we additionally level-set expectations: At $12.6 billion in funding, the IRS remains to be practically $four billion beneath its 2011 peak of $16.four billion, when accounting for inflation. FY 2022 funding was additionally beneath the $13.2 billion President Biden requested.”
It might be stunning that the IRS just isn’t already utilizing scanning know-how to expedite processing of paper returns, though bar codes and OCR know-how have lengthy been in use.
“2-D barcoding know-how is nicely established,” Collins wrote. “In 2002 — totally twenty years in the past — we reported that 17 states had been utilizing 2-D barcoding for returns ready with tax return software program however filed on paper, and we advisable the IRS think about doing in order nicely. On the time, the IRS disagreed with our suggestion to include 2-D barcodes onto Types 1040, stating that doing so would undermine the purpose of transitioning taxpayers to e-filing. In 2003, nevertheless, the IRS had begun working with tax return software program builders on a 2-D mission for different tax kinds, and the IRS has applied 2‑D barcoding for sure kinds, together with Schedules Okay-1.
In 2014, the IRS reversed its place concerning 2-D barcoding for Types 1040, requesting that Congress present it with authority to require taxpayers who put together their returns with software program however file them on paper to print their returns with a scannable 2-D barcode. In 2018, the Home-passed model of the Taxpayer First Act contained a provision to require 2-D barcoding. By that point, the IRS had modified its place once more. We have now been advised the IRS requested the supply be faraway from the laws to offer it flexibility to undertake different scanning applied sciences like OCR. Congress eliminated the supply from the ultimate model of the Taxpayer First Act that was enacted, however the IRS nonetheless has not applied any sort of scanning know-how for Types 1040.”
She believes it’s time for the IRS to start utilizing applied sciences which can be already extensively accepted. “Thus, 20 years after greater than one-third of states had been already utilizing 2-D barcoding, 18 years after the Nationwide Taxpayer Advocate initially advisable it for Types 1040, eight years after the Treasury Division requested that Congress present the IRS with the authority to mandate 2-D barcoding, and 4 years after Congress sought to grant that authority and the IRS modified its place, the tax system finds itself in a disaster which may not exist, at the least to this diploma, if 2‑D barcoding or related know-how had been applied,” mentioned Collins.
OCR know-how has some drawbacks, nevertheless, Collins admitted, and may typically confuse a 1 with a 7. Nevertheless, it too has been utilized by state tax authorities together with 2-D barcoding. “In discussions with state tax businesses, we’ve been advised that some states use each 2-D barcoding and OCR,” Collins famous. “The place a return is ready with software program and a barcode could be utilized, the barcode supplies close to 100 % accuracy. The place a return just isn’t ready with software program or if a barcode can’t be learn (e.g., the place a taxpayer’s toner cartridge ran low or the barcode has smudged), OCR is used, and regardless of its barely decrease accuracy stage, it nonetheless reduces the necessity for guide knowledge transcription and eliminates errors attributable solely to human error in hitting the unsuitable key.”