The IRS Is Still Drowning In Paper And It’s Costing Taxpayers Millions

Forbes Business

by Kelly Phillips Erb, Forbes Staff

February 13, 2026

AI-Generated Deep Dive Summary

The IRS is facing a significant challenge with its outdated reliance on paper-based tax returns, which now account for just 6% of all filings but generate 72% of total processing costs. According to a recent TIGTA report, this inefficiency is exacerbated by funding cuts and staffing shortages, leading to longer processing times and higher expenses for taxpayers. The situation highlights the growing disparity between the cost of handling paper returns and the benefits they provide compared to digital submissions. While electronic filing has become the norm for most taxpayers, with 94% of returns now submitted digitally, the IRS continues to struggle with the remaining 6%. These paper-based filings are not only more labor-intensive but also contribute to higher error rates and delays. The report suggests that this inefficiency is costing millions of dollars annually, diverting resources from other critical areas and adding unnecessary financial burden on taxpayers. From a business perspective, this issue matters because it impacts the overall efficiency of tax processing and compliance. Delays in processing refunds or resolving tax-related issues can affect businesses that rely on timely cash flow or need quick resolution of tax disputes. Additionally, the high cost of handling paper returns could lead to increased taxpayer fees or reduced services, ultimately affecting both individuals and businesses that interact with the IRS. The report also points to potential solutions, such as increasing funding for digital infrastructure or investing in automation tools to reduce reliance on manual processing. These measures could help modernize the IRS’s operations, improve accuracy, and lower long-term costs for taxpayers. As the agency works to address these challenges, businesses and taxpayers will be closely monitoring whether these changes lead to more efficient and cost-effective tax processing.

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Originally published on Forbes Business on 2/13/2026