Tax Services|Financial

What Is The IRS?

The Internal Revenue Service (IRS) is a federal organization tasked with collecting taxes on the government’s behalf.

If you are self-employed, it is in charge of your deductions and quarterly estimated tax payments, as well as the deductions you make while filing your taxes. If you do not wish to follow IRS requirements, you must, and failure to do so can result in a fine.

That, however, is only a high-level summarization. Learn about the Internal Revenue Service (IRS), what it does, and other relevant facts.

 What is the IRS?

 The Internal Revenue Service (IRS) is the federal agency responsible for enforcing tax laws passed by Congress. Among the agency’s responsibilities are, but are not limited to:

  • The IRS is in charge of collecting and processing individual and business income tax returns.
  • Keeping track of any taxes that you may owe
  • If you overpaid taxes throughout the year, you may be eligible for tax refunds.
  • Overseeing certain retirement plans is one of the job responsibilities.
  • Investigating federal tax crimes

What Does the IRS Do?

By far the most active division is the IRS’s enforcement division. According to the Tax Policy Center, the IRS spent roughly 40% of its budget on enforcement in 2018, with tax audits and investigations accounting for 83% of that total. The remaining 17% was allocated to oversight and investigations.

Taxpayer services, including as filing assistance and education, garnered around 21% of the total 2018 budget. We don’t just deal with the Internal Revenue Service on a daily basis. In addition, the agency is in charge of administering a number of low- and middle-income tax credits and subsidies, such as the Earned Income Tax Credit and Affordable Care Act subsidies.

Who Owns the IRS?

The Internal Revenue Service (IRS) is a United States Department of Treasury office that considers itself a “tax administrator” and reports to the Treasury Secretary.

Despite the fact that it was not founded by a congressional act, the IRS claims to be a government entity. The IRS bases its position on the 1971 Supreme Court decision Donaldson v. United States, which established that the IRS possessed the authority to administer internal revenue statutes in the manner of an agency.

IRS Leadership

The IRS Commissioner is appointed by the President to lead the IRS. Since the 1950s, appointees have required Senate confirmation. Commissioners are appointed for five-year terms and oversee all operations at the IRS, including tax return processing and enforcement.

When Did Federal Income Tax Start?

The inception of the income tax is traced to the Civil War. The Revenue Act of 1862, signed by Abraham Lincoln, established the “Commissioner of Internal Revenue” and charged him with obtaining cash for the war effort.

The first income tax was charged at a rate of 3% on receipts between $600 and $10,000, and 5% on amounts beyond $10,000. Regardless, ten years later, the tax was repealed.

The income tax, on the other hand, was eliminated in 1894, following the signing of the Revenue Act of 1894 by Wilson. It was revived 22 years later by the Wilson Tariff Act of 1894, which has now become permanent legislation. The 16th Amendment, which allows the federal government to impose an income tax, was enacted in 1913 after three-quarters of Americans secured a majority to amend the Constitution.

The original Form 1040 was produced in 1874. A year later, the first Form 1040 tax return was prepared. The first personal income tax was 1% on earnings above $3,000 and 6% on profits above $500,000. Following World War I, the United States became involved in a new fight. The top tax rate was raised significantly to 77 percent, where it remained for the next ten years. By 1929, the tax rate had been cut to 24 percent, though it was again doubled in response to the Great Depression.

Key Takeaways

  • The IRS was established to enforce and monitor the federal tax code. Congress passes legislation, and the IRS is there to implement and regulate it.
  • The IRS has long been called a kind of private business by critics, but the government has vehemently denied it. In a 1971 Supreme Court ruling, the IRS was recognized as an agency of the United States.

Common Questions About The IRS

How do I speak to someone at the IRS?

If you received a tax notice and need to speak with someone about it, call the number listed on it. You can reach an IRS customer service person by dialing 800-829-1040 from 7 a.m. to 7 p.m. (local time) Monday through Friday.

You may be asked to confirm personal information and wait while the automated system processes it. For those with hearing impairments, dial 800-829-4059 (TTY/TDD).

Call 800-829-1954 to find out if your refund has been handled. You can also visit with an IRS representative in person at your local office.

Find out more here on how to contact the IRS.

How can I change my bank account information with the IRS?

The IRS delivers money straight to your bank account, such as tax refunds or stimulus payments. You can update your routing and account numbers when you file your return by entering the right information on the tax return form. If you’ve already submitted one, you can phone 800-829-1040.