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. Established in 1862 by President Abraham Lincoln, the agency operates under the authority of the United States Department of the Treasury, and its primary purpose includes the collection of individual income taxes and employment taxes. The IRS also handles corporate, gift, excise and estate taxes. People colloquially refer to the IRS as the "tax man."

BREAKING DOWN 'Internal Revenue Service - IRS'

Headquartered in Washington, D.C., the IRS is an expansive organization that services the taxation of all Americans. For fiscal year 2014, the IRS

processed nearly 147.5 million personal income tax returns and more than 2.2 million corporate income tax returns. These types of returns brought the federal government close to $2 trillion of revenue.

E-Filing

Individuals and corporations have the option to file income returns electronically thanks to computer technology, software programs and secure Internet connections. During the 2015 tax filing season, more than 91% of all returns came through this e-file option, which comes to more than 128 million out of 150 million returns from January to October 2015. The number of returns that use e-file has grown steadily since the IRS began that program. By comparison, 40 million out of 131 million returns, or just 31%, used the e-file option in 2001. More than 128 million taxpayers received their returns through direct deposit rather than a traditional paper check in 2015, and the average direct deposited amount was $2,935.

Audits

As part of the enforcement mission of the IRS, the agency audits a select portion of income tax returns every year. For the 2013 tax year, the agency audited approximately 1.4 million income tax returns, or 0.7% of all returns filed. This number breaks down to 0.9% of individual income tax returns and 1.3% of corporate tax returns. Around 71% of IRS audits occur through the mail, while 29% happen in the field.

After rising to a peak in 2010, the number of audits has steadily declined. The amount of funding set aside for tax enforcement declined 5% from 2014 to 2015, which indicates even fewer audits should occur. Reasons for an IRS audit vary, but some factors may increase the odds of an examination. Someone who makes more than $200,000 in one tax year has a 2.71% chance of having an audit. One out of every 13 returns of those earning more than $1 million per year undergo an audit.

Other red flags for an audit include failing to declare the right amount of income, claiming a higher-than-normal amount of deductions, running a small business as self-employed, making large charitable donations compared to income and claiming rental losses. There is no one single factor that determines who does or does not face an IRS audit each year.

RELATED TERMS
  1. IRS Publication 509: Tax Calendars

    A document published by the Internal Revenue Service that provides ...
  2. IRS Publication 15 - Employer's ...

    A document published by the Internal Revenue Service detailing ...
  3. IRS Publication 542

    A document published by the Internal Revenue Service (IRS) that ...
  4. Revenue Act Of 1862

    This act increased taxes and implemented the first federal income ...
  5. Federal Income Tax

    A tax levied by the United States Internal Revenue Service (IRS) ...
  6. Taxes

    An involuntary fee levied on corporations or individuals that ...
Related Articles
  1. Savings

    Explaining Tax Returns

    A tax return is the form or forms used to file income taxes with the IRS.
  2. Professionals

    Types Of Taxes

    These taxes are unavoidable for corporations.
  3. Taxes

    How The IRS Catches Tax Cheats & Liars

    When civil and criminal penalties don't deter people from skipping out on their taxes, the IRS has other tools it can use.
  4. Taxes

    6 Sources For Free Tax Help

    From community-based services to free software, there are many free resources to help with your taxes.
  5. Options & Futures

    When You Can't Pay Uncle Sam

    If you can't pay your taxes, there are some steps you can take to protect yourself. Discover your options here.
  6. Taxes

    Paying Uncle Sam: From Tobacco To $1 Trillion

    The services we rely on, like education, law and security, were built on taxes.
  7. Taxes

    Use Tax Vs. Internet Sales Tax: How Are They Different?

    Learn about the differences between a use tax and an Internet sales tax. Find out about transactions in which the taxes apply, and to whom they apply.
  8. Taxes

    5 States Without Sales Tax

    Learn about the five states that do not charge sales taxes and about other taxes the states levy instead in order to generate revenue.
  9. Taxes

    The Truth About IRS Tax Settlement Firms

    These companies claim that they can reduce or even eliminate what you owe to the IRS. Find out the facts behind this alluring fiction.
  10. Taxes

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
RELATED FAQS
  1. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  2. Can the IRS audit you after a refund?

    Learn how the U.S. Internal Revenue Service (IRS) can conduct a tax audit even after a taxpayer was issued a tax refund in ... Read Answer >>
  3. Who first came up with the idea of a progressive tax?

    Learn how the progressive income tax system developed in the United States and became the federal government's primary revenue ... Read Answer >>
  4. Are IRS audits random?

    Learn about how the U.S. Internal Revenue Service (IRS) conducts its tax audits based on random selection, document matching ... Read Answer >>
  5. Can the IRS take your house?

    Understand why a person would have his home seized by the IRS and what he can do to avoid it. Learn about the seizure process ... Read Answer >>
  6. Can the IRS withhold your tax refund?

    Learn about the instances in which the IRS can levy your federal and state income tax refunds, and find out how the levy ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center