What Is the Internal Revenue Service (IRS)?

What Is the IRS?

The Internal Revenue Service (IRS) is the division of the U.S. Treasury Department tasked with enforcing the Internal Revenue Code (IRC), administering federal tax laws, and collecting federal taxes from U.S. individual and corporate taxpayers. The IRS collects gift, excise, estate, and income taxes, and routinely conducts audits to ensure that taxpayers comply with tax laws.

History of the Internal Revenue Service (IRS)

President Abraham Lincoln created the Office of Commissioner of Internal Revenue in 1862 to collect taxes levied to fund the Civil War. In 1913, Congress was given the power to enact income tax laws, paving the way for the Bureau of Internal Revenue. The agency's name was changed to the Internal Revenue Service in the 1950s.

Collecting Revenue

The IRS collects estimated taxes from wage earners throughout the year via payroll deductions and quarterly estimated tax payments from businesses based on quarterly tax filings. An annual filing, usually due by April 15th for the previous tax year, reconciles the amounts paid by each individual and business and the actual amounts owed.

If the taxpayer has overpaid, the IRS issues a tax refund. If the taxpayer owes money, the payment is due with the annual tax return. The IRS website explains how federal tax laws work. U.S. taxpayers must comply with tax laws passed by Congress and meet tax obligations.

Tax Returns

Taxpayers may file their tax returns by mail or electronically using tax preparation software designed for consumer use. A taxpayer may use the services of tax professionals, such as tax preparers or accountants. Nearly all individual taxpayers use Form 1040: U.S. Individual Tax Return Definition, Types, and Use or Form 1040-SR: Tax Return for Seniors. In 2023, the IRS received 162.0 million individual returns and issued 105.7 million refunds totaling $334.9 billion.

Many individuals complete and attach additional forms and documents to support the numbers they record on the main forms, including the W-2 and 1099, supplied by the companies that paid money to the taxpayer. Schedule D is used to report capital gains received from the sale of stocks, properties, and other taxable income sources, and Schedule A records the details of tax deductions claimed by the taxpayer.

Corporations use Form 1120: U.S. Corporation Income Tax Return to report their income and tax liabilities. There are variations of the form, depending on the type of corporation, including:

• Form 1120-C: U.S. Income Tax Return for Cooperative Associations
• Form 1120-F: U.S. Income Tax Return of a Foreign Corporation
• Form 1120-H: U.S. Income Tax Return for Homeowners Associations
• Form 1120-L: U.S. Life Insurance Company Income Tax Return
• Form 1120-S: U.S. Tax Return for an S corporation

IRS Audits

The IRS audits a percentage of income tax returns annually as part of its enforcement mission. The agency randomly selects taxpayers to audit or singles out those whose returns are related to others audited. While there is no single factor that determines who gets an IRS audit each year, there are some red flags that may trigger a review:

• Failing to declare the right amount of income
• Claiming a higher-than-normal number of deductions (especially business-related ones)
• Making disproportionately large charitable donations compared to income
• Claiming rental real estate losses

The audit process begins with a review of the return by an auditor. The auditor may either accept the return or request a further review by an examination group. In the latter case, the taxpayer is notified by mail. The audit involves reviewing paperwork and may be conducted by mail or in person at an IRS office or another location, such as the taxpayer's home, business, or accountant's office.

Contacting the IRS

A list of mailing addresses for the IRS is available on the IRS website.Individuals can contact the IRS by phone at (800) 829-1040, Monday through Friday, 7 a.m. to 7 p.m. local time. There are other toll-free numbers for businesses and other purposes.For online assistance, try the Interactive Tax Assistant on the IRS website.In-person appointments are also available at a local IRS office.

The Bottom Line

The IRS emerged to collect money to fund the Civil War. The Internal Revenue Service is part of the U.S. Department of the Treasury and enforces and administers federal tax laws and operates within a budget approved by Congress.