This is the cafeteria at the Internal Revenue Service offices in Austin.
Yes, the cafeteria.
It’s part of what the IRS calls the “Pipeline”: a 1970s-era assembly line used to process tax returns at several locations around the country. And it might give you a sense of why Congress is on the verge of handing the agency $80 billion through the Inflation Reduction Act — not only for more enforcement but also for tech modernization.
As of July 29, the IRS had a backlog of 10.2 million unprocessed individual returns. Blame the pandemic, sure, but also the agency’s embarrassingly outdated, paper-based system, which leaves stacks and stacks of returns cluttering shelves, hallways and even the cafeteria.
On the Pipeline, paper tax returns aren’t scanned into computers; instead, IRS employees manually keystroke the numbers from each document into the system, digit by digit.
Even if you, Joe Taxpayer, file your taxes electronically (as most Americans do), you still might land in paper purgatory. Any issues with your “e-filed” return, and the IRS sends you a letter; then, you must reply by snail mail or fax.
Remember fax machines?
Taxpayers are trapped in this time warp because Congress has systemically underinvested in the IRS. Its funding was cut for most of the past decade, despite the agency receiving evermore responsibilities: stimulus checks, child tax credit payments, Obamacare enforcement, foreign bank account tracking and, lately, hunting down Russian yachts. Without reliable, long-term funding guarantees, the IRS has struggled to upgrade its systems.
I recently took a (chaperoned) tour of the Pipeline, which is usually off-limits to journalists. Imagine Willy Wonka’s secretive chocolate factory, but instead of gumdrops and lollipops it’s ... paper. Everywhere, paper.
Keep scrolling and see for yourself.
The Pipeline starts with a machine (“SCAMPS”) that opens and sorts tax returns that arrived by mail.
The technology dates to the 1970s — though this particular machine was updated in the ’90s to make it Y2K-compliant. The company that once manufactured SCAMPS no longer exists; when the machine breaks down, an IRS employee fabricates replacement parts on-site. “Only one guy knows how to fix the thing,” says John Desselle, a mailroom department manager.
The newest part of the setup is this computer — it uses Windows XP, an operating system from 2001.
Irregular-sized letters are opened by IRS employees with the help of the “Nibbler,” a buzz-saw-like device.
The next step is to sort different elements of each return (separating checks from 1040 forms, for example) and place each in separate batches.
This is done at special half-elliptical desks — called “Tingle Tables” — designed to make the manual sorting process more efficient.
Tingle Tables were once considered cutting-edge technology — in 1962, when an IRS employee named James Tingle built the first prototype in his backyard. This is the first of many, many times a return will be unstapled and restapled within these walls.
Then comes “candling.” At this stage, an employee tears open three sides of every envelope and holds it up to a special lightbox to make sure nothing was accidentally left inside. Sam Cruz, a 12-year IRS employee who works in candling, said he finds something left behind maybe two or three times for every thousand envelopes.
If a check from a taxpayer is missing a crucial piece of information (such as a Social Security number), it can’t be deposited.
An employee on the “payment perfection” team researches the missing information and writes the info on (or “perfects”) the check.
A separate “document perfection” team combs through every single paper return with a red pen to make sure nothing is missing from the document, such as a signature or W-2.
Also, tax forms change slightly from year to year. If a taxpayer sends a previous year’s form, an IRS employee must renumber each line with a red pen so that the entries match the current year’s tax form. Otherwise, the computer system can’t process the return correctly, since only one year’s model of each form can be stored in the system at a time.
Returns with any defects are “flagged” with colored paper to indicate a problem.
Here, returns get stamped with a unique identifying number. Before this stage, the IRS has no way to track a specific return.
That doesn’t mean taxpayers can now track their returns, though. “We need something like the Pizza Hut app, where people can log in and see they’re making your pizza, and now it’s in the oven, now it’s on its way,” says Ana B. Sanchez-Navarro, a tax examiner. “Yeah, we need that for tax returns.”
Finger armor, for employees trying to avoid paper cuts.
Technology to scan text into a computer has been commercially available since the 1970s and has greatly improved in the past decade. Yet at the IRS, data from paper returns is still entered manually.
That is, an IRS employee types in each number that the agency might be interested in.
If the computer accepts the return, it gets saved to the master file. At this point, any refunds that are due get generated, usually within 10 days.
But sometimes the system won’t accept the return … in which case it goes to …
Maybe the taxpayer made a math mistake. Or maybe an IRS employee typed in a 3 instead of a 4. The computer flags it, and an employee has to go in and fix the error.
Sometimes there was no actual error at all, but the ancient IT system can’t handle all the information in a return.
For example, maybe a taxpayer listed five dependents. Totally legal. But the IRS database, by default, does not have storage capacity for more than four. The computer reports an error, and an employee must manually add the fifth to the file.
See that green computer interface? It dates to the disco era. The system runs on COBOL, an antiquated programming language few coders still know.
The IRS sends out letters to taxpayers letting them know about issues with their returns — math errors, missing signatures, etc.
Taxpayers then write back (only by mail or fax, remember).
Fully processed returns stick around the Austin Service Center for nine to 10 months in normal times (they’ve stayed longer during covid). Then they’re sent to Federal Records Centers to be archived for six years.
A single lap through this facility’s Pipeline is about a quarter-mile. The IRS warns on its website that the whole process can take six months or more. And that’s if no errors are detected.
Treasury and IRS officials say they hope additional funding will allow them to automate more of this process, so returns can move through more swiftly. They’re not particularly worried about employees getting displaced by automation; about a third of IRS employees are already eligible for retirement. There’s also more than enough work to go around. (See: that 10.2-million-return backlog.)
In the meantime, it’s astonishing that the system has survived this long, since it seems to be held together with duct tape and string. When I mentioned this to Desselle, the mailroom manager, he corrected me.
“That’s too generous,” he said. “It’s more like Scotch tape and string.”