What is the Internal Revenue Service (IRS)?

What is the IRS?

The Internal Revenue Service (IRS) is a U.S. government agency responsible for collecting taxes, enforcing tax laws, and ensuring taxpayers comply with the Internal Revenue Code (IRC). It is a division of the U.S. Department of the Treasury and led by the Commissioner of Internal Revenue. 
Most of the IRS’s work involves individual and corporate income taxes, however it also administers and collects payroll taxes, estate and gift taxes, and excise taxes. The IRS also helps taxpayers understand their tax obligations, processes tax returns and refunds, conducts audits, and investigates instances of erroneous or fraudulent tax filings.

IRS history 

Origins during the Civil War (1860s)

President Abraham Lincoln created the Office of the Commissioner of Internal Revenue in 1862 in an effort to fund the Civil War. That same year, Congress passed the Revenue Act of 1862, introducing the nation’s first federal income tax. This tax was temporary and designed as an emergency wartime measure that only applied to high earners. 

In 1863, the Office of the Commissioner of Internal Revenue collected $39.1 million in taxes, equivalent to just over $1 billion today. 

Introduction of a permanent taxation system (1870s-1913)

After the Civil War, the federal income tax was repealed, revived, and repealed again as lawmakers debated whether or not it was constitutional. In 1913, the 16th Amendment was ratified to give Congress the power to enact income tax laws, and just a year later, the first Form 1040 was introduced.

You can view a copy of this original Form 1040 online, and see that it shows only those with annual incomes above $3,000 (equivalent to about $97,200 in 2026) were required to file a tax return. 

Becoming the Internal Revenue Service (1950s) 

In 1952, the Bureau of Internal Revenue was reorganized after allegations of tax evasion and bribery amongst its employees. Soon after, it was officially renamed the Internal Revenue Service. In 1954, the federal tax filing deadline was moved from March 15 to April 15, the same date used today. 

Modernization of the IRS (1990s-present)

Over the past several decades, the IRS has shifted from paper-based processing to digital systems. The IRS first began to use the public internet for electronic filing in 1995, and in 1996 it launched its first website (different to the current IRS.gov website used today). 

By 2002, over a third of all tax returns were filed electronically, leading to the IRS closing down many of its paper tax return processing centers. Today, the vast majority of federal tax returns are filed electronically, and the IRS provides a range of online tools – including an app – for payments, identity verification, tax advice, and general account management. 

What does the IRS do?

The IRS exists to administer and enforce federal tax law. This involves a few different responsibilities: 

Collecting taxes (and issuing refunds)

One of the main functions of the IRS is to assess and collect federal taxes on behalf of the federal government. This includes:

● Income tax
● Payroll/employment taxes
● Corporate taxes
● Excise taxes
● Estate & gift taxes. 

The U.S. system generally collects taxes throughout the year through paycheck withholding for most wage earners, and estimated tax payments for most self-employed people and businesses. 

Then, an annual return (usually due around April 15) reconciles what was paid versus what’s actually owed. The result is either a refund or a balance due. If an individual or business has paid more than what they owe, they’ll be issued a refund. This tends to happen when too much tax is withheld from paychecks or when refundable credits apply. 

On the other hand, an individual or business may be required to pay an additional balance if they’ve been paying less tax than they should have.

In 2025, the IRS collected $5.23 trillion in tax revenue.

Processing tax returns and filings

The IRS receives and processes a massive volume of returns each year. 

Most individuals file Form 1040 (or Form 1040-SR for seniors). Many will also attach additional forms and documents, such as the W-2 and 1099, which are used to support the numbers stated on their main forms. Schedule D is also used to report capital gains received from the sale of stocks, property, and other investments. Schedule A is used to record tax deductions.

Most businesses will report their income and tax liabilities on Form 1120. Depending on the entity, other variations of the form might be used, including:

● Form 1120-C for cooperative associations
● Form 1120-F for foreign corporations
● Form 1120-H for homeowners associations. 

In 2025, the IRS received over 163 million individual tax returns and issued an average refund amount of $3,000 to over 100 million of those taxpayers.

Enforcing tax laws and addressing noncompliance

The IRS also enforces tax laws by identifying taxpayers who have underpaid their taxes (either by error or due to criminal activity). This mainly happens through auditing. The IRS will either select taxpayers at random to audit, or single out those whose returns are associated with someone being audited. 

Some factors that might trigger an IRS audit include:  

● Not declaring the right income
● Claiming an unusually high number of deductions
● Making extremely large charitable donations compared to income
● Claiming rental real estate losses. 

IRS auditors can either accept the return or request further review by an examination committee. If this happens, the taxpayer will be notified by mail and may be required to meet with the IRS in person (either at an IRS office or at the taxpayer’s home, business, or accountant office).  

Who oversees the IRS?

The IRS is led by the Commissioner of Internal Revenue, who is nominated by the President and confirmed by the Senate. The commissioner serves a five-year term. In situations where there’s a leadership change or vacancy, the agency may be led by an acting commissioner.  

More broadly, oversight of the IRS comes from the Treasury Department, which houses the IRS and provides executive direction, and Congress, which writes tax law, funds the agency, and conducts oversight through committees and hearings. It is also overseen by the IRS Oversight Board, which provides guidance to help the IRS meet taxpayer needs.

Some of the key roles within the IRS include:

● Commissioner of Internal Revenue: Serves as the chief executive of the IRS and oversees all IRS operations. They act as the primary liaison between the IRS, Treasury Department, Congress, and the public. 
● Deputy Commissioner: Assists the commissioner in managing the day-to-day operations of the IRS and steps in to act on their behalf when necessary. 
● Chief Counsel: Serves as the IRS’s legal advisor and represents the agency in litigation and legal proceedings.  
● National Taxpayer Advocate: Heads the Office of the Taxpayer Advocate, an independent office within the IRS that assists taxpayers experiencing problems with the agency. 
● Office of Appeals: An independent organization within the IRS that aims to resolve tax controversies impartially and without litigation.  
● Office of Professional Responsibility (OPR): Responsible for overseeing the conduct of tax professionals and investigating violations of professional standards.
● Criminal Investigation Division (IRS-CI): Investigates potential criminal violations of tax law and related financial crimes like money laundering, identity theft, currency violations, and terrorist financing. 

How is the IRS funded?

Congress funds the IRS through a budget that’s approved annually. IRS funding is divided into four accounts:

● Taxpayer Services: Covers customer support, return processing, taxpayer assistance programs, and customer help lines
● Enforcement: Funds audits, investigations, and collections activity
● Operations Support: Covers internal functions like IT, facilities, security, and human resources
● Business Systems Modernization: Used to finance technology upgrades and system improvements.

Funds allocated to one of these accounts cannot be moved or transferred to another section. 

IRS controversies 

The IRS is not immune to controversies and public criticism. Some issues the agency has experienced over the years include: 

● Concerns about aggressive collection tactics in the 1990s, which led Congress to pass the Taxpayer Bill of Rights III. This legislation strengthened taxpayer protections and shifted the burden of proof to the IRS in certain disputes.
● Allegations in 2013 of increased scrutiny of conservative or conservative-sounded groups applying for tax-exempt status.  
● Data breaches and identity theft incidents, including multiple cases where criminals accessed private taxpayer information and filed fraudulent returns using stolen Social Security numbers. 
● Erroneously marking over 20,000 taxpayers as deceased in 2022, temporarily preventing them from filing returns or receiving refunds. 
● Ongoing criticism over using outdated technology, including systems more than 50 years old and identified by the Government Accountability Office as 'facing significant risks'.