Charged with collecting taxes and enforcing tax laws, the Internal Revenue Service is popularly dubbed the “most hated” agency in the U.S. federal pantheon. The agency determines, assesses and collects revenue, including from personal and corporate income taxes, excise, estate and gift taxes, as well as employment taxes for Social Security. The IRS is the largest bureau within the U.S. Department of Treasury - and according to the government, one of the world’s most efficient tax administrators: In 2004 the IRS collected more than $2 trillion in revenue and processed more than 224 million tax returns.
As the federal body responsible for carrying out the government’s tax policy, the agency finds itself at the center of an interminable, and usually bipartisan, debate over how America is funded. In 1998 the IRS Restructuring and Reform Act aimed at transforming the culture of the IRS and significantly enhanced taxpayers’ rights in disputes with the agency. However, many still criticize IRS Criminal Investigation (CI) operations for a perceived abuse of unchecked power. And in recent years, operational changes - including the outsourcing of collections to private agencies and the introduction of online filing - have also been the subject of debate.
The Internal Revenue Service has its origins during the Civil War, when President Lincoln and Congress created the position of Commissioner of Internal Revenue and enacted an income tax to pay for the war in 1862. The tax was repealed ten years later, revived in 1894, and ruled unconstitutional by the Supreme Court the next year.
In 1913, the 16th Amendment gave Congress the authority to enact an income tax. At the time, net personal incomes above $3,000 were taxed 1 percent, and incomes over $500,000 subject to a six percent surtax. In 1918 income tax rose as high as 77 percent to finance the First World War, dropping to 24 percent in 1929, and rising again during the Depression. Congress introduced payroll withholding and quarterly taxes during WWII.
The agency underwent a re-organization in the 1950s, to “replace a patronage system with career, professional employees,” and the Bureau of Internal Revenue became the Internal Revenue Service.
The IRS Restructuring and Reform Act of 1998 further reorganized and modernized the agency, based on a private-sector model of organizing operations around customer groups. The Act also significantly enhanced taxpayers’ rights with regard to dealings and debates with the agency.
Today's IRS Organization
Relying on the “voluntary compliance” of taxpayers who submit their earnings, expenses and financial records in the form of tax returns, the IRS administers the tax laws and policy of the U.S. government. It is charged with “helping” taxpayers understand and meet their legal obligations, and enforces compliance through a combination of audits, collections, criminal investigations, confiscation and prosecution.
Compliance and Enforcement
Whistleblower - Informant Award - IRS will award up to 30% of the original tax, penalties and other amounts it collects to people who blow the whistle on others who haven’t paid their taxes.
Statutory Authority
The IRS is organized to carry out the responsibilities of the secretary of the Treasury under section 7801 of the Internal Revenue Code. The secretary has full authority to administer and enforce the internal revenue laws and has the power to create an agency to enforce these laws. The IRS was created based on this legislative grant.
“Section 7803 of the Internal Revenue Code provides for the appointment of a commissioner of Internal Revenue to administer and supervise the execution and application of the internal revenue laws.”
Information
Resources
Data
Enforcement - Criminal Investigations (CI)
As tax law compliance is largely self-regulated by taxpayers, the IRS oversees compliance and enforcement operations, including civil audits and criminal investigations.
The IRS’s enforcement arm, Criminal Investigations (CI), is the only federal agency authorized to investigate potential criminal violations of the Internal Revenue Code. The division has about 4,400 employees worldwide - more than half of whom are special agents with jurisdiction under tax, money laundering and Bank Secrecy Act laws -and operates through three interdependent programs: Legal Source Tax Crimes; Illegal Source Financial Crimes; and Narcotics Related Financial Crimes. According to the agency, CI’s conviction rate is one of the highest in federal law enforcement, and hefty prosecutions are thought to deter other violations.
Critics take issue with the expansion of CI operations into drug and financial investigations, charging “excessive use and misuse of intrusive and even oppressive investigative techniques.” Statement before the Senate Committee on Finance (by Robert Edwin Davis)
Economic Stimulus Package
Budget/Spending
Criticism/Complaints
IRS Complaints
(Citizens for Responsibility and Ethics in Washington)
Bush Tax Cuts Help the Rich
The debate over tax reform and the IRS runs the gamut from those who would think taxes are unconstitutional and would like to see the agency abolished - to those who contend the government should do more to regulate massive individual wealth and corporate greed in the interest of social safety and development.
Meanwhile, during the Bush Administration’s tenure, tax cuts and policy decisions elicit cries of injustice from the political Left - who point out that the biggest breaks and benefits are going to the richest Americans - and the Right, who claim the rich are being unfairly punished.
In the New York Times article below, a nonpartisan Congressional study showed that families earning more than $1 million per year saw their federal taxes drop more sharply than any other group - while the tax burden has largely shifted to the middle classes…
Privacy
There is a debate over whether preparers should be allowed - even with taxpayers’ permission - to sell or disclose customer return information.
Online Filing/Private-sector collection
Debate over whether the agency should be required to provide direct filing services for taxpayers online, with concern over “predatory” refund anticipation loan solicitation and the quality of private-sector return preparation. The IRS began outsourcing collections in 2006.
Standard Deduction and Low-income Taxpayers
See both sides of the debate
(Helium.com)
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Founded: 1862
Annual Budget: $11 billion
Employees: 100,000
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Internal Revenue Service (IRS)
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Shulman, Douglas
Commissioner
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Douglas Shulman earned a B.A. from Williams College in Massachusetts, an M.P.A. from the John F. Kennedy School of Government (Harvard University) and a J.D. from Georgetown University Law Center. He began his career at the consulting firm of A.T. Kearney. From 1996 to 1997, he was Senior Policy Advisor and then Chief of Staff of the bipartisan National Commission on Restructuring the IRS. From 1998 to 2000, Shulman was Vice President of Darby Investments, Ltd., a holding company, where he managed financial and legal aspects of the company’s transactions. In January 2000, Shulman founded his own consulting firm, FoundryOne, Inc., which specialized in technology-focused new business ventures. That same year, he joined the National Association of Securities Dealers (NASD), where he became president of markets, services and information, and a member of the office of the chairman two years later. He served as NASD vice chairman before its 2007 consolidation, after which he served in the same position for the newly formed Financial Industry Regulatory Authority (FINRA), the private-sector regulator of all securities firms doing business in the United States. He became the 47th Commissioner of Internal Revenue on March 24, 2008.
Shulman donated $500 to the Democratic National Committee in 2004.
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