The IRS Has Made Limited Progress Achieving Paperless Processing

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Summary

The IRS did not achieve its revised goal to digitally process all paper-filed Forms 940, 941, and 1040 by the 2025 Filing Season. As of May 2025, contractors had scanned nearly 517,000 (5 percent) of the 9.8 million paper-filed Forms 940, 941, and 1040 received during the 2025 Filing Season. The IRS decided to develop an in-house paperless processing system for the 2025 Filing Season. However, in April 2025, the IRS was directed to stop work on its in-house system and begin a new Zero Paper initiative (ZPI). The ZPI will use a phased approach to eliminate paper submissions of tax returns, correspondence, and information returns. As part of ZPI, the IRS stated its goal is to digitally process 26 of the highest volume paper-filed tax forms for the 2026 Filing Season. The IRS also plans to expand the number of tax forms that can be filed electronically. However, the interim ZPI contractor had only scanned approximately 7 percent of the 5.7 million forms received from May 2025 through early August 2025. The IRS must overcome challenges to expand paperless processing for the 2026 Filing Season.

• The IRS experienced delays in implementing its solution for the 2025 Filing Season and has already experienced similar delays with ZPI, mainly due to concerns about the process used to select the contractors.
• Contractors had difficulty hiring sufficient staff because workers cannot wait the estimated four to five weeks for the IRS to provide background clearances. Finally, the IRS continued to scan historical Forms 709 using both internal scanning and contracted services. From December 2023 to early July 2025, the IRS scanned 58.7 million pages (41 percent) of the estimated 143 million pages of historical Forms 709. While 85 percent of the scanning was completed by a contractor, the IRS decided not to extend the contract, citing low volumes and quality of scans. As a result, the volume of historical Forms 709 scanned has dropped significantly. We remain concerned that the IRS will be unable to meet the federal mandate to have all records in a digital format by December 2030 and will continue to incur millions in costs annually to store paper documents.