Facts and Information You Need to Know About IRS
The IRS or Internal Revenue Service is the government arm of the United States of America in charge of tax collection. It is also tasked to provide accurate interpretation of tax codes and regulations where they have the authority of enforcing the said rules. The agency works under the Bureau of Internal Revenue and its parent agency is the Department of Treasury.
The IRS processes millions of tax returns every year and their role is very essential for the government as they collect the necessary funds the government needs to finance public services and projects. The IRS’ head office is in Washington DC but the actual operations are done various areas around the country. There are ten service centers and they are used as recipients for the mails sent around the country.
Notable Timeline for IRS and Tax Collection of the US
1862: Revenue Act of 1862
One of the first revenue-related laws enacted. President Lincoln and the Congress enacted this law on July 1862 and the tax collected is used for war expenses. The country was at a Civil War during those years. The tax collected accounted to more than 20% of the total war revenue.
1872-1873: War Tax Expiration and Panic
Since the war ended, the Congress opted to allow the expiration of War Tax. Since it’s just temporary and it’s for war purposes, no new edicts or laws related to war tax were created. But this decision actually proved to be costly as citizens thought that something bad could happen. The Panic of 1873 happened because of the expiration of War Tax.
1913: Ratification of the Sixteenth Amendment
On February, 1913, the Congress passed an amendment that allowed it to specify the source of income tax. 48 of the 42 states followed the ratification. During that time, anyone earning more than $3,000 or more should file income tax. 1913 was also the year the first Form 1030 was released.
70s: Modernization and Openness of Information
From 1913 to 1970, the government experienced serious reorganization as collections are no longer enforced but voluntary. At first the amount of data backlogged the organization by nearly two years. Microfilming allowed them to work faster and retrieve data faster. The culmination of early modernization was faster data extraction related to President Nixon. He was exposed to pay only $792.81 when his annual income is at $200,000.
1995 to Present: Online Filing
The IRS started offering online filing or e-filing in 1995. They were assisted by software tax vendors that offers free e-filing to many citizens. More than 98 million tax returns were made electronically in 2010.
IRS Organization
The Internal Revenue Service Restructuring and Reform Act of 1998 created four divisions of IRS namely:
- Large and Mid-Size Business Division (Now Large Business and International Division)
- Small Business/Self Employed Division
- Wage and Investment Division
- Tax Exempt and Government Entities Division
Aside from these four divisions, IRS also has a separate division dedicated for law enforcement called the IRS Criminal Investigation Division. As already indicated, service centers are scattered around the country and those who want to send in their tax return by mail should send them to the nearest service center. The IRS strategically placed their service centers so that almost every zip code is within 100 miles of an IRS service center.
Administrative Functions of IRS
The IRS sends massive documents to every tax payer. These documents contain complete instructions with every form that could be used when filing for tax returns. These are sent out annually and should be sent in to any service center before the date indicated. To complement the documents sent to every tax payer as a guideline, the IRS also publishes internal guidelines with regards to its operations. These guidelines often contain specific actions during initial processing. Aside from document processing, the IRS is also known to come after tax evaders. But they don’t just come after tax evaders – they also provide rulings on how a specific tax law should be interpreted and implemented.
Being Audited
The IRS actively runs after tax evaders in any way. But with massive documents to process, they usually look out for signs that tell something is wrong with the tax return. The following are the signs from tax return that would require a second look for auditing:
- Higher than normal tax deduction estimate especially on donated goods
- Errors in calculation
- In accurate reporting of income
- Small, cash-based businesses
- Large deductions from income
Inaccuracy is often the biggest cause of auditing from IRS. When in doubt, an accountant should be hired for accurate tax returns. Expenditures should be properly accounted and proof of those expenditures should exist such as receipts. The IRS is a big division but it can easily pinpoint those who are trying to evade taxes knowingly or unknowingly.