What is the Internal Revenue Service (IRS)?

The Internal Revenue Service (IRS) is an agency of the United States which collects taxes and enforces tax laws (such as the wash sale rule). Established in 1862 by President Abraham Lincoln, the agency is governed by the United States Treasury and primarily covers the collection of income taxes and employment. The IRS also deals with corporate, donor, excise, and property taxes, including reciprocal funds and dividends.

Key Points

  • Established in 1862 and responsible for revenue collection and the enforcement of tax laws, Internal Revenue Service (IRS) is an American government agency.
  • The IRS mainly includes business and personal revenue taxes; in 2021 the tax returns were handled by about 253 million.
  • Almost 90% of tax returns are submitted in electronic form.
  • The number of IRS audits has declined annually following peaks in 2010.

How the Internal Revenue Service Works

Held in Washington, D.C., the IRS provides all American people and businesses with taxation. Over 250 million returns for revenue and other forms were submitted for the fiscal year 2019 (1 Oct. 2018, 30 Sept. 2019). The IRS collected over $3,5 trillion in revenues in the same time and issued tax repayments in excess of $452 billion.

Through computer technology, software applications, and secure internet connections, individuals and companies are able to file their income reports online. Since the IRS started the program, the number of income taxes using the e-file is constantly rising, and the vast majority are currently registered in that way Almost 89.1% of all individual returns used the e-file option for the fiscal year 2019. In comparison, the e-file option was used in 2001 by 40 million out of around 131 million returns or approximately 31 percent.

As of November 2019, about 92 million taxpayers were paid direct deposits rather than conventional paper checks for their taxes and the average amount of direct deposits was $2,975.

Important: Although IRS promotes the electronic submission of tax reports, it does not advocate any specific platform or program for submission.

The IRS and Audits

The IRS audits a selection of income tax returns every year as part of its implementation mandate. In the financial year 2019, 771 095 tax returns were audited by the Agency. This is 0.60 percent of the income tax returns on individuals and 0.97 percent of the returns on company tax. Approximately 73.8% of IRS audits were carried out in correspondence, and 26.2% were on-site.

The number of audits has progressively decreased every year following the increase to a high in 2010. From 2010 to 2018 the number of funds earmarked for tax enforcement decreased by 15%, which indicated that there should be fewer audits.

The reasons for an IRS audit are different, but some criteria may raise the probability of an exam. Chef: greater income among them. In 2018, the audit rate for all tax reports was 0.6 percent, while it was 3.2 percent for those who generated above $1 million in revenue.

Your own company also involves more dangers. Persons who do not file Schedule C (Form for the self-employed) between $200,000 and $1 million in one fiscal year have a 6.0% risk of being audited compared to 1.4%—basically twice as much—for those who do.

Other red flags for the audit include failure to report the correct amount of revenue, claim greater deductions than typical (particularly corporate ones), making abnormally big charity gifts in comparison with income, and declaring losses on rental property. No factor decides who faces an IRS audit year or not.