IRS takes another step toward digitizing its tax return process
The Internal Revenue Service is approaching the digitization of the 21st century.
Three companies - Ripcord, Brilliant Corp. and Resultant/KSM Consulting -- are moving into the next and final phase of the agency's IRS pilot program, which will allow the IRS to test and implement technical solutions that could expedite tax return processing and potentially help with the December 2022 deadline for going paperless.
The advance comes as the IRS faces an unprecedented paper jam and after the agency's watchdog urged the IRS to implement machine-reading technology within the next two filing seasons.
"Our mission is to make taxes as easy as ordering an Uber," Sam Fahmy, Ripcord's president and CEO, told Yahoo Money. "The outcome of the program could improve future processes such as audits by uncovering patterns, redundancies and errors in filing, and set the stage for creating long-term efficiencies through digitization."
A woman exits the Internal Revenue Service building in New York. (Source: Shannon Stapleton, Reuters).
background to the program
In July, the IRS pilot program issued a call for proposals, showing that the tax agency needed innovative solutions -- such as scanning-as-a-service (SCaaS) and optical character recognition (OCR) -- to digitize and process various IRS documents wanted to test and records.
Participating vendors received $7.5 million in contracts including Ripcord, Resultant/KSM Consulting, Brilliant, Government CIO and Xerox.
After completing a 180-day, $200,000 first phase of the IRS Pilot Challenge – Ripcord, a robotic digitization company, has signed a $750,000, six-month contract with the IRS to securely digitize the 709 tax form required to transfer reports assets that may be subject to federal gift taxes and certain generational transfer taxes.
Brillient, a full-spectrum digital transformation company, has assisted the IRS in extracting machine-readable data from existing low-resolution digital images in order to make them compatible with IRS systems using OCR tools. Finally, Resultant/KSM Consultant has also entered the second phase of the SCaaS challenge.
According to Marcela Almeida, IRS Contracting Officer for the project, the Pilot IRS solution challenge has only two phases, while most challenges have three or four phases.
An IRS employee goes through tax documents at the staging warehouse of an Internal Revenue Service facility March 31, 2022 in Ogden, Utah. (Image credit: Alex Goodlett for The Washington Post via Getty Images)
Implementing these technological solutions could help address the significant paper jam the IRS is currently facing and save thousands of dollars by eliminating the paper storage facilities. According to the National Taxpayer Advocate (NTA), as of March 18, the IRS is facing $15 million in tax arrears from the 2020 and 2021 filing seasons.
"The delays in processing these declarations result from the IRS's archaic data collection process," said National Taxpayer Advocate Erin Collins. "The IRS' filing processing function today conjures up images of what data transcription looked like in the 1960s - before the information age."
In fact, vendors selected for the IRS pilot program are expected to process "more than 1 billion pages," according to the IRS.
"Paper documents stand in the way of digitization," said Fahmy. "They take time and effort to process, so taxpayers have to wait, workers have to do mundane chores, and everyone suffers."
H&R Block tax advisor Catherine Roman (L) helps Clair Czarecki (R) with her taxes at an H&R Block office in San Francisco, California. The IRS urged taxpayers to file their taxes electronically this year to avoid tax refund delays. Paper submissions may be delayed by up to 10 months as paper returns are processed on a first in, first out basis. (Image credit: Justin Sullivan, Getty Images)
Last month, Collins urged the IRS to take "immediate steps" to implement scanning technology to convert paper 1040 series returns to digital formats so the IRS can process them like e-file returns. The IRS should respond by May 13th.
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