What is the Internal Revenue Service (IRS)?

The Internal Revenue Service (IRS) is a U.S. federal agency responsible for tax collection and the administration of tax laws. The IRS handles withholdings from wages and receives quarterly advance payments from self-employed individuals.

Core Responsibilities

The IRS enforces tax laws passed by Congress and has a wide range of responsibilities, including:

• Processing Returns: Collecting and processing tax returns from individuals and businesses.
• Refunds: Issuing tax refunds in case of overpayment.
• Oversight: Overseeing certain retirement plans.
• Enforcement: Conducting criminal investigations related to tax fraud.

What Does the IRS Do?

In addition to its basic functions of collection and enforcement, the IRS manages many critical financial assistance programs. These include:

• Earned Income Tax Credit (EITC): A tax benefit for low- and middle-income families.
• Healthcare Subsidies: Subsidies introduced by the Affordable Care Act.
• Education Benefits: Tax benefits for students and their parents.

Note on Data: The IRS expenditure structure for 2018 is shown in Figure 1, and the budget and staffing are shown in Figure 2. [1]

Figure 1

Figure 2

Who Does the IRS Report To?

The IRS is a bureau of the U.S. Department of the Treasury and considers itself a “tax administrator.”

• Relationship: The agency operates under the direction of the Secretary of the Treasury.
• Formal Status: Formally, the IRS does not “report to” but performs functions on behalf of the Treasury.

The U.S. Tax Code grants the Secretary of the Treasury broad authority to ensure compliance with tax laws and to involve the IRS in their implementation. [2]

IRS Leadership

The IRS Commissioner is appointed by the President of the United States, and the nomination must be confirmed by the Senate. The term of office is five years.

The Commissioner is responsible for all IRS operations, including:

• Processing returns.
• Ensuring compliance with legislation.
• Collecting taxes.
• Managing personnel.

History of Federal Income Tax

The Civil War Era

The first income tax appeared during the Civil War. In 1862, President Abraham Lincoln signed a law that established the position of “Commissioner of Internal Revenue” and introduced a tax:

• 3% for income of $600–$10,000.
• 5% for income over $10,000.

This tax was repealed ten years later. In 1894, it was restored under the Wilson Tariff Act, but in 1895 the Supreme Court declared it unconstitutional. [3]

The 16th Amendment (1913)

The situation changed in 1913 after ratification of the 16th Amendment to the Constitution, which officially permitted federal income tax. In 1914, the first Form 1040 appeared, and the rates were:

• 1% for income over $3,000.
• 6% for income over $500,000.

During World War I, the maximum rate rose to 77%, decreased to 24% by 1929, and then rose again due to the Great Depression. [4]

IRS Logo Symbolism

The IRS logo contains three distinct symbols, each representing a core value:

1. Eagle: Represents the United States.
2. Olive Branch: Symbol of peace and mediation.
3. Scales: Symbol of justice.

The logo conveys the IRS’s commitment to honesty, fairness, openness, and reconciliation. [5]

Key Takeaways

• Legislative Role: Congress passes tax laws, and the IRS ensures their implementation and enforcement.
• Legal Status: Supreme Court decisions confirm the IRS’s status as a government agency.
• Mission: IRS symbolism emphasizes its mission—fair and honest tax administration.