What Is the Internal Revenue Service (IRS)?

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What Is the Internal Revenue Service (IRS)?

The Internal Revenue Service (IRS) is the U.S. government agency within the Department of the Treasury responsible for administering and enforcing federal tax laws. Its core duties include collecting federal taxes, processing tax returns, issuing refunds, conducting audits, and providing taxpayer guidance.

Main functions

  • Enforce the Internal Revenue Code and federal tax laws.
  • Collect income, payroll, gift, estate and excise taxes.
  • Process individual and corporate tax returns and issue refunds.
  • Conduct audits and examinations to ensure compliance.
  • Provide taxpayer resources, guidance and assistance.

Brief history

  • Established in 1862 (Office of Commissioner of Internal Revenue) to fund the Civil War.
  • Income tax authority expanded after 1913; the first Form 1040 appeared in 1914.
  • Renamed the Internal Revenue Service in 1953.
  • Key milestones: toll-free phone service (1965), Spanish-language services (1972), electronic filing (1992), web presence (mid-1990s), and mobile app development (2002 onward).

How the IRS collects revenue

Taxes are collected throughout the year via payroll withholding and quarterly estimated payments for businesses and self-employed individuals. Annual tax returns reconcile withheld and estimated payments with actual tax liability. Overpayments result in refunds; underpayments must be paid with the return or through other arrangements.

Notable recent scale: the IRS collected more than $5.1 trillion in tax revenue in the 2024 fiscal year.

Filing tax returns

  • Most individual taxpayers use Form 1040 (or Form 1040‑SR for seniors). Supporting documents include W‑2s and 1099s. Common schedules include:
  • Schedule A — itemized deductions
  • Schedule D — capital gains and losses
  • Corporations typically file Form 1120 (with variations such as 1120‑S for S corporations, 1120‑F for foreign corporations, and others).
  • Filing methods: electronic filing (recommended) or paper returns by mail. In 2024, roughly 92.8% of returns were filed electronically.
  • In 2024 the IRS received about 163.4 million individual returns and issued 104.8 million refunds totaling approximately $329 billion.

IRS audits and examinations

The IRS selects a subset of returns for audit each year. Selection can be random or triggered by discrepancies and red flags, such as:
* Underreported income
* Unusually large or atypical deductions (especially business-related)
* Charitable donations disproportionate to income
* Claimed rental real estate losses

Audit process:
* Initial review by an auditor; either the return is accepted or further examination is requested.
* Taxpayers are notified by mail when an audit begins.
* Audits may be handled by correspondence or in person (IRS office, taxpayer’s home or business, or tax preparer’s office).

Audit statistics (recent data):
* The IRS reported 582,944 audits in its 2023 fiscal year, recommending $31.9 billion in additional tax.
* Audit rates were about 0.44% for individual returns and 0.74% for corporate returns in that period.
* High-income filers face higher audit likelihood; historically, a larger share of audits target those with very high incomes.

Contacting the IRS and getting help

  • Phone: general assistance is available via IRS phone lines (e.g., (800) 829-1040 for individuals; hours vary).
  • Online: the IRS website provides resources, the Interactive Tax Assistant, forms, filing instructions and local office contact info.
  • In-person: local IRS Taxpayer Assistance Centers offer appointments for certain services.
  • For complex returns or tax planning, consider using qualified tax professionals (CPAs, enrolled agents, or authorized preparers).

Funding and organization

The IRS is funded through an annual budget appropriated by Congress. Budget accounts typically include Taxpayer Services, Enforcement, Operations Support and Business Systems Modernization; funds are apportioned to those accounts and cannot be reallocated across them without congressional action.

Practical advice

  • File electronically to speed processing and refunds; e‑filing is the most efficient and widely used method.
  • Keep accurate records and supporting documents for income, deductions and credits.
  • Respond promptly and in writing to any IRS notices; seek professional help if audited.
  • Use IRS online tools for eligibility checks, payment plans and other self-service options.

Bottom line

The IRS administers the federal tax system, balancing revenue collection with taxpayer services and enforcement. Understanding how the agency operates—how taxes are collected, how returns are filed, and what triggers audits—helps taxpayers meet their obligations and reduce the risk of problems.