IRS

IRS stands for Internal Revenue Service: a US tax collection agency working under the authority of the Secretary of the Treasury according to section 7801 of the Internal Revenue Code.

What Is the IRS?

An integral part of the US Treasury Department, the IRS is responsible for all things tax-related and has been since its creation in the year 1862. To sum it up, it is the duty of the IRS to make sure every American taxpayer is contributing the right amount of money at the right time, to help them do so, and to locate those who do not want to.

IRS Mission Statement

According to the official IRS Government website, the mission statement is as follows:

“Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”

The idea of maintaining a fair tax system where everyone plays their part and pays their dues is the central focus of how the IRS claims to approach its role.

Services and Responsibilities of the IRS

Just about anything related to tax, paying tax, or tax crimes falls under the umbrella of IRS responsibility. As well as providing various types of assistance to the everyday law-abiding taxpayer, it also works to seek out those who try to cheat the system or avoid it all together.

The primary ways the IRS carries out its duties are:

Processing Tax Returns

Tax returns are the main way businesses and individuals determine exactly how much they owe, and it is their responsibility to submit one each year. It is the IRS that processes these returns. Agents make sure everyone pays enough and issue a refund to those who may have paid too much.

Nowadays, more and more people are choosing to submit their tax returns electronically through a free digital file provided on the IRS website. It is also becoming more common to receive refunds electronically rather than a traditional cheque.

Audits

It is not enough to simply process the returns that are submitted at face value: the IRS is also responsible for auditing tax returns to catch mistakes, accidental or otherwise. The percentage of returns chosen for audit is less than one percent, with more corporate audits the individual income audits.

In most cases, the audit is carried out via non-invasive correspondence to collect more data (almost 74%). However, roughly 26% of audits (usually corporate) are carried out face-to-face or in the field, with agents going into workplaces to dive deeper.

According to the IRS, there is no set reason for a business or individual to be selected for an audit. However, there are certainly some factors that increase your chances of being randomly selected. As an individual, earning over $1,000,000 makes you a more likely candidate, with audit rates more than five times that of the average rate.

If you run your own small business register under Schedule C (self-employment form,) you are more than twice as likely to be audited than someone working for a corporation.

Some of the “red flags” that could attract the attention of an IRS auditing team are:

  • Unusually high deductions
  • Incorrect income declared
  • Large charitable donations that are not proportionate to income
  • Discrepancies with foreign accounts

Taxpayer Services

A taxpayer seeking assistance of any kind can contact the IRS via telephone helplines, online portals, and dedicated centers run by government employees and volunteers. The types of services offered include:

  • Help to track tax return and, or refund status
  • Assistance correctly filling out tax-related paperwork
  • Processing penalties and appeals
  • Provides all the necessary forms both electronically and in paper form
  • Transcripts of tax records
  • Tax-exemptions applications and approvals

Other than the processing of tax returns, the most common request to IRS services for help tracking refunds. IRS agents deal with over 500 million requests and inquiries for this topic alone in the 2020 fiscal year.

Enforcement

A big part of what the IRS does is ensuring everyone pays their taxes fairly, fully, and in accordance with the law. Enforcing these laws is no mean feat, which is why there is a dedicated enforcement and investigatory department within the IRA.

It begins with urging non-filers (who believe taxes are a violation of rights or claim they are voluntary) to complete their returns before legal or criminal action must be taken. Despite repeated fines and court losses, this remains an issue for the IRS Enforcement Department year after year.

Criminal Investigations

If a person or business breaks the law, the IRS Criminal Investigators step in. Known as the IRS-CI, this branch of the service is a federal law enforcement agency dedicated to tax crime and fraud. Any breach of the Internal Revenue Code falls under the jurisdiction and authority of the IRS-CI.

Some of the most common criminal investigations undertaken by this department are:

  • False Tax Returns

Referred to as “abusive return preparer enforcement,” any falsifications on an individual or business tax return are investigated and penalized by the IRS-CI. This could include inflated deductions, exaggerated expense accounts, or inaccurate income disclosure.

  • Corporate fraud

False corporate tax returns are one the most common breaches of the IR code. IRS-CI has exclusive jurisdiction to investigate this type of crime.

  • Identity Theft

If taxes are found to be fraudulent in the sense that they have been filed under another name or any other activity that relates to identity theft is uncovered, the IRS-CI has the right to investigate.

  • Tax Evasion Cases

Tax evasion comes in many shapes and sizes, particularly employment tax. Corporations avoid paying tax by paying cash under the table, adopting pyramid schemes, filing falsified payroll records, and many other creative ways. Evading taxes is a significant offense and can lead to severe consequences for those involved.

The Bottom Line

There is nothing related to tax in the USA where the Internal Revenue Service is not involved. This agency is an essential part of maintaining the financial stability of the nation. It does so through enforcement and regulation of taxer payer contributions.

IRS activity can be divided into two main branches: taxpayer assistance and services and the IRS-CI law enforcement department.