Internal Revenue Service

The Internal Revenue Service (IRS) is the federal agency that collects taxes and administers the tax laws in the United States. It is part of the Department of the Treasury and is headed by the Commissioner of Internal Revenue, who is appointed by the President for a five-year term. The IRS has a vital role in the functioning of the government and the economy, as it provides most of the revenue needed to fund public services and programs.

In this blog post, we will explain the history, mission, structure, and functions of the IRS. We will also share some facts and figures about the IRS and its activities.

History of the IRS

The IRS traces its origins to the Civil War, when Congress enacted the first income tax in 1862 to finance the war effort. The tax was temporary and expired in 1872. In 1894, Congress attempted to revive the income tax, but it was declared unconstitutional by the Supreme Court in 1895.

In 1913, the 16th Amendment to the Constitution was ratified, giving Congress the power to levy an income tax without apportioning it among the states. The same year, Congress passed the Revenue Act of 1913, which established a permanent income tax system and created the Bureau of Internal Revenue, the predecessor of the IRS.

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In 1953, President Eisenhower renamed the Bureau of Internal Revenue as the Internal Revenue Service, reflecting its expanded role and responsibilities. Since then, the IRS has undergone several reforms and reorganizations, such as the Tax Reform Act of 1986, which simplified the tax code and eliminated many loopholes; and the IRS Restructuring and Reform Act of 1998, which modernized the agency and improved its service and accountability.

Mission of the IRS

The mission of the IRS is to provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all ¹

The IRS has three main goals: ¹

To improve service to taxpayers by making it easier for them to comply with their tax obligations and receive their benefits.
To enforce the law with respect and impartiality by identifying and addressing areas of noncompliance and reducing fraud and abuse.
To invest in technology and human capital by enhancing its systems, processes, data, and workforce to meet current and future needs.

Structure of the IRS

The IRS is divided into four main divisions that serve different groups of taxpayers: ¹

Wage and Investment (W&I): This division serves about 122 million individual taxpayers who file Form 1040 or other income tax returns. It also administers various tax credits, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC).
Small Business/Self-Employed (SB/SE): This division serves about 57 million taxpayers who file business or self-employment returns, such as Schedule C or Form 1120S. It also assists taxpayers with issues related to employment taxes, collection, audits, appeals, and international taxation.
Large Business and International (LB&I): This division serves about 210,000 taxpayers who have assets of more than $10 million or conduct business across national borders. It deals with complex issues related to corporate taxation, transfer pricing, foreign tax credits, treaties, and compliance.
Tax Exempt and Government Entities (TE/GE): This division serves about 3 million taxpayers who are exempt from federal income tax or are affiliated with federal, state, or local governments. It oversees issues related to charities, retirement plans, tax-exempt bonds, Indian tribal governments, federal agencies, and tax practitioners.

The IRS also has several functional units that support its operations, such as: ¹

Criminal Investigation (CI): This unit investigates potential criminal violations of the tax laws and related financial crimes, such as money laundering, identity theft, fraud, or terrorism financing. It works closely with other law enforcement agencies and prosecutors to bring offenders to justice.
Office of Chief Counsel (OCC): This unit provides legal advice and representation to the IRS on all matters related to taxation. It also litigates cases in federal courts on behalf of the IRS and defends IRS actions against challenges from taxpayers or third parties.
Office of Appeals (OA): This unit provides an independent review of disputed tax cases between taxpayers and the IRS. It aims to resolve conflicts without litigation by applying a fair and impartial approach based on the facts and the law.
Office of Professional Responsibility (OPR): This unit regulates the conduct and ethics of tax professionals who practice before the IRS. It enforces standards of competence, integrity, diligence, and compliance for attorneys, accountants, enrolled agents, enrolled actuaries, appraisers, and others who represent taxpayers or prepare tax returns.
Taxpayer Advocate Service (TAS): This unit helps taxpayers who are experiencing problems or hardships with the IRS. It acts as a voice for taxpayers within the IRS and advocates for their rights and interests. It also identifies and proposes solutions for systemic issues that affect taxpayers.

Functions of the IRS

The IRS performs various functions to fulfill its mission and goals, such as: ¹

Processing tax returns and issuing refunds: The IRS processes over 250 million tax returns and related forms each year and issues over $400 billion in refunds to taxpayers. It also handles millions of inquiries and requests from taxpayers through various channels, such as phone, mail, online, or in person.
Providing taxpayer assistance and education: The IRS provides various forms of assistance and education to taxpayers to help them understand and comply with their tax obligations. It offers free publications, online tools, workshops, webinars, and outreach programs on various tax topics. It also partners with community organizations and volunteers to provide free tax preparation and filing services to low-income, elderly, disabled, or limited-English-speaking taxpayers.
Enforcing tax laws and collecting taxes: The IRS enforces the tax laws and collects taxes from taxpayers who owe them. It uses various methods, such as audits, notices, liens, levies, seizures, or lawsuits, to ensure compliance and recover unpaid taxes. It also administers various penalties and sanctions for noncompliance, such as interest, fines, or imprisonment.
Conducting research and analysis: The IRS conducts research and analysis on various aspects of taxation, such as tax policy, administration, compliance, revenue, trends, and impacts. It uses various sources of data, such as tax returns, information returns, surveys, studies, and reports, to produce statistics, estimates, projections, evaluations, and recommendations. It also shares its findings and insights with policymakers, researchers, stakeholders, and the public.

Facts and Figures about the IRS

Here are some facts and figures about the IRS for the fiscal year 2020: ²

The IRS collected $3.5 trillion in taxes from 240 million tax returns and related forms.
The IRS issued $467 billion in refunds to 122 million taxpayers.
The IRS spent $11.8 billion to operate its programs and activities.
The IRS had 73,554 employees who worked in 590 offices across the country and overseas.
The IRS answered 65 million calls from taxpayers and assisted 2.7 million taxpayers at its walk-in sites.
The IRS audited 0.5% of individual tax returns and 0.9% of corporate tax returns.
The IRS identified $2.3 billion in fraudulent refunds and prevented $6.5 billion in identity theft losses.
The IRS assessed $39.8 billion in civil penalties and $1.8 billion in criminal fines and restitution.

Conclusion

The Internal Revenue Service is a vital institution that serves the nation by collecting taxes and administering the tax laws. It has a long history that dates back to the Civil War era. It has a complex structure that consists of four main divisions and several functional units. It performs various functions that range from processing tax returns to enforcing tax laws. It also provides various forms of assistance and education to taxpayers to help them meet their tax responsibilities.

We hope that this blog post has helped you learn more about the Internal Revenue Service and its role in the U.S. government and economy. If you have any questions or comments, please feel free to leave them below. We would love to hear from you and learn from your experiences. Thank you for reading!