Understanding the IRS
The Internal Revenue Service, better known as the IRS, is the U.S. federal agency responsible for the enforcement of laws related to taxes and the collection of taxes. Its primary role is to administer the Internal Revenue Code, which is the body of federal tax law in the United States.
The IRS is a bureau under the Department of the Treasury and is overseen by the Commissioner of Internal Revenue, who is appointed for a five-year term by the President of the United States. The current IRS organization structure is divided into several major divisions that serve different types of taxpayers and carry out distinct functions.
Functions of the IRS
At its core, the IRS is responsible for the collection of taxes, which are the primary source of revenue for the federal government. This revenue is used to fund various government services and programs, including social services, national defense, infrastructure, and more.
In addition to collecting individual and corporate income taxes, the IRS also oversees payroll taxes (Social Security and Medicare), estate taxes, gift taxes, and excise taxes, among others. The IRS also handles tax refunds, administers tax credits, and enforces tax laws against fraud and tax evasion.
Furthermore, the IRS is responsible for interpreting tax laws and regulations, providing guidance to taxpayers, and issuing rulings that bind the IRS and all taxpayers.
Structure of the IRS
The IRS has a complex structure designed to serve the diverse needs of individual and business taxpayers across the country. It is organized into several large divisions, each of which serves a specific group of taxpayers with specific needs:
- Wage and Investment Division: This division serves about 122 million taxpayers, most of whom file individual tax returns and have income primarily from wages or investments.
- Small Business/Self-Employed Division: This division serves taxpayers who file individual or business tax returns and have small business or self-employment income.
- Large Business and International Division: This division oversees corporations, subchapter S corporations, and partnerships with assets greater than $10 million.
- Tax-Exempt and Government Entities Division: This division oversees governments, tax-exempt organizations, and employer-sponsored retirement plans.
Services Provided by the IRS
To fulfill its mission of providing top-quality service, the IRS offers numerous services and resources for taxpayers. It provides tax forms and publications, both in paper form and online, and it maintains a comprehensive website that offers tax information, tools, and resources, including the ability to file taxes electronically (e-file) and pay taxes online.
The IRS also operates a toll-free telephone service for taxpayers who have questions or need assistance, and it maintains walk-in service centers in many areas across the country. It also administers programs to assist low-income taxpayers, including Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE).
The IRS is a critical institution that handles a wide range of responsibilities related to tax administration in the United States. From collecting trillions of dollars in taxes and interpreting complex tax laws, to assisting taxpayers and pursuing tax cheats, the IRS plays a vital role in funding the U.S. government and ensuring compliance with tax laws.
A Brief History of the IRS
The Internal Revenue Service, commonly known as the IRS, has a history that dates back over 150 years.
1862: Civil War Period The history of the IRS began during the Civil War when President Abraham Lincoln and Congress, in 1862, created the position of Commissioner of Internal Revenue and enacted an income tax to pay war expenses. The income tax was a brand-new concept then and was levied at 3% on all incomes over $800. This tax ended in 1872.
1894: Peacetime Income Tax The idea of income tax was reintroduced in 1894, but the Supreme Court ruled it unconstitutional the following year. According to the Court, the tax should be apportioned among the states according to their populations.
1913: 16th Amendment In 1913, the 16th Amendment to the Constitution was ratified, which gave Congress the authority to tax income directly. The IRS was tasked with the administration of this tax. The initial tax rate was 1% on income above $3,000 with a top tax rate of 7% on incomes over $500,000.
1939 to 1952: Social Security and World War II The IRS went through a significant transformation during this period. It started with the Social Security Act of 1935 which required new administrative and collection duties from the IRS. Then, World War II led to a surge in tax collection to fund the war effort. The number of taxpayers grew from 7 million in 1940 to 60 million in 1945.
1953: Name Change In 1953, the Bureau of Internal Revenue name was changed to the Internal Revenue Service. The reorganization also decentralized service to taxpayers and sought to increase efficiency through creating district offices across the country.
1981 to 1986: Economic Recovery and Reform The Economic Recovery Tax Act of 1981, the largest tax cut in U.S. history to that date, introduced complex provisions to the tax code. The Tax Reform Act of 1986 sought to simplify the income tax code, broaden the tax base, and eliminate many tax shelters and preferences.
1998: IRS Restructuring and Reform Act In 1998, the IRS Restructuring and Reform Act was passed, which significantly overhauled the IRS. The Act’s goal was to shift the focus of the IRS from enforcement to service. The Act also mandated the reorganization of the IRS into divisions responsible for particular types of taxpayers.
2000s and Beyond: Modernization The IRS has continued to evolve into the 21st century. It has utilized technological advances to improve taxpayer services, such as introducing e-filing services. Today, the IRS handles the tax returns of millions of people and corporations annually and remains an essential part of the U.S. federal system.
Throughout its history, the IRS has been shaped by changes in society, legislation, and technology. The agency will likely continue to evolve as new challenges arise.
Key Roles and Responsibilities of the IRS
The Internal Revenue Service (IRS) is a bureau of the Department of the Treasury that plays a crucial role in the administration and enforcement of the United States’ tax laws. Here are some of the key roles and responsibilities of the IRS:
1. Tax Collection
The most recognized function of the IRS is the collection of taxes. This includes a wide range of taxes such as individual income taxes, business taxes, estate taxes, gift taxes, and excise taxes, among others.
2. Administering Tax Credits and Refunds
The IRS is responsible for administering various tax credits such as the Earned Income Tax Credit (EITC) and the Child Tax Credit. These programs can reduce the amount of tax an individual owes and might result in a refund. The IRS also manages refunds to taxpayers who overpay their taxes.
3. Tax Law Enforcement
The IRS plays a crucial role in enforcing U.S. tax laws. This involves ensuring that all individuals and businesses comply with tax regulations and pay the correct amount of taxes. They perform audits to check for accuracy in tax filings and can impose penalties or pursue legal action against those who fail to comply with the law.
4. Pursuing Tax Evasion
The IRS is responsible for investigating and pursuing cases of tax evasion and fraud. This includes instances where individuals or corporations falsify their tax returns to pay less tax or avoid paying tax altogether.
5. Taxpayer Services
The IRS provides a number of services to help taxpayers understand and meet their tax responsibilities. This includes providing forms, publications, and guidance; offering free tax help for qualifying individuals; maintaining an extensive website with a wide range of online tools and resources; and operating a customer service line to answer taxpayer questions.
6. Overseeing Tax-Exempt Organizations
The IRS is responsible for overseeing tax-exempt organizations, including charities and non-profit organizations. These organizations must meet certain criteria to maintain their tax-exempt status, and the IRS ensures they comply with these rules.
7. Implementation of New Tax Legislation
When Congress passes new tax legislation, the IRS is responsible for implementing it. This involves creating new tax forms, instructions, and guidance; adjusting its computer systems and procedures; and training its personnel to understand and administer the new laws.
All these roles and responsibilities contribute to the IRS’s mission to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”
The Structure of the IRS
The Internal Revenue Service (IRS) is a sizable organization with a diverse set of responsibilities. To manage these, it is divided into several key divisions, each focusing on a specific set of tasks or a specific type of taxpayer. Here’s a look at the structure of the IRS:
1. Commissioner of the IRS At the top of the IRS hierarchy is the Commissioner, who is appointed by the President and confirmed by the Senate for a five-year term. The Commissioner is responsible for the administration and enforcement of the Internal Revenue laws.
2. Deputy Commissioners Beneath the Commissioner, there are two Deputy Commissioners — the Deputy Commissioner for Services and Enforcement, and the Deputy Commissioner for Operations Support. The Deputy Commissioner for Services and Enforcement oversees four primary divisions of the IRS along with other units. The Deputy Commissioner for Operations Support oversees the integrated modernization and business functions of the IRS.
3. Main Divisions
a. Wage and Investment (W&I) Division This division serves approximately 122 million taxpayers who file individual and joint tax returns. The division’s key objectives are to improve service to these taxpayers and enforce the tax law.
b. Large Business and International (LB&I) Division The LB&I Division is responsible for corporations, subchapter S corporations, and partnerships with assets greater than $10 million. It aims to promote compliance with tax laws and regulations in this segment by providing guidance and examining the returns of these taxpayers.
c. Small Business/Self-Employed (SB/SE) Division This division provides guidance and service to small businesses, self-employed individuals, retirement plan administrators, and non-profit organizations. The SB/SE Division also conducts examinations and collections activities for these taxpayers.
d. Tax Exempt and Government Entities (TE/GE) Division The TE/GE Division oversees organizations that are exempt from income tax. It is also responsible for government entities, including state and local governments, as well as federal agencies, in relation to their federal tax responsibilities.
Other units under the Deputy Commissioner for Services and Enforcement include the Criminal Investigation unit, which investigates potential criminal violations of the tax code, and the Office of Professional Responsibility, which oversees tax practitioners.
These main divisions are supported by units such as the Chief Counsel, Communications and Liaison, Equity, Diversity and Inclusion, and others which provide cross-functional support to the IRS operations.
The IRS’s structure allows it to serve the needs of different types of taxpayers efficiently and effectively, ensuring that all comply with U.S. tax laws.
Services Provided by the IRS
The Internal Revenue Service (IRS) offers a range of services to help taxpayers understand and fulfill their tax obligations. Here’s a detailed look at some of the key services provided by the IRS:
1. Tax Information and Guidance
The IRS provides a wealth of information and resources to help taxpayers understand tax laws and their tax obligations. This includes tax guides, publications, bulletins, and other documents that explain various aspects of the tax code in detail.
2. Online Tools and Resources
The IRS website is a comprehensive resource for all things related to taxes. It offers various online tools, such as the “Where’s My Refund?” tool that allows taxpayers to track the status of their tax refund, and the “Tax Withholding Estimator” tool that helps taxpayers determine the right amount of tax to withhold from their income.
3. Tax Forms and Instructions
The IRS provides all necessary tax forms and instructions. These are freely available for download on the IRS website. The forms cover a wide range of tax situations, from individual income tax returns (Form 1040) to reports of foreign bank and financial accounts (FBAR).
4. Electronic Filing (e-file)
One of the most widely used services provided by the IRS is electronic filing, or e-file. This system allows taxpayers to submit their tax returns online, making the process faster and more convenient. Most taxpayers are eligible to e-file their returns, and many can do so for free.
5. Direct Pay
The IRS Direct Pay service allows taxpayers to pay their tax bill or estimated tax payment directly from their checking or savings account at no cost. This can be done online or through the IRS2Go mobile app.
6. Customer Service
The IRS operates a customer service line to answer taxpayer questions. It also provides Taxpayer Assistance Centers where taxpayers can receive face-to-face help. Additionally, it offers services for taxpayers with special needs, such as the Taxpayer Advocate Service for those who are experiencing economic harm or seeking help in resolving tax problems that have not been resolved through normal channels.
7. Education and Outreach
The IRS conducts education and outreach programs to help taxpayers understand their tax obligations. This includes programs targeted at specific groups, such as small businesses, retirement plan administrators, and non-profit organizations.
By providing these services, the IRS helps to ensure that taxpayers have the resources and support they need to comply with the U.S. tax laws.
The IRS and Taxpayer Rights
The Taxpayer Bill of Rights is a cornerstone of the relationship between the IRS and taxpayers in the United States. It was adopted in 2014 to provide the nation’s taxpayers with a better understanding of their rights. Here are the ten fundamental rights included in the Taxpayer Bill of Rights:
1. The Right to Be Informed
Taxpayers have the right to know what they need to do to comply with tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.
2. The Right to Quality Service
Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS. If the IRS does not provide this, they have the right to speak to a supervisor.
3. The Right to Pay No More Than the Correct Amount of Tax
Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.
4. The Right to Challenge the IRS’s Position and Be Heard
Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions. They have the right to expect the IRS to consider their timely objections and documentation promptly and fairly.
5. The Right to Appeal an IRS Decision in an Independent Forum
Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including certain penalties. Taxpayers have the right to receive a written response regarding the Office of Appeals’ decision.
6. The Right to Finality
Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position and the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt.
7. The Right to Privacy
Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary.
8. The Right to Confidentiality
Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law.
9. The Right to Retain Representation
Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS.
10. The Right to a Fair and Just Tax System
Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely.
These rights ensure that taxpayers are treated fairly and with dignity by the IRS. It is the responsibility of the IRS to protect these rights and to provide taxpayers with the services and respect they deserve.
Conclusion: The IRS. at the Heart of U.S. Tax Administration
As we’ve explored, the IRS is an integral part of the U.S. financial system. Its mission, structure, and services collectively work towards efficient tax administration, ensuring the smooth operation of the federal government. With an unwavering commitment to taxpayer rights and continual strides towards service improvements, the IRS. remains a pivotal entity in the economic framework of the United States.