The Internal Revenue Service (IRS), integral to the U.S. economy, is in charge of federal tax collection and legislation enforcement. Besides overseeing tax filing and processing refunds, the IRS also ensures tax payments and performs other enforcement tasks like audits. The money collected via the IRS helps fund governmental programs and national operations, aiding in the smooth functioning of public services.
In 1862, President Abraham Lincoln established the Office of Commissioner of Internal Revenue for tax collection to finance the Civil War. The first year of its operation allowed it to collect an impressive $39.1 million. Congress received the power to initiate income tax laws in 1913, later resulting in the creation of the Bureau of Internal Revenue and subsequently, Form 1040, in 1914. The bureau took the name 'Internal Revenue Service' in 1953, and a year later, the filing deadline was adjusted to the now-familiar April 15.
The IRS collects estimated taxes from earners throughout the year in the form of payroll deductions and quarterly estimated tax payments from businesses. The annual filing reconciles the amounts paid by each individual or business with actual amounts due. If a taxpayer has overpaid, they receive a refund from the IRS. In cases of underpayment, the taxpayer must make the payment with their annual tax return.
In the fiscal year 2024, taxpayers filed their returns through either mail or digitally via tax preparation software. Taxpayers may also engage the services of tax professionals. That year, the IRS received 163.4 million individual returns and gave out 104.8 million refunds totaling $329 billion.
To uphold the correct reporting of their income numbers, individuals attach additional forms and documents like W-2, 1099, Schedule D and A to their primary forms. Corporations, on the other hand, use Form 1120 to report their income and tax liabilities.
To ensure tax compliance, the IRS audits a section of income tax returns every year. Taxpayers can be selected either randomly or if their returns are linked to others being audited. If chosen for auditing, the taxpayer is notified via mail, and the audit occurs through a paperwork review, either digitally or in person.
As of the end of the fiscal year 2023, the IRS reported 582,944 audits leading to $31.9 billion in recommended extra tax. Among these audits, 0.44% were for individual returns and 0.74% for corporate ones. The IRS, part of the U.S. Department of the Treasury, operates within a budget granted by Congress. This budget is divided into four sectors: Taxpayer Services, Enforcement, Operations Support, and Business Systems Modernization. In 2025, Melanie Krause was announced as the acting IRS Commissioner. The agency suggests electronic filing of taxes - a method employed by 92.8% of taxpayers in 2024 - for most efficient processing. However, paper returns by mail are also accepted. In 2023, the audit rate for individual tax returns was 0.44%, and between 2013 and 2021, about 8.7% of people making $10 million or more had been audited.