The Internal Revenue Service (IRS) is the agency of the United States federal government responsible for administering and enforcing the Internal Revenue Code, the body of federal tax law enacted by Congress. It is a bureau of the Department of the Treasury and is headed by a Commissioner of Internal Revenue appointed by the President and confirmed by the Senate. The IRS collects individual and corporate income tax, employment taxes such as Social Security and Medicare, estate and gift taxes and many excise taxes, and it pays refunds and administers tax credits.
The IRS processes well over 250 million returns and other forms a year and collects the large majority of federal government revenue, more than $5 trillion in gross collections in recent fiscal years. It does not write tax law; Congress does, while the Treasury Department and the IRS issue regulations and guidance interpreting it. Tax disputes that cannot be settled are decided by the courts, including the US Tax Court.
History
The office of Commissioner of Internal Revenue was created by the Revenue Act of 1862, signed by President Abraham Lincoln to help pay for the Civil War, which also introduced a temporary income tax. A permanent federal income tax became possible after the Sixteenth Amendment was ratified in 1913. The agency was known as the Bureau of Internal Revenue until 1953, when it was renamed the Internal Revenue Service as part of a reorganization following corruption scandals. The IRS Restructuring and Reform Act of 1998 reorganized it around types of taxpayer, created an independent oversight board and strengthened taxpayer rights. More recently, the Inflation Reduction Act of 2022 provided a large multi-year funding increase for enforcement and modernization, part of which Congress later rescinded, and the agency's staffing fell significantly in 2025.
Structure and functions
The IRS is organized into operating divisions that serve different groups of taxpayers:
- Wage and Investment, which handles most individual taxpayers.
- Small Business/Self-Employed, which serves small businesses, the self-employed and some estates.
- Large Business and International, which covers corporations with assets of $10 million or more and international tax matters.
- Tax Exempt and Government Entities, which oversees charities, pension plans and government bodies.
Other units include IRS Criminal Investigation, which investigates tax crimes, money laundering and related financial crimes, and the Taxpayer Advocate Service, an independent office that helps taxpayers resolve problems with the agency. The IRS also issues identification numbers such as the employer identification number and the individual taxpayer identification number, and it administers information reporting regimes such as Forms W-2 and 1099 and the Foreign Account Tax Compliance Act.
Enforcement and examinations
The IRS checks compliance through automated matching of returns against information reports, correspondence audits by mail, and field examinations at a taxpayer's premises. Audit rates are low overall, well under 1 percent of individual returns in recent years, but considerably higher for very large corporations and high-income individuals. If tax is assessed and not paid, the IRS can file liens, levy bank accounts and seize property. It also imposes civil penalties, such as for late filing, late payment and accuracy-related errors, and refers cases of willful tax evasion for criminal prosecution by the Department of Justice. IRS examiners also carry out Bank Secrecy Act compliance examinations of certain non-bank financial institutions, described in the entry on the IRS Title 31 audit.
Relevance to accounting
For businesses, the IRS determines how taxable income is calculated, which often differs from income under GAAP. These differences lead to deferred tax balances in financial statements. Companies must also deposit payroll taxes withheld from employees as withholding tax, file information returns and keep records that support their tax filings. Tax-exempt organizations file annual information returns with the IRS, and accountants frequently represent clients in examinations and appeals.
Criticism
The IRS has been criticized over the years for poor customer service, long phone waits and processing backlogs, outdated technology, and episodes of perceived political bias, such as the 2013 controversy over the screening of applications from political groups for tax-exempt status. Others argue that chronic underfunding has reduced enforcement and widened the "tax gap," the difference between taxes owed and taxes paid on time, which the IRS has estimated at several hundred billion dollars a year.