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The Internal Revenue Service (IRS) is the United States federal government agency that collects taxes and enforces the internal revenue laws. It is an agency within the U.S. Department of the Treasury and is responsible for interpretation and application of Federal tax law. The official U.S.marker Treasury regulations provide (in part):

History

Bureau of Internal Revenue

In July 1862, during the Civil War, President Lincoln and Congress created the office of Commissioner of Internal Revenue and enacted an income tax to pay war expenses (see Revenue Act of 1862). The position of Commissioner exists today as the head of the Internal Revenue Service.

This organization was created to enforce these taxes named for the internal revenue to be collected (and was formerly called the "Bureau of Internal Revenue"), in contrast to U.S. government institutions that collected external revenue through duties and tariffs.

The IRS has its National Capital offices in the greater Washington, D.C.marker area, and in particular does most of its computer programming in Marylandmarker. It operates various service centers around the country (currently ten; these are the locations to which taxpayers mail their returns); these centers do the actual tax processing; different types of tax processing take place in various centers (such as the distinction between individual and business tax processing). The IRS also operates three computer centers in various locations around the country.

Name change and reorganization

As early as the year 1918, the Bureau of Internal Revenue began using the name "Internal Revenue Service" on at least one tax form. In 1953 the name change to the "Internal Revenue Service" was formalized in Treasury Decision 6038.

In the 1950s, career professional employees replaced the patronage system. Currently, only the IRS Commissioner and Chief Counsel are selected by the President and confirmed by the United States Senate.

Reorganization of the late 1990s

A bipartisan commission was created with several mandates, among them to increase customer service and improve collections. Congress later enacted the Internal Revenue Service Restructuring and Reform Act of 1998. As a result of that Act the IRS now functions under four major operating divisions: Large & Mid-Size Business (LMSB), Small Business / Self-Employed (SB/SE), Wage and Investment (W&I), and Tax Exempt & Government Entities (TE/GE). The IRS also includes a criminal law enforcement division (IRS Criminal Investigation Division). While there is some evidence that customer service has improved, lost tax revenues in 2001 were over $290 billion.

Flooding at IRS headquarters building

The main headquarters building of the IRS is located at 1111 Constitution Avenuemarker, NW in Washington, D.C.marker, near the Old Post Officemarker. The IRS headquarters building was closed in June 2006 as a result of heavy flooding. According to a July 12, 2006 letter from Senator Max Baucus (Dem.-Montana), a ranking member of the U.S. Senate Finance Committee, the sub-basement of the building was filled with water to a depth of twenty feet, and electrical and maintenance equipment in the sub-basement was about 95% damaged or destroyed. The IRS and the General Services Administration announced that the building would remain closed through late 2006. The employees who worked in the building numbering over two thousand had been temporarily transferred to other offices at 15 other buildings in the Washington, D.C. area. Computerworld reported that some IRS employees were also allowed to telecommute while the building was closed.

On December 8, 2006, the IRS said in a press release that "the phased move-in of more than 2,000 IRS employees" had begun. Most staff would have returned by December 19 but "a small number of employees will return after January 1."

Commissioner

Douglas H. Shulman is the Commissioner of Internal Revenue.

Tax collection statistics

Summary of Collections before Refunds by Type of Return, Fiscal Year 2007
Type of Return Number of Returns Gross Collections

to the nearest million US$
Individual Income Tax 138,893,908 1,366,241,000,000
Employment Taxes 30,740,592 849,733,000,000
Corporate Income Tax 2,507,728 395,536,000,000
Excise Taxes 907,165 53,050,000,000
Estate Tax 49,924 24,558,000,000
Gift Tax 252,522 2,420,000,000
Total 173,351,839 2,691,538,000,000


During Fiscal Year (FY) 2006, the IRS collected more than $2.2 trillion in tax net of refunds, about 44 percent of which was attributable to the individual income tax. This is partially due to the nature of the individual income tax category; containing taxes collected from working class, small business, self employed, and capital gains. Of the Individual Income Tax, the top 5% of income earners pay 60% of this amount.

Recently, the IRS has altered its policies. The current Service plus Enforcement equals Compliance motto has led to more investigations of abusive tax schemes.

As of 2007, the agency estimates it is owed $300 billion more than it collects.

Outsourcing collection and tax-assistance

In September 2006, the IRS started to outsource the collection of taxpayers debts to private debt collection agencies. Opponents to this change note that the IRS will be handing over personal information to these debt collection agencies, who are being paid between 22% and 24% of the amount collected. Opponents are also worried about the agencies' being paid on percent collected because it will encourage the collectors to use pressure tactics to collect the maximum amount. IRS spokesman Terry Lemons responds to these critics saying the new system "is a sound, balanced program that respects taxpayers' rights and taxpayer privacy." Other state and local agencies also use private collection agencies.

In March, 2009, the IRS announced that it would no longer outsource the collection of taxpayers debts to private debt collection agencies. The IRS decided not to renew contracts to private debt collection agencies and began a hiring program at its call sites and processing centers across the country to bring on more personnel to process collections internally from taxpayers. As of October 2009, the IRS has ceased using private debt collection agencies.

In September, 2009, after undercover exposé videos of questionable activities by staff of one of the IRS's volunteer tax-assistance organizations were made public, the IRS removed ACORN from its volunteer tax-assistance program.

Administrative functions

The IRS publishes a huge number of tax forms which taxpayers are required to use for calculating and reporting their federal tax obligations. The IRS also publishes a number of forms for its own internal operations, such as Forms 3471 and 4227 (which are used during the initial processing of income tax returns).

In addition to collection of revenue and pursuing tax cheaters, the IRS issues administrative rulings such as revenue rulings and private letter rulings. In addition the Service publishes the Internal Revenue Bulletin containing the various IRS pronouncements. The controlling authority of regulations and revenue rulings allows taxpayers to rely on them. A private letter ruling is good for the taxpayer to whom it is issued, and gives some explanation of the Service's position on a particular tax issue. As is the case with all administrative pronouncements, taxpayers sometimes litigate the validity of the pronouncements, and courts sometimes determine a particular rule to be invalid where the agency has exceeded its grant of authority. The IRS also issues formal pronouncements called Revenue Procedures that among other things tell taxpayers how to correct prior tax errors. The IRS's own internal operations manual is the Internal Revenue Manual, which describes the clerical procedures for processing and auditing tax returns in excruciating detail.

More formal rulemaking to give the Service's interpretation of a statute or when the statute itself directs that the Secretary of the Treasury shall provide, IRS undergoes the formal regulation process with a Notice of proposed rulemaking (NPRM) published in the Federal Register announcing the proposed regulation, the date of the in person hearing and the process for interested parties to have their views heard either in person at the hearing in Washington, D.C., or by mail. Following the statutory period provided in the Administrative Procedure Act the Service decides on the final regulations "as is," or as reflecting changes, or sometimes withdraws the proposed regulations. Generally, taxpayers may rely on proposed regulations until final regulations become effective. For example, human resource professionals are relying on the October 4, 2005 Proposed Regulations (citation 70 F.R. 57930-57984) for the Section 409A on deferred compensation (the so-called Enron rules on deferred compensation to add teeth to the old rules) because regulations have not been finalized.

Criticism

Allegations of abuse

The IRS, and in particular the IRS Criminal Investigation Division (IRS CID), has on more than one occasion been accused of abusive behavior. Statements given in hearings before the Senate Finance Committee criticize the IRS:

Congress passed the Taxpayer Bill of Rights III on July 22, 1998, which shifted the burden of proof from the taxpayer to the IRS in certain limited situations. The IRS retains the legal authority to enforce liens and seize assets without obtaining judgment in court.

Michael Minns was the defense lawyer in a case against the IRS on behalf of James and Pamela Moran after an initial indictment and what Minns asserts was an IRS smear campaign that virtually canvassed the taxpayers' own hometown and surrounding area. The original indictment was associated with the Morans' involvement with a tax shelter provider, Anderson's Ark & Associates. The Morans were eventually acquitted in the case.

Minns also had previously asserted that the behavior of two IRS attorneys at law, Kenneth McWade and William A. Sims, constituted legal misconduct and recommended them for disbarment. Following an investigation, the law licenses of the IRS attorneys were duly suspended for a two-year period after a federal court ruling found that the two had indeed defrauded the courts in connection with 1,300 tax shelter cases. In 2003, the United States Court of Appeals for the Ninth Circuit concluded that the IRS lawyers had corruptly agreed with certain taxpayers that no tax collection actions would be taken against them - in return for testimony against other taxpayers. The court also asked why the IRS had not punished the two.

See also



References

Notes

  1. Form 1040, Individual Income Tax Return for year 1918, as republished in historical documents section of Publication 1796 (Rev. February 2007), Internal Revenue Service, U.S. Department of the Treasury. Form 1040s for years 1918, 1919, and 1920 bore the name "Internal Revenue Service". For the 1921 tax year, the name was dropped, then was re-added for the 1929 tax year.
  2. 1953-2 C.B. 443 (August 21, 1953), filed with Division of the Federal Register on August 26, 1953. Compare Treas. Departament Order 150-29 (July 9, 1953).
  3. Official web site of the National Commission on Restructuring the Internal Revenue Service
  4. Pub. L. No. 105-206, 112 Stat. 685 (July 22, 1998).
  5. U.S. Department of the Treasury, Press Release, September 26, 2006
  6. IRS flood spurs telecommuting, Computerworld, June 30, 2006
  7. IRS Headquarters Reopens; First Employees Return Today, Internal Revenue Service, December 8, 2006
  8. http://www.irs.gov/taxstats/article/0,,id=102886,00.html
  9. 'SOI Tax Stats - Individual Income Tax Rates and Tax Shares'. Yearly statistics at www.irs.gov.
  10. 'New IRS Data Reveals That the Rich Really Do Pay Tax - Lots of It' by John Gaver. Press Release, Actionamerica.org, 9 October, 2007.
  11. IRS Commissioner Assailed on 'Tax Gap' by Jack Speer. Morning Edition, National Public Radio, 21 March 2007.
  12. D. Caterinicchia, IRS moves ahead on debt-collection plan
  13. New York Times
  14. Federal Register (Volume 70, Number 191), October 4, 2005
  15. See . For case law on section 6331, see Brian v. Gugin, 853 F. Supp. 358, 94-1 U.S. Tax Cas. (CCH) paragr. 50,278 (D. Idaho 1994), aff’d, 95-1 U.S. Tax Cas. (CCH) paragr. 50,067 (9th Cir. 1995).
  16. Katharhynn Heidelberg, " Attorney: IRS should apologize," Montrose Daily Press (Montrose, Colorado), December 28, 2007, at Montrose Daily Press
  17. Katharhynn Heidelberg, "Morans Acquitted on All Counts," Montrose Daily Press (Montrose, Colorado), December 21, 2007, at Montrose Daily Press
  18. David Cay Johnston, August 21, 2004, "2 Ex-IRS Lawyers' Licenses Suspended for Misconduct," New York Times, at New York Times


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