The Internal Revenue Service (IRS) is the United States government agency that collects taxes and enforces the tax laws. It is a part of the Department of the Treasury.
In 1862, during the Civil War, President Lincoln and Congress created the Commissioner of Internal Revenue and enacted an income tax to pay war expenses. The agency created to enforce these taxes was named for the internal revenue they would collect in contrast to U.S. government institutions that collected external revenue through duties and tariffs. The income tax was repealed 10 years later. In 1894, Congress revived the income tax, but the Supreme Court ruled it unconstitutional the following year.
In 1913, the states ratified the 16th Amendment, which gave Congress the authority to enact an income tax, removing the restrictions on income taxes. In 1918, to finance World War I, the top rate of the income tax rose to 77%. During the post-war years, the top rate was lowered to 24%, but rose again during the Great Depression. During World War II, Congress introduced payroll withholding and quarterly tax payments.
In the 1950s, the patronage system was replaced with career, professional employees. Currently, only the IRS Commissioner and Chief Counsel are selected by the President and confirmed by the Senate. The Bureau of Internal Revenue name also was changed to the Internal Revenue Service to emphasize service to taxpayers. It is organized into four divisions: Large & Mid-Size Business (LMSB), Small Business / Self-Employed (SB/SE), Wage and Investment (W&I), and Tax Exempt & Government Entities (TE/GE).
The main headquarters of the IRS is located at 1111 Constitution Avenue, N.W. in Washington, D.C.
The IRS is one of the government agencies which nearly all Americans must deal with on a regular basis; the other is the state Department of Motor Vehicles.
Summary of Collections before Refunds by Type of Return, Fiscal Year 2003
Type of Return Number of Returns Gross Collections (Millions of US$)
Individual Income Tax 130,728,360 987,209
Corporate Income Tax 5,890,821 194,146
Employment Taxes 29,916,033 695,976
Gift Tax 287,456 1,939
Excise Taxes 812,483 52,771
Estate Tax 91,679 20,888
In fiscal year 2004, the IRS collected $43.1 billion in enforcement revenue. This is $5.5 billion or a 15 percent increase from fiscal 2003.
Recently, the IRS has altered its policies. The current Service plus Enforcement equals Compliance motto has lead to more investigations of abusive tax schemes.
See also: Taxation in the United States
- Davis, Shelley L., and Mary Matalin. Unbridled Power: Inside the Secret Culture of the IRS. New York: Harper Collins, (ISBN 0887308295)
- Johnston, David Cay. Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else. New York: Portfolio, 2003. (ISBN 1591840198)
- Rossotti, Charles O. Many Unhappy Returns: One Man's Quest To Turn Around The Most Unpopular Organization In America. Cambridge: Harvard Business School Press, 2005. (ISBN 1591394414)
- Roth, William V., Jr., and William H. Nixon. The Power to Destroy. New York: Atlantic Monthly Press, 1999. (ISBN 0871137488)