Digital scanning of tax documents to expand, will add Form 1040 soon

The IRS said Wednesday that soon it will add Form 1040, U.S. Individual Income Tax Return, and Form 941, Employer’s Quarterly Federal Tax Return, to the forms that it can digitally scan.

The agency said in a news release that, as part of its Digital Intake scanning initiative, it has already scanned over 120,000 paper Forms 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, since the start of 2023. That’s a 20-fold increase compared with all of 2022.

Acting IRS Commissioner Doug O’Donnell described the expansion of digital scanning as “another milestone” in the agency’s transformation. Expansion of the scanning of more paper returns is expected “in the near future,” he said.

National Taxpayer Advocate Erin Collins, in her annual report to Congress in January, recommended that the IRS make digital filings a priority, a recommendation with which the IRS agreed (pp. 111–112). The IRS said it continues to expand the e-file system to improve the taxpayer’s experience, while working to prevent fraudulent tax filings. It is also working to add more forms to the e-file platform, building on paperless capabilities.

Other improvements as part of the Inflation Reduction Act of 2022, P.L. 117-169, include hiring more than 5,000 new telephone assistors, adding staff to IRS Taxpayer Assistance Centers, holding special Saturday hours, and expanding the Document Upload Tool. The act provided $80 billion over 10 years to the IRS.

At the end of 2021, the IRS had processed almost 169 million tax returns, of which 152,300,000, or 90%, were e-filed. But that still left over 16 million paper returns for the IRS to input by hand.

Even without the expansion of digital scanning, the IRS says it has processed 4.3% more returns as of Feb. 24 of this year compared with the same time last year. It has received 1.5% more returns via e-filing, including 6.1% more from tax professionals.

The IRS says it is also working with Treasury’s Bureau of the Fiscal Service and Lockbox Financial Agents to expand digitalization of tax returns. Current scanning initiatives now ongoing include:

• Digital Intake with Lockbox: This project will allow Lockbox Financial Agents (banks that specialize in payment processing) to scan paper returns on-site and then e-file those returns. The IRS reports that millions of taxpayers send payments and associated tax forms to these Lockbox banks each year.
• Digital Intake with Industry Partners: This process allows IRS industry partners to extract machine-readable information from paper tax returns and e-file those returns.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.