What Exactly Does the IRS Do? Exploring the Role and Function of America’s Tax Man

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The Internal Revenue Service (IRS) is one of the most recognizable and essential government agencies in the United States, responsible for administering the nation’s tax laws and collecting taxes. As the primary tax-collecting agency under the U.S. Department of the Treasury, the IRS plays a critical role in funding the federal government by ensuring that individuals and businesses comply with tax laws and pay their required share. While many people associate the IRS solely with tax collection, the agency’s responsibilities extend far beyond that.

The IRS manages billions of tax returns, processes refunds, audits individuals and corporations, and enforces compliance with tax laws. It also serves as a resource for taxpayers, providing guidance and support for those navigating the complexities of the U.S. tax system. In this article, we will explore the IRS’s history, key responsibilities, and its vital function in supporting the nation’s financial infrastructure.

Historical Background of the IRS

The roots of the IRS can be traced back to the Civil War. In 1862, President Abraham Lincoln and Congress established the Office of the Commissioner of Internal Revenue to collect a temporary income tax to fund the war effort. This income tax was later repealed, but the concept of a national tax collection agency remained.

The modern IRS was officially formed with the passage of the 16th Amendment to the U.S. Constitution in 1913, which gave Congress the authority to levy a federal income tax. The introduction of the income tax provided a new and consistent source of revenue for the federal government. Over the years, the agency evolved into the IRS we know today, expanding its scope to include the collection of a variety of taxes, including individual and corporate income taxes, payroll taxes, estate taxes, and excise taxes.

With tax revenues becoming the lifeblood of government programs and services, the IRS’s role has expanded in both complexity and importance, helping to fund everything from national defense and infrastructure to healthcare and education.

Key Functions of the IRS

The IRS is responsible for managing and enforcing the U.S. tax system, which includes a wide range of activities. Its primary functions can be categorized into four main areas: tax collection, taxpayer services, enforcement and audits, and interpreting tax laws and regulations.

1. Collecting Federal Taxes

The IRS’s most visible and critical function is tax collection. Each year, the agency processes the tax returns of millions of individuals and businesses, ensuring that federal taxes are properly calculated, reported, and paid.

  • Individual Income Taxes: The IRS collects income taxes from U.S. citizens, residents, and many businesses. This includes taxes on wages, salaries, dividends, interest, and other forms of income. The majority of federal revenue comes from individual income taxes, which are collected on a progressive scale, meaning that higher-income earners pay a higher percentage of their income in taxes.
  • Corporate Taxes: The IRS also collects taxes from corporations based on their profits. Corporate taxes are essential for funding government programs and ensuring that businesses contribute their share to the national economy.
  • Payroll Taxes: The IRS collects payroll taxes, including Social Security and Medicare contributions, from employers and employees. These taxes fund vital social programs and ensure that workers are covered by these benefits during retirement or disability.
  • Excise and Estate Taxes: The agency also administers excise taxes, which are specific taxes on goods such as gasoline, alcohol, and tobacco. Additionally, the IRS manages estate and gift taxes, ensuring that wealth transfers between individuals are properly taxed.

Through its tax collection efforts, the IRS ensures that the federal government has the revenue it needs to function. Taxes fund a wide array of government services, from infrastructure projects to national defense, education, and social programs like Medicare and Social Security.

2. Providing Taxpayer Services and Education

Beyond tax collection, the IRS plays a crucial role in helping taxpayers understand their tax obligations and providing guidance on how to comply with federal tax laws. The agency offers a variety of services to assist individuals and businesses in navigating the complexities of the tax system.

  • Filing Support: The IRS provides forms, publications, and online tools that help taxpayers file their tax returns correctly. This includes resources like the IRS Free File program, which allows eligible individuals to file their taxes for free using IRS-approved software, and e-filing, which simplifies the process of filing tax returns electronically.
  • Customer Support: The IRS operates phone lines, online chat services, and local taxpayer assistance centers where individuals can seek help with their taxes, ask questions, and resolve issues related to tax filing, payments, or refunds.
  • Taxpayer Education: The IRS regularly provides educational outreach to help taxpayers understand changes to tax laws, the importance of filing on time, and how to claim deductions, credits, and refunds. The agency publishes tax guides, instructional videos, and offers online tools like the IRS Withholding Calculator to help people determine how much tax should be withheld from their paychecks.

The IRS’s Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers resolve problems with the agency, ensuring that their rights are protected and that they receive fair treatment. TAS provides free, personalized assistance to individuals and businesses facing issues such as delayed refunds, tax disputes, or hardship.

3. Enforcing Tax Laws and Conducting Audits

In addition to tax collection and taxpayer services, the IRS is responsible for enforcing tax laws and ensuring that individuals and businesses comply with their tax obligations. This is a critical part of maintaining the integrity of the tax system and preventing tax fraud, evasion, and abuse.

  • Audits: The IRS conducts audits to examine the accuracy of tax returns and ensure that taxpayers are reporting their income, deductions, and credits properly. Audits can be triggered for a variety of reasons, such as discrepancies between reported income and information from third parties (like employers or financial institutions), unusually high deductions, or random selection. Audits can range from simple correspondence audits, where the IRS requests additional documentation, to more complex field audits, which involve IRS agents conducting in-person reviews of a taxpayer’s financial records.
  • Tax Evasion and Fraud: The IRS also investigates cases of tax evasion, where individuals or businesses attempt to avoid paying taxes by underreporting income, inflating deductions, or using illegal tax shelters. In cases of criminal tax fraud, the IRS Criminal Investigation Division (CID) conducts thorough investigations and works with the Department of Justice to prosecute offenders.
  • Collection Enforcement: When taxpayers fail to pay their taxes, the IRS has the authority to enforce collections through a variety of methods, including liens, levies, and wage garnishment. A lien is a legal claim against a taxpayer’s property, while a levy allows the IRS to seize property or assets, such as bank accounts, to satisfy unpaid tax debts.

The IRS’s enforcement activities are essential for ensuring that all taxpayers contribute their fair share, and that the tax system operates fairly and efficiently.

4. Interpreting Tax Laws and Regulations

The U.S. tax code is highly complex, and one of the IRS’s key roles is to interpret and implement the laws passed by Congress. The IRS works closely with the Treasury Department and other government agencies to develop regulations, issue guidance, and clarify ambiguities in the tax code.

  • Regulatory Guidance: The IRS issues regulations that explain how specific provisions of the tax code should be applied. These regulations are published in the Internal Revenue Bulletin and provide taxpayers with guidance on compliance.
  • Revenue Rulings and Procedures: In addition to regulations, the IRS issues Revenue Rulings and Revenue Procedures to clarify how tax laws apply to specific situations. These rulings help taxpayers understand how the IRS interprets the law and ensure that tax issues are addressed consistently.
  • Tax Court Cases: The IRS plays a role in representing the government in tax court cases where taxpayers dispute their tax liabilities. These cases help establish legal precedents for how the tax code should be interpreted and applied.

5. Processing Refunds and Credits

For millions of Americans, one of the most anticipated aspects of the tax process is receiving a tax refund. The IRS processes billions of dollars in refunds each year, returning money to taxpayers who have overpaid their taxes throughout the year. Tax refunds are often issued when taxpayers claim deductions, credits, or withhold more income than necessary from their wages.

The IRS administers several important tax credits, including:

  • Earned Income Tax Credit (EITC): A refundable credit for low- to moderate-income workers, especially those with children. It provides substantial financial relief to eligible taxpayers.
  • Child Tax Credit (CTC): The IRS administers this credit to help families offset the cost of raising children, which can significantly reduce a family’s tax liability.
  • Education Credits: Credits like the American Opportunity Tax Credit and the Lifetime Learning Credit help taxpayers offset the costs of higher education by reducing the amount of taxes owed.

The timely processing of refunds is a crucial service provided by the IRS, offering financial relief to millions of Americans.

Challenges and Criticisms of the IRS

Despite its essential role in the U.S. government, the IRS faces numerous challenges and criticisms:

  • Underfunding and Staffing Shortages: The IRS has faced budget cuts and staffing shortages in recent years, which have strained its ability to provide timely services and conduct thorough audits. With a reduced workforce, the agency struggles to keep up with the growing volume of tax returns and inquiries, leading to delays in processing refunds and responding to taxpayer questions.
  • Complex Tax Code: The complexity of the U.S. tax code often leads to confusion among taxpayers, making it difficult for individuals and businesses to comply with tax laws. Many argue that the tax system is overly complicated, which contributes to errors, unintentional non-compliance, and a reliance on professional tax preparation services.
  • Public Perception: The IRS is sometimes viewed unfavorably by the public due to its role in tax collection and enforcement. Audits, collection activities, and tax disputes can create fear and resentment among taxpayers, even though these efforts are necessary to ensure compliance with the law.

Conclusion

The Internal Revenue Service (IRS) is a critical agency that ensures the smooth functioning of the U.S. government by collecting taxes, enforcing tax laws, and providing essential services to taxpayers. Its work supports the funding of government programs and services that benefit society, from infrastructure and education to healthcare and national defense.

While the IRS faces challenges related to underfunding, public perception, and the complexity of the tax code, its role in administering and enforcing the U.S. tax system is indispensable. As the U.S. government continues to evolve and adapt to new economic realities, the IRS will remain a cornerstone of the country’s financial infrastructure, working to ensure fairness, transparency, and compliance in the collection of taxes.

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Eddy LeGrand

Eddy LeGrand is an adventurous spirit who finds joy in embracing creativity and exploring new horizons. Known for his curiosity and enthusiasm, he enjoys discovering unique perspectives and diving into projects that inspire him. When not immersed in his passions, Eddy can be found enjoying live music, experimenting with art, or seeking out hidden gems in his city.