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MSP #1: PROCESSING DELAYS

Paper Backlogs Caused Refund Delays for Millions of Taxpayers

TAS Recommendations and IRS Responses

1
1.

TAS RECOMMENDATION #1-1

Expedite the processing of paper tax returns by developing a plan to implement optical character recognition, 2-D bar coding, or similar technology to automate the processing of these returns during the 2023 filing season or, if that is not feasible, by the start of the 2024 filing season.

IRS RESPONSE TO RECOMMENDATION: ​

The IRS agrees to implement the TAS recommendation in part.

The IRS is executing multiple digitalization projects to test solutions to increase scanning, conversion of data (using optical character recognition (OCR) or similar technology) and processing of returns starting in filing season 2023. Three independent project teams (Lockbox, Scanning-as-a-Service (SCaaS), and Submission Processing Modernization) were established to work in parallel with external providers to quickly develop new or expand upon existing partnerships. The goal is to establish digitalization and digitization processes that will serve as use cases for program expansion and potential inclusion of a broad scope of forms and taxpayer submissions.

The Lockbox Digitalization project works with the IRS Lockbox Network, including Financial Agents, to scan paper forms on-site, enabling electronic files to be shared securely with the IRS. Leveraging the existing network and OCR technology, Lockbox sites convert data from ingested tax return documents and transmit back to the IRS through the Modernized e-File (MeF) application for downstream processing. To date, the Lockbox network successfully scanned and transmitted over 223,927 TY21 and TY22 F940s. The Service is expanding its efforts to include F941 and F1040.

The SCaaS project uses third-party services to convert paper files to digital data. SCaaS contractors scan paper documents and transfer the digital files and related metadata to the IRS. TY22 and TY23 F941s will also be scanned and transmitted to the IRS through the MeF application for digital downstream processing. Scanning to-date has used sample data and small batches of forms to refine procedures and test the contractor’s software ahead of the F941 Go-Live.

The Submission Processing Modernization (SPM) project leverages submission processing technology capable of high-capacity digital intake (more than 100,000,000 pieces of mail), with focus on the digitalization of F1040s in filing season 2023. This project deploys innovative technology to improve the IRS’s ability to receive, count, sort, mark, and process high volumes of mail (of varying shapes, sizes, and dimensions) with additional capability to identify, extract, and digitize/digitalize data.

Based on these digitization and digitalization efforts, in FY23 the IRS will scan and process a total of 3.5M documents, leading to a reduction of an estimated $15.9M in costs and 391,000 full-time equivalent hours associated with manual paper processing.

CORRECTIVE ACTION: The IRS is executing multiple digitalization projects to test solutions to increase scanning, conversion of data (using optical character recognition (OCR) or similar technology) and processing of returns starting in filing season 2023. Three independent project teams (Lockbox, Scanning-as-a-Service (SCaaS), and Submission Processing Modernization) were established to work in parallel with external providers to quickly develop new or expand upon existing partnerships. The goal is to establish digitalization and digitization processes that will serve as use cases for program expansion and potential inclusion of a broad scope of forms and taxpayer submissions.

TAS RESPONSE: It is encouraging the IRS is engaged in the referenced digitalization projects to modernize its technology and processes to better work with the paper it receives and help reduce reliance on manual processing by IRS employees. However, the IRS’s response lacks clarity as to its overall plan, including the anticipated duration of the respective projects and the phases the projects must pass through to reach implementation.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): Ongoing

2
2.

TAS RECOMMENDATION #1-2

Prioritize the processing of refund returns prior to returns with tax due or no tax during the 2023 filing season.

IRS RESPONSE TO RECOMMENDATION: ​​

IRS agrees to implement the TAS recommendation in full.

Prior to the COVID-19 pandemic, it was the policy of Submission Processing to sort and process paper refund returns first. As the pandemic impaired our processing capabilities, we began to work returns in order of the date received. As of filing season 2023, we have resumed our normal practice of processing paper refund returns first.

CORRECTIVE ACTION: N/A – Actions have already been completed.

TAS RESPONSE: The policy of prioritizing the processing of paper refund returns first is an important safeguard that serves to protect taxpayers from experiencing refund delays. Deviations from the policy are consequential for taxpayers expecting refunds. The timely processing of refund returns helps to foster taxpayer trust and confidence in tax administration.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #1-3

Automate error resolution for all error codes and conditions using the FixERS tool or other tool during the 2023 filing season or, if that is not feasible, by the start of the 2024 filing season.

IRS RESPONSE TO RECOMMENDATION: ​​​​

IRS agrees to implement the TAS recommendation in part.

Although use of the FixERS tool to automate the resolution of all error codes is not feasible, the IRS supports leveraging the FixERS tool to expand the scope of error codes we can resolve within the tool’s capabilities and functionality. The FixERS tool will process 21 error codes in filing season 2023, an increase from the 6 error codes included during filing season 2022. These 21 error codes will include 9 of the top 11 codes by volume. It is not feasible to incorporate all error codes into the FixERS tool because some error codes and conditions involve missing forms or schedules, omissions of critical information, and other irregularities, and require closer scrutiny for final resolution by tax examiners. Each year, we will evaluate opportunities to enhance the tool and improve the filing season experience and we will continue to study prudent expansion of the tool.

CORRECTIVE ACTION: N/A – Actions have already been completed.

TAS RESPONSE: We support the IRS’s plans to leverage expansion of the FixERS tool’s scope to include more resolvable error codes. In its current functionality, the FixERS tool has proven to be an effective automated solution where manual intervention by an IRS employee would otherwise be required. We are hopeful the IRS will continue to regularly evaluate and expand the FixERS tool’s application while also considering potential automated solutions to plug any limitations of the FixERS tool, with a consistent focus on improving the filing season experience for taxpayers.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

4
4.

TAS RECOMMENDATION #1-4

Develop and post on IRS.gov an easy-to-read dashboard that provides weekly information on the filing season, including the total number of returns in inventory, the number of returns beyond normal processing times, the number of returns in suspense status, and the anticipated timeframes for working through the backlog.

IRS RESPONSE TO RECOMMENDATION: IRS agrees to implement the TAS recommendation in full.

The IRS has collaborated with the National Taxpayer Advocate to develop a dashboard for placement on IRS.gov. This dashboard is still under review for final posting.

CORRECTIVE ACTION: The IRS has collaborated with the National Taxpayer Advocate to develop a dashboard for placement on IRS.gov. This dashboard is still under review for final posting.

Update: Processing Dashboard went live on December 18, 2023.

TAS RESPONSE: This collaborative effort to develop a dashboard on IRS.gov to easily retrieve and interpret current information is a positive step toward greater transparency. However, this process and its approval have been ongoing for over 15 months, and as of June 2023, it is not posted on the IRS website. The National Taxpayer Advocate looks forward to the IRS finalizing and posting the dashboard before the 2024 filing season.

Update: TAS is monitoring this recommendation until after the 2024 filing season so we can analyze the dashboard in action when it matters the most to taxpayers.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): TBD

5
5.

TAS RECOMMENDATION #1-5

Provide inventory level status updates for each specific area of Submission Processing in a weekly report distributed to all impacted business units, including TAS.

IRS RESPONSE TO RECOMMENDATION: ​​​IRS agrees to implement the TAS recommendation in full.

Submission Processing makes available today all their inventory reports on the Submission Processing homepage, which is accessible to all IRS Business Units and TAS. In addition, W&I will distribute the weekly Filing Season Statistics Report.

CORRECTIVE ACTION: N/A – Actions have already been completed.

TAS RESPONSE: Making all Submission Processing inventory reports readily available and consistently distributing the weekly Filing Season Statistics Report increase transparency and help improve the taxpayer experience by enabling other IRS Business Operating Divisions and TAS to provide taxpayers with more accurate information and realistic expectations.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A