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Internal Revenue Service

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The Internal Revenue Service, known as the IRS, is the agency responsible for collecting federal taxes in the United States.

IRS Sign
IRS Sign

It operates under the Department of the Treasury. The agency administers the Internal Revenue Code, which is the primary body of federal statutory tax law. The IRS is led by the commissioner of Internal Revenue. This leader is appointed by the president of the United States for a five-year term. The agency performs several critical functions to keep the government running. These include providing tax assistance to taxpayers and overseeing benefits programs like the Affordable Care Act. It also works to resolve instances of fraudulent or erroneous tax filings.

The mechanism of federal funding relies heavily on the IRS. While other groups like U.S. Customs and Border Protection collect duties and tariffs, the IRS provides the largest portion of revenue. The Federal Reserve also contributes by purchasing U.S. treasuries. The IRS processes a massive volume of data every year to ensure these funds are collected. During the 2023 fiscal year, the agency processed more than 271.4 million tax returns. This total included over 163.1 million individual income tax returns.

1920 tax forms IRS
1920 tax forms IRS

This work requires complex systems to track income and ensure compliance with the law.

Throughout its history, the agency has moved through several distinct stages and names. It began in 1862 as the Office of Commissioner of Internal Revenue. This office was created by the Revenue Act of 1862 to fund the American Civil War.

George S. Boutwell, the first Commissioner of Internal Revenue Service
George S. Boutwell, the first Commissioner of Internal Revenue Service

In 1913, after the ratification of the Sixteenth Amendment, it became the Bureau of Internal Revenue. This amendment gave Congress the specific power to impose an income tax. Later, in 1953, the agency was reorganized and renamed the Internal Revenue Service.

Department of Treasury retirement reception of Beth Tucker 01
Department of Treasury retirement reception of Beth Tucker 01

This reorganization replaced political appointments with professional civil service directors.

The history of the agency is tied to major American events. During the Civil War, the first income tax was a temporary measure. It applied a 3% rate on income over $800 and 5% on income over $10,000. By the end of that war, the tax helped fund 21% of the Union's war revenue. After the war, the tax expired in 1872. The agency saw another massive shift during the Second World War. As the nation entered the war, a new tax act included a wartime surcharge. The number of citizens paying income tax grew from four million in 1939 to over forty-two million by 1945.

The significance of the IRS is best seen in its massive financial impact. In the 2023 fiscal year, the IRS collected approximately $4.7 trillion. This amount represents about 96 percent of the operational funding for the entire federal government.

Figure 1 IRS Appropriations for Fiscal Years 2000 to 2019 (49395060466)
Figure 1 IRS Appropriations for Fiscal Years 2000 to 2019 (49395060466)

However, the agency has faced significant modern challenges. It has struggled with budget cuts and an under-staffed workforce. In recent years, the workforce saw a 15 percent reduction. This included a decline of more than 25 percent in enforcement staff. These shortages can lead to rising deficits or higher taxes for compliant citizens.

Technology has fundamentally changed how the IRS operates. In the early days, workers used mechanical calculators and paper forms. By 1948, the agency began using punch card equipment. The first computer trial occurred in 1955 using an IBM 650 in Kansas City. By 1967, all returns were processed by computer.

NYC IRS office by Matthew Bisanz
NYC IRS office by Matthew Bisanz

The agency also introduced the Social Security number for taxpayer identification in 1965. Today, the agency continues to navigate the transition from older systems to modern digital infrastructure.

The IRS is connected to broader political and social discussions. The agency often faces controversy regarding its methods and the principle of taxation. For example, President Richard Nixon's tax returns became a major news story during the Watergate Scandal. This event led to most future presidents releasing their own tax returns to the public. Additionally, research shows that auditing can impact the economy. A 2024 study found that every $1 spent auditing taxpayers above the 90th income percentile yields more than $12 in revenue. This demonstrates how the agency's enforcement activities connect directly to national fiscal health.

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🖼️ Images & Media (7)
File:IRS Sign.JPG
IRS Sign.JPG
File:George S. Boutwell, the first Commissioner of Internal Revenue Service.jpg
George S. Boutwell, the first...
File:1920 tax forms IRS.jpg
1920 tax forms IRS.jpg
File:Department of Treasury retirement reception of Beth Tucker 01.JPG
Department of Treasury retirement...
File:20220826 Share of unpaid taxes, by income level - area chart, treemap - NYTimes - Dept of Treasury.svg
20220826 Share of unpaid taxes, by income...
File:NYC IRS office by Matthew Bisanz.JPG
NYC IRS office by Matthew Bisanz.JPG
File:Figure 1 IRS Appropriations for Fiscal Years 2000 to 2019 (49395060466).jpg
Figure 1 IRS Appropriations for Fiscal...
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