Taxpayer advocate appeals IRS resolution to delay scanning tech

Nationwide Taxpayer Advocate Erin Collins is protesting a choice by Inner Income Service officers to postpone implementation of scanning expertise by subsequent tax season to cope with a backlog of tens of millions of paper tax returns.

Collins referred to as on the IRS throughout tax season to implement the form of generally used scanning expertise already in use by many different authorities businesses and companies of all types, equivalent to 2-D bar coding, optical character recognition and machine-readable textual content. She issued a uncommon Taxpayer Advocate Directive  final March because the IRS struggled to beat a backlog of tens of millions of unprocessed paper tax returns from final yr and this yr (see story).

Lawmakers in Congress echoed her considerations throughout oversight hearings with IRS commissioner Chuck Rettig, who reminded them that the funding for scanner expertise had been ignored of congressional appropriations payments for years.

Nationwide Taxpayer Advocate Erin Collins testifying earlier than a congressional committee in October 2020.

Tasos Katopodis/Bloomberg

IRS deputy commissioners Douglas O’Donnell and Jeffrey Tribiano issued a response final month to Collins’ directive, saying the IRS remains to be pilot testing numerous applied sciences, however with out making any dedication on timing. Nonetheless, in a weblog publish Thursday, Collins stated she is interesting their resolution, citing the pressing want for the scanner expertise to be in place by subsequent submitting season.

“Because of the magnitude of this challenge and the unprecedented backlog of paper returns, I took the weird step of interesting the deputy commissioners’ resolution to the commissioner for reconsideration,” Collins wrote. “Our taxpayers and workers deserve a 21st century tax administration that makes use of expertise to streamline tax administration, most notably by delivering well timed tax refunds. I imagine IRS executives and workers wholeheartedly agree with this assertion. As such, I used to be disillusioned within the deputy commissioners’ response to my TAD.”

She famous that for the reason that begin of the COVID-19 pandemic, tens of tens of millions of taxpayers have skilled important delays in receiving their tax refunds, with some ready 10 months or extra. 

“I’ve beforehand stated that paper is the IRS’s Kryptonite and the IRS is buried in it,” Collins wrote. “Paper returns stay the IRS’s Achilles heel as a result of the IRS nonetheless — within the yr 2022 — has not applied expertise to machine learn paper-filed returns. Because of this, workers should manually keystroke into IRS programs every digit on each paper return. Not solely does guide knowledge transcription delay refunds, however knowledge transcription errors had been made on 22% of paper-filed returns processed final yr, which causes rework and extra frustration for taxpayers and the IRS itself.”

She acknowledged that in fiscal yr 2017, the IRS requested Congress to acceptable $8.four million so it might implement 2-D barcoding, however Congress did not present the funding, so the IRS let the proposal drop. Nonetheless, she believes the IRS might have discovered the funding elsewhere.

“It’s not clear why the IRS, managing a finances that at the moment exceeded $11 billion, couldn’t reallocate funding to cowl the $8.four million implementation price,” stated Collins. “Had it carried out so, the expertise would have paid for itself many occasions over.”

Of their response to Collins’ directive, the IRS deputy commissioners mentioned their progress in testing out the scanner expertise. 

“Now we have pursued and proceed to pursue quite a lot of choices to achieve efficiencies in processing paper filed returns,” O’Donnell and Tribiano wrote. “One such expertise is 2-D barcoding. A number of states have adopted 2-D barcoding, and we’re in discussions with a few of our state companions to be taught from their experiences. On the similar time, now we have applied a number of pilot applications to check barcoding and different applied sciences which will assist us change into extra environment friendly. It is very important totally check these choices earlier than singling out, and maybe changing into overly reliant, on any certainly one of them.”

One of many pilot applications being examined by the IRS includes so-called “V-coded” returns that come from taxpayers who use software program to organize a return, print the return, and mail it to the IRS. Nonetheless, the IRS’s expertise so far has been combined and it is persevering with to work with distributors to enhance the probability of having the ability to course of the returns with out errors. 

One other pilot program being examined includes a “lockbox scanning service.” This pilot makes use of the Treasury Division’s Bureau of the Fiscal Service to scan Varieties 940 and submit them utilizing the IRS’s Modernized eFile system. This pilot is exhibiting higher indicators of success, and the IRS plans to start scanning and e-filing a portion of paper Varieties 940 by way of the MeF system in August.

“The aim is to speed up this pilot and scan a bigger portion of kinds in submitting season 2023, relying on pilot testing outcomes and funding availability,” the IRS officers wrote. 

One other pilot program includes the 2-D barcodes that Collins has urged the IRS to implement. On this pilot, the IRS is receiving knowledge from Varieties 8918 and 8886. Final December, the IRS launched Kind 8918 with 2-D barcodes and plans to challenge Kind 8886 with 2-D barcodes this coming August. 

Nonetheless, the IRS deputy commissioners identified that earlier than the IRS can think about using 2-D barcodes from Kind 1040, the company might want to speak with the software program business about revising business requirements to align their expertise with the way it brings in and processes knowledge. 

“The business must agree to offer this code in printed kinds ready with their software program,” O’Donnell and Tribiano wrote to Collins. “We’ll begin that engagement quickly, develop a plan and report again to you with the outcomes.”

Within the meantime, they famous the IRS is making extra kinds obtainable for digital submitting to encourage larger adoption of e-filing. 

“A multifaceted method is critical to handle the paper stock that [the] IRS receives yearly and to enhance return processing for these due refunds in addition to those that owe nothing or owe extra tax,” O’Donnell and Tribiano wrote, however they added, “We won’t implement any single possibility till we’re assured within the supply of that possibility.”

That response fell wanting what Collins has been urging the IRS to do, and she or he is interesting the choice. 

“The response declined to make a dedication to implement scanning expertise to machine learn V-coded returns, and it expressly rejected implementing scanning expertise to machine learn handwritten returns,” she wrote. “The response additional acknowledged the IRS wouldn’t implement any single possibility till it’s assured within the supply system. I totally agree the IRS ought to select an environment friendly and dependable supply system, however the TAD response doesn’t present specifics relating to its ongoing efforts, a timeline to use a supply system to course of paper returns, or the share of 2022 returns it anticipates scanning. I respect the IRS’s efforts with the ‘Lockbox Scanning Service Pilot’ and encourage transferring ahead with scanning returns. However that pilot includes returns with which the taxpayer is making a cost. Processing delays primarily hurt taxpayers who’re due refunds, and I wish to see the IRS prioritize its efforts to paper-filed refund returns.”