Internal Revenue Service (IRS)

What Is the Internal Revenue Service (IRS)?

The Internal Revenue Service (IRS) is a U.S. government agency responsible for the collection of taxes and enforcement of tax laws, (for example, the wash sale rule). Established in 1862 by then-President Abraham Lincoln, the agency operates under the authority of the U.S. Department of the Treasury, and its primary purpose is the collection of individual income taxes and employment taxes. The IRS likewise handles corporate, gift, excise, and estate taxes.

As of November 2021, the head of the IRS is Commissioner Charles P. Rettig, who was nominated to the post by then-President Donald Trump in 2018. He oversees a workforce of around 80,000 and a budget of more than $11 billion. A graduate of New York University, Rettig is the first commissioner since the 1990s to come to the job from a career in tax law rather than business management.

How the Internal Revenue Service Works

Headquartered in Washington, D.C., the IRS services the taxation of every single American individual and companies. For fiscal year (FY) 2020 (Oct. 1, 2019, through Sept. 30, 2020), it processed more than 240 million income tax returns and other forms. During that period, the IRS collected more than $3.5 trillion in revenue and issued more than $736 billion in tax refunds (which included $268 billion in economic impact payments due to the COVID-19 pandemic).

Individuals and corporations have the option to file income tax returns electronically, on account of computer technology, software programs, and secure internet connections. The number of income tax returns that use e-file has developed steadily since the IRS began the program, and the overwhelming majority are currently filed along these lines. During FY 2020, nearly 94.3% of generally individual returns made use of the e-file option. By comparison, something like 40 million out of nearly 131 million returns, or nearly 31%, used it in 2001.

As of October 2021, just over 112 million taxpayers received their refunds through direct deposit rather than by a traditional paper check, and the average direct-deposited amount was $2,851.

Albeit the IRS recommends filing tax returns electronically, it does not endorse a particular platform or filing software.

The IRS and Audits

As part of its enforcement mission, the IRS audits a select portion of income tax returns every year. For FY 2020, the agency audited 509,917 tax returns. This number breaks down to 0.63% of individual income tax returns and 1.0% of corporate tax returns. Around 72.6% of IRS audits occurred through correspondence, while 27.4% happened in the field.

After rising to a peak in 2010, the number of audits has dropped steadily each year. The amount of funding set aside for tax enforcement has declined by around 30% from 2010 to 2020, which indicates that even fewer audits ought to happen.

Reasons for an IRS audit fluctuate, yet some factors might increase the chances of an examination. Chief among them is higher income. In 2020, the audit rate for all individual income tax returns was 0.63%. However, for someone who made more than $10 million, it was 9.8%.

Running your own business additionally carries greater risks. Individuals making $200,000 to $1 million out of 2018 who didn't file Schedule C (the form for the self-employed) had a 0.6% chance of being audited, versus 1.4% — basically double — for those who did.

Other red banners for an audit include neglecting to declare the right amount of income, claiming a higher-than-typical amount of deductions (especially business-related ones), making disproportionately large charitable donations compared to income, and claiming rental real estate losses. No single factor determines who does or does not face an IRS audit each year.

The most effective method to Interface with the IRS

Via mail

There are numerous ways of reaching the IRS. Assuming you are filing a tax return via mail, your state of residence and whether or not you are expecting a tax refund will determine the address that you ought to use. There is a rundown on the IRS website. On the off chance that you are sending an application or a payment, there is likewise a rundown on the IRS website of mailing addresses depending on your purpose.

By phone or online

In person

You can likewise set up an in-person appointment by phone at your nearby IRS office. The IRS website has a finder page into which you merely type your ZIP code to get the office location and phone number.

Paying Your Taxes

You can pay your taxes to the IRS through an electronic transfer of funds from your bank account or by utilizing a debit or credit card. Other methods include a same-day bank wire or an electronic funds withdrawal at the time that you e-file your return. In the event that you are a business, or on the other hand in the event that you are making a large payment, you can use the Electronic Federal Tax Paying System, however you must first enroll in it.

In the event that you are not paying electronically, you have other options. You can mail in a personal check, cashier's check, or money order. Make it payable to "U.S. Treasury," and be sure that it contains the accompanying information:

Your name and address
Daytime phone number
Social Security number (the SSN shown first on the off chance that it's a joint return) or employer identification number
Tax year
Related tax form or notice number

You might pay in cash assuming you wish, you may, however never send cash through the mail. Instead, make an in-person appointment at an IRS Taxpayer Assistance Center by calling (844) 545-5640, Monday through Friday, 7 a.m. to 7 p.m. ET. You ought to call 30 to 60 days before the day when you need to pay.

You can likewise pay cash at one of the IRS Retail Partners: 7-Eleven, ACE Cash Express, Casey's General Stores, CVS Pharmacy, Family Dollar, Dollar General, Walgreens, Pilot Flying J, Speedway, Kum and Go, Stripes, Royal Farms, GoMart, and Kwik Trip. This involves first getting a payment code sent to you by the IRS by means of email, which you must present when making your payment. There is a limit of $1,000 per payment.

Features

The majority of crafted by the IRS involves income taxes, both corporate and individual; it processed nearly 240 million tax returns in 2020.
After peaking in 2010, IRS audits have been on the decline each year.
More than 94% of tax returns were filed electronically in 2020.
Founded in 1862, the Internal Revenue Service (IRS) is a U.S. federal agency responsible for the collection of taxes and enforcement of tax laws.

FAQ

When was the IRS first established?

The IRS was established in 1862 by then-President Abraham Lincoln, who instituted an income tax to pay for the Civil War. The tax was repealed in 1872, revived in 1894, and declared illegal by the U.S. Supreme Court in 1895. In 1913, the 16th Amendment to the U.S. Constitution reinstated the federal income tax.

How might I pay my taxes?

The most well known method for paying your taxes is by electronic transfer, either directly from your bank account or through a debit or credit card. However, you can likewise pay with a money order or money order, and you could in fact pay in person — utilizing cash on the off chance that you wish.

What is the best method for filing my tax return?

It's best to file your taxes electronically, which 94.3% of taxpayers did in 2020. You can in any case file a paper return via mail, yet doing so will delay your receipt of any refund.

What are the chances that the IRS will audit my taxes?

In 2020, the audit rate for individual tax returns was 0.63%. However, your chances go up assuming you make big bucks. The 2020 rate for people making $10 million or more was 9.8%. However, nobody single factor determines whether or not the IRS will audit you.