Modernizing the IRS has long been a bipartisan priority, as advances in digital technology offer opportunities to improve tax administration, reduce processing costs, and save taxpayers time and money.
Unfortunately, despite decades of bipartisan support for modernization and billions of taxpayer dollars devoted to technology initiatives, the IRS is lagging in its efforts to become fully digitized. Two recent reports from the Treasury Inspector General for Tax Administration (TIGTA) examined the IRS’s progress toward paperless processing and broader digitization goals. The reports reviewed efforts to digitize tax return processing and modernize the management of historical records.
Paperless Processing Woes
The first report, released in February, focused on the IRS’s efforts to achieve paperless processing. TIGTA found that these modernization efforts have been largely unsuccessful in achieving their goals. This is a costly problem because paper tax returns account for only 6% of all returns but comprise 72% percent of processing costs because they cost 43 times more to process than electronically-filed returns.
In 2023, the IRS initiated three pilot programs to digitize the processing of Forms 940, 941, and 1040 by May 2025. By that deadline, the Service had not digitized any returns through its own systems.
Several management and approval delays hindered the IRS’s effort to build in-house digitization capacity. The IRS announced that it would begin development of the system in July 2023, but did not get internal approval until May 2024. Then, in April 2025, the project was scrapped after the IRS had already spent $61 million.
The Zero Paper Initiative
The IRS then launched a new Zero Paper Initiative (ZPI). After controversy over its attempt to bypass competitive bidding requirements, the IRS selected four contractors to carry out the project.
The challenge now is execution. Contractors also experienced delays in achieving goals. For example, by the May 2025 deadline noted above, contractors had scanned and digitized only about 5% (517,000) of the 9.8 million paper-filed versions of those specific forms received during that filing season.
According to a follow up May 2026 TIGTA report, the IRS spent roughly $9 million on contractor support between May and December 2025 to advance paper-processing modernization efforts. However, the contractors were not fully prepared to handle filing-season return volumes, forcing the IRS to shift additional processing work back in-house. Meanwhile, the firms have roughly five months to digitize 26 tax forms, test processing software, hire staff, obtain security clearances, and secure storage space for paper documents until they can be destroyed.
Digitizing Historical Documents
TIGTA’s February report notes that another major IRS digitization effort stems from a 2019 directive from the White House Office of Management and Budget and the National Archives and Records Administration requiring agencies to convert all records to a digital format by December 2030. The IRS estimates that, once complete, this could save $40 million annually in storage and staffing costs and make it easier for taxpayers and the IRS itself to access information. However, the IRS has only digitized 6% of an estimated 1 billion pages of historical documents, putting that goal at risk. Moreover, nearly 85% of this progress came from contractor-led pilot programs rather than the IRS’s own efforts.
However, the contract work has also presented challenges. For example, the IRS opted not to renew one contract, citing the firm’s inability to achieve scanning targets. The contractor responded that the IRS had granted security clearances to only half of the staff needed for the work. The IRS explained to TIGTA that progress slowed because 25% of its digitization staff was either laid off or took early retirement. As a result, the number of pages scanned per week dropped over 90% in 2025.
Despite these setbacks, the May TIGTA report found that the ZPI, which also supports the digitization of historical records, is making progress toward the 2030 goal. However, the program remains in its early stages, and staff retention, long-term funding security, and contractor capacity will continue to pose challenges for the foreseeable future.
Recommendations for Reform
Many of the lessons from TIGTA’s report echo recommendations from NTUF’s Taxpayers for IRS Transformation (Taxpayers FIRST) project. The project assembled an advisory board of experts and published four reports focused on ensuring that modernization efforts deliver improvements for taxpayers.
Its third installment, A Roadmap for Successful IRS Modernization, argues that major technology initiatives should include publicly-available cost-benefit analyses, definitive deadlines, specified deliverables, and realistic, measurable benchmarks. When project costs exceed projections or differ significantly from outside estimates, the IRS should explain why and how it will or won’t affect project outcomes.
Transparency is equally important when evaluating modernization efforts. The Taxpayers FIRST modernization report argues that the IRS should establish clear, publicly reported performance metrics for technology projects so taxpayers and policymakers can assess whether investments are delivering promised improvements. Meaningful benchmarks, regular progress updates, and transparent reporting can help ensure modernization initiatives remain focused on improving taxpayer service and operational efficiency.
Conclusion
TIGTA’s findings suggest the IRS has made only mixed progress toward modernization goals. The Service has begun deploying new tools and systems, but delays, staffing shortages, and project management challenges continue to slow implementation. These problems mirror many of the risks identified in the Taxpayers FIRST report and underscore the need for greater transparency, accountability, and adaptability as modernization efforts move forward.
TIGTA’s findings do not suggest that IRS modernization is unattainable. Rather, they suggest that achieving a paperless IRS will require sustained management oversight, realistic timelines, adequate staffing, and transparency regarding modernization spending. The IRS can improve service (as demonstrated by the IRS’s improved performance grade by NTUF), reduce costs, and operate more efficiently, but only if modernization efforts are treated as long-term institutional priorities instead of disconnected initiatives.