U.S. Department of the Treasury 

 

How A Transformed IRS Will Bring Technology Into The 21st Century

President Biden in August 2022 signed the Inflation Reduction Act (“IRA”), providing critical 

resources to modernize the IRS after decades of underfunding. The Strategic Operating Plan 

shows how the IRS will use Inflation Reduction Act resources to provide taxpayers with world 

class customer service and reduce our deficits by hundreds of billions by pursuing high dollar 

noncompliance.

The IRS relies on technology that has not kept pace with the world around us. Lack of modern 

digital tools has negatively impacted taxpayer service, delayed timely processing of returns and 

refunds, and inhibited the introduction of new online services. Despite years of underfunding, 

IRS has made meaningful progress on the technology front, offering new digital services like the 

ability to respond online to notices and submit 1099 forms online. Technology will continue to 

be improved and updated in the years to come, with the goal of replacing many of its legacy

systems in the next five years and achieving the ability to file and process all documents 

electronically. These modernization efforts will help drive the IRS’s efforts to provide world 

class customer service.

Expanded digitalization: The IRS currently enters the numbers from paper returns into its 

computers one digit at a time, which it has done since the 1960s. IRS is on track to scan 2 million 

returns in the 2023 filing season, and expanded digitalization made possible by scanning and 

data extraction will help deliver drastically improved service, faster refunds, and significantly 

lower levels of paper returns this filing season and in the years to come. 

• The IRS will expand the scanning of key tax forms this year, including Forms 940, 941, 

1040—the most common forms used by individuals and small businesses. 

• IRS is automating the scanning of millions of individual paper returns, turning them into 

digital copies at that outset of the filing process. 

• In the first five years of the 10-year plan, the IRS will eliminate paper backlogs that have 

delayed taxpayer refunds by digitizing all returns when they are received. The IRS will 

have end-to-end digital processing for high-volume forms and returns, while maintaining 

paper submission options. 
New 1099 filing option for small businesses: The IRS launched an online portal to allow 

businesses to file Form 1099 series information returns electronically. These forms previously 

needed to be submitted through the mail. Small business owners often prepare their own taxes, 

rather than hire professional preparers, and this new tool is saving millions of small business 

owners time and money. 

• Taxpayers will have the ability to file all documents, including information returns, 

electronically, so they are streamlined, mobile-friendly, and available in multiple 

languages.

New ability to respond to notices online, expanded self-service options: In the past, when 

taxpayers received notices for things like document verification they had to respond through the 

mail. Taxpayers are now able to respond to the most common notices for credits like the Earned 

Income and Health Insurance Tax Credits online, saving them time and money. The IRS will 

improve and develop online service tools for individual and Tax Pro accounts and launch new 

business online accounts in 2023. 

• The IRS launched a new tool to respond to nine notices online, making it easier for 

taxpayers to get it right and get their refunds in a timely manner. The ability to respond 

electronically additional notices will be added in the coming years.

• The IRS enabled a direct-deposit refund option for 1040X amended returns. These 

refunds were previously only available by paper check, delaying taxpayers’ receipt of 

their refunds. 

Retire outdated technology and provide real-time processing: The Individual Master File, the 

source of all individual tax data, is 60 years old, making it one of the oldest information systems 

in the federal government. It contains a running record of all an individual’s tax events including 

refunds, payments, penalties, and taxpayer status. The Business Master File is the equivalent for 

business entities, such as corporations and partnerships. While the IRS successfully delivered 

economic lifelines to hundreds of millions of Americans during the COVID-19 pandemic, the 

age of IRS’s technology ecosystem became readily apparent when trying to rapidly deliver 

Economic Impact Payments. 

• Modernizing the Individual Master File and Business Master File will enable the IRS to 

access and process taxpayer data more quickly, improve customer service, and accelerate 

the delivery of new technology capabilities. 

• These improvements will be delivered incrementally over the next five years, culminating 

in a transformed system for storing tax data. 

Along with IRS’ annual discretionary budget, the IRA investment over 10 years will transform 

the IRS so that it provides world class service to taxpayers, delivers refunds quickly, enforces tax 

laws with a focus among high earners and corporations, supports the IRA’s clean energy 

investments, and ensures that all Americans gain receive tax benefits for which they are eligible. 

These additional resources will not be used to increase the audit rates for small businesses and 

households making less than $400,000, relative to historical levels. The IRS is focused on 

pursuing high-income and high-wealth individuals, complex partnerships, and large corporations 

that are not paying the taxes they owe. Put together, the IRA is a historic investment in building 

an economy that works for everyone.
For Further Information:

• Strategic Operating Plan

• IRS.gov Tools

• Taxpayer Experience Days

• Credits and Deduction under the IRA

• Tax Information in Non-English Languages