What Is the IRS?
I'm here to explain the Internal Revenue Service, or IRS, directly to you. It's the part of the U.S. Treasury Department that enforces the Internal Revenue Code, administers federal tax laws, and collects taxes from individuals and corporations in the U.S. You deal with the IRS for gift, excise, estate, and income taxes, and it conducts audits to make sure everyone complies with the rules.
Key Takeaways
Understand this: The IRS is the U.S. government agency that collects federal taxes and enforces tax laws. Most of its work focuses on individual and corporate income taxes. It audits taxpayers either randomly or when it spots irregularities in their returns.
History of the Internal Revenue Service (IRS)
Let me walk you through the history. President Abraham Lincoln set up the Office of Commissioner of Internal Revenue in 1862 to collect taxes for the Civil War. In its first year, 1863, it brought in $39.1 million, which is about $985.79 million in today's money.
By 1913, Congress got the power to create income tax laws, leading to the Bureau of Internal Revenue. The first Form 1040 came out in 1914.
The name changed to Internal Revenue Service in 1953, and the filing deadline shifted to April 15 in 1954.
Other key points include the IRS's first toll-free phone site in 1965, Spanish information starting in 1972, electronic filings allowed in 1992, a web presence in 1996 before IRS.gov, and its first app in 2002.
Collecting Revenue
Here's how the IRS collects revenue: It gathers estimated taxes from wage earners through payroll deductions all year, and businesses make quarterly estimated payments based on their filings. Then, the annual filing, typically due by April 15 for the prior year, sorts out what was paid versus what's actually owed.
If you've overpaid, the IRS sends you a refund. If you owe, you pay up with your return. Check the IRS website for details on how federal tax laws apply— you have to follow laws passed by Congress and meet your tax obligations.
In fiscal year 2024, the IRS collected over $5.1 trillion in tax revenue.
Tax Returns
When it comes to tax returns, you can file by mail or electronically using consumer tax software. You might hire tax professionals like preparers or accountants. Most individuals use Form 1040 or Form 1040-SR for seniors. In 2024, the IRS got 163.4 million individual returns and issued 104.8 million refunds worth $329 billion.
Many people add extra forms and documents, like W-2s and 1099s from payers, to back up their numbers. Schedule D covers capital gains from sales of stocks or properties, and Schedule A details deductions.
Corporations file with Form 1120, and there are variants like 1120-C for cooperatives, 1120-F for foreign corporations, 1120-H for homeowners associations, 1120-L for life insurance companies, and 1120-S for S corporations.
IRS Audits
The IRS audits a portion of returns each year to enforce compliance. It picks them randomly or if they're linked to other audited returns. No single thing guarantees an audit, but red flags include not reporting all income, claiming too many deductions especially for business, large charitable donations relative to income, or rental real estate losses.
The process starts with an auditor reviewing your return. They might accept it or send it for further examination, notifying you by mail. Audits involve paperwork review and can happen by mail, in person at an IRS office, or at your home, business, or accountant's office.
Fast Fact
For the record, the IRS reported 582,944 audits by the end of fiscal year 2023, leading to $31.9 billion in additional recommended tax. That covered 0.44% of individual returns and 0.74% of corporate ones.
Contacting the IRS
If you need to contact the IRS, find mailing addresses on their website. Call them at (800) 829-1040 from 7 a.m. to 7 p.m. local time, Monday to Friday—there are other numbers for businesses too. Online, use the Interactive Tax Assistant. You can also book in-person appointments at a local IRS office.
How Is the IRS Funded?
The IRS runs on a budget from Congress, split into four areas: Taxpayer Services, Enforcement, Operations Support, and Business Systems Modernization. Funds can't shift between them. In February 2025, Melanie Krause was named acting IRS commissioner.
What Is the Best Way to File a Tax Return?
File electronically— that's what 92.8% of taxpayers did in 2024. You can still mail a paper return, but it slows down your refund.
What Are the Chances of Being Audited by the IRS?
In 2023, the audit rate for individuals was 0.44%. From 2013 to 2021, it was 8.7% for those earning $10 million or more. Selections can be random or triggered by things like deductions exceeding your income.
The Bottom Line
To wrap this up, the IRS started to fund the Civil War and now operates under the U.S. Treasury to enforce and administer federal tax laws on a congressional budget.
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