By David Lawder

WASHINGTON The U.S. Internal Revenue Service plans to allow taxpayers to submit all documents and correspondence to the agency digitally for the 2024 tax filing season and will convert all paper tax returns to digital documents by the 2025 season, the Treasury Department said on Wednesday.

The initiative, part of a decade-long, $60 billion program to modernize systems and improve tax enforcement, will allow taxpayers to digitally submit all correspondence, non-tax forms and responses to IRS notices, the Treasury said.

Many of these forms now can only be submitted on paper by mail, and the plan could eliminate handling of up to 125 million such documents per year.

Most U.S. tax returns are already filed digitally, which results in faster refunds. But the COVID-19 pandemic and associated filing delays and staffing shortages saddled the IRS with a massive backlog of 22.5 million unprocessed paper tax returns by February 2022 that needed some form of manual processing.

The agency has been churning through the backlog, partly with the help of new scanning technology, reducing it to 2.15 million returns needing processing, reviews or corrections.

U.S. Treasury Secretary Janet Yellen said in excerpts of remarks at an IRS facility in McLean, Virginia, that taxpayers will always have the choice to submit documents by paper.

"For those taxpayers, by filing season 2025, the IRS is committing to digitally process 100 percent of tax and information returns that are submitted by paper – as well as half of all paper correspondence, non-tax forms, and notice responses," Yellen said.

The new scanning technology and other improvements in IRS customer service were made possible by funds provided in last year's climate-focused Inflation Reduction Act, initially approved at $80 billion over a decade, but reduced to $60 billion by this year's bipartisan deal to increase the federal debt ceiling.

The funds are separate from IRS' annual operating budget, which some Republicans in Congress have vowed to cut. Yellen said "stable and sufficient annual appropriations" for the IRS were needed to sustain progress on initiatives to improve customer service, such as the paperless processing effort and reducing phone call response times.

(Reporting by David Lawder; Editing by Christian Schmollinger)