Internal Revenue Service

Internal Revenue Service IRS
Agency overview
Formed	July 9, 1953
Preceding Agency	Bureau of Internal Revenue
Jurisdiction	Federal government of the United States
Headquarters	Washington, D.C.
Employees	86,585 (2006)
Agency Executive	Commissioner of Internal Revenue, Douglas H. Shulman
Parent agency	Department of the Treasury
Website
www.irs.gov

Taxation in the United States
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The Internal Revenue Service (IRS) is the United States federal government agency that collects taxes and enforces the internal revenue laws. The official U.S. Treasury regulations provide (in part):

The Internal Revenue Service is a bureau of the Department of the Treasury under the immediate direction of the Commissioner of Internal Revenue. The Commissioner has general superintendence of the assessment and collection of all taxes imposed by any law providing internal revenue. The Internal Revenue Service is the agency by which these functions are performed.

– 26 C.F.R. section 601.101(a).

History

Bureau of Internal Revenue

In July 1862, during the Civil War, President Lincoln and Congress created the office of Commissioner of Internal Revenue and enacted an income tax to pay war expenses (see Revenue Act of 1862). The position of Commissioner exists today as the head of the Internal Revenue Service.

Frank M. Thorn was the Commissioner of the Bureau of Internal Revenue in the 1880s.

This organization was created to enforce these taxes named for the internal revenue to be collected (and was formerly called the "Bureau of Internal Revenue"), in contrast to U.S. government institutions that collected external revenue through duties and tariffs.

The IRS has its National Capital offices in the greater Washington, D.C. area, and in particular does most of its computer programming in Maryland. It operates various service centers around the country (currently ten; these are the locations to which taxpayers mail their returns); these centers do the actual tax processing; different types of tax processing take place in various centers (such as the distinction between individual and business tax processing). The IRS also operates three computer centers in various locations around the country.

Name change and reorganization

As early as the year 1918, the Bureau of Internal Revenue began using the name "Internal Revenue Service" on at least one tax form.^[1] In 1953 the name change to the "Internal Revenue Service" was formalized in Treasury Decision 6038.^[2]

In the 1950s, career professional employees replaced the patronage system. Currently, only the IRS Commissioner and Chief Counsel are selected by the President and confirmed by the Senate.

Reorganization of the late 1990s

A bipartisan commission was created with several mandates, among them to increase customer service and improve collections.^[3] Congress later enacted the Internal Revenue Service Restructuring and Reform Act of 1998.^[4] As a result of that Act the IRS now functions under four major operating divisions: Large & Mid-Size Business (LMSB), Small Business / Self-Employed (SB/SE), Wage and Investment (W&I), and Tax Exempt & Government Entities (TE/GE). The IRS also includes a criminal law enforcement division. While there is some evidence that customer service has improved, lost tax revenues in 2001 were over $290 billion.^[5]

Flooding at IRS headquarters building

IRS building on Constitution Avenue in Washington, D.C..

The main headquarters building of the IRS is located at 1111 Constitution Avenue, NW in Washington, D.C., near the Old Post Office. The IRS headquarters building was closed in June 2006 as a result of heavy flooding. According to a July 12, 2006 letter from Senator Max Baucus (Dem.-Montana), a ranking member of the U.S. Senate Finance Committee, the sub-basement of the building was filled with water to a depth of twenty feet, and electrical and maintenance equipment in the sub-basement was about 95% damaged or destroyed. The IRS and the General Services Administration announced that the building would remain closed through late 2006. The employees who worked in the building – numbering over two thousand – had been temporarily transferred to other offices at 15 other buildings in the Washington, D.C. area. Computerworld reported that some IRS employees were also allowed to telecommute while the building was closed.^[6]

On December 8th, 2006, the IRS said in a press release that "the phased move-in of more than 2,000 IRS employees" had begun.^[7] Most staff would have returned by December 19th but "a small number of employees will return after Jan. 1."

Commissioner

Douglas H. Shulman is the Commissioner of Internal Revenue.

Tax collection statistics

Summary of Collections before Refunds by Type of Return, Fiscal Year 2006:

During Fiscal Year (FY) 2006, the IRS collected more than $2.2 trillion in tax net of refunds, about 44 percent of which was attributable to the individual income tax. This is partially due to the nature of the individual income tax category; containing taxes collected from working class, small business, self employed, and capital gains. Of the Individual Income Tax, the top 5% of income earners pay 60% of this amount.^{[8] [9]}

Recently, the IRS has altered its policies. The current Service plus Enforcement equals Compliance motto has led to more investigations of abusive tax schemes.

As of 2007, the agency estimates it is owed $300 billion more than it collects.^[10]

Outsourcing collection

In September 2006, the IRS started to outsource the collection of taxpayers debts to private debt collection agencies. Opponents to this change note that the IRS will be handing over personal information to these debt collection agencies, who are being paid between twenty-two and twenty-four percent of the amount collected. Opponents are also worried about the agencies' being paid on percent collected because it will encourage the collectors to use pressure tactics to collect the maximum amount. IRS spokesman Terry Lemons responds to these critics saying the new system "is a sound, balanced program that respects taxpayers' rights and taxpayer privacy." Other state and local agencies also use private collection agencies.^[11]

Administrative functions

In addition to collection of revenue and pursuing tax cheaters, the IRS issues administrative rulings such as revenue rulings and private letter rulings. In addition the Service publishes the Internal Revenue Bulletin containing the various IRS pronouncements. The controlling authority of regulations and revenue rulings allows taxpayers to rely on them. A private letter ruling is good for the taxpayer to whom it is issued, and gives some explanation of the Service's position on a particular tax issue. As is the case with all administrative pronouncements, taxpayers sometimes litigate the validity of the pronouncements, and courts sometimes determine a particular rule to be invalid where the agency has exceeded its grant of authority. The IRS also issues formal pronouncements called Revenue Procedures that among other things tell taxpayers how to correct prior tax errors.

More formal rulemaking to give the Service's interpretation of a statute or when the statute itself directs that the Secretary of the Treasury shall provide, IRS undergoes the formal regulation process with a Notice of proposed rulemaking (NPRM) published in the Federal Register announcing the proposed regulation, the date of the in person hearing and the process for interested parties to have their views heard either in person at the hearing in Washington, D.C., or by mail. Following the statutory period provided in the Administrative Procedure Act (an abiding interest of U.S. Supreme Court Justice Antonin Scalia's dissenting opinions) the Service decides on the final regulations "as is," or as reflecting changes, or sometimes withdraws the proposed regulations. Generally, taxpayers may rely on proposed regulations until final regulations become effective. For example, human resource professionals are relying on the October 4, 2005 Proposed Regulations (citation 70 F.R. 57930-57984)^[12] for the Section 409A on deferred compensation (the so-called Enron rules on deferred compensation to add teeth to the old rules) because regulations have not been finalized.

Criticism

Allegations of abuse

The IRS, and in particular the Criminal Investigation Division (CID), has on more than one occasion been accused of abusive behavior.^{[13][14][15][16]} Statements given in hearings before the Senate Finance Committee criticize the IRS:

Congress passed the Taxpayer Bill of Rights III on July 22, 1998, which shifted the burden of proof from the taxpayer to the IRS in certain limited situations. The IRS retains the legal authority to enforce liens and seize assets without obtaining judgment in court.^[17]

IRS building on Constitution Avenue in Washington, D.C..

Allegations of insidious conduct by the IRS are found in the movie America: From Freedom to Fascism (Watch Movie), directed by Libertarian filmmaker Aaron Russo. The movie alleges that the IRS is part of a plot to make the United States a police state. See also Tax protester conspiracy arguments.

Attorney Michael Minns has asserted that the IRS often destroys the lives of those it targets with no regard for their personal lives or reputations, or that of their families. Minns was the defense lawyer in a case against the IRS on behalf of James and Pamela Moran after an initial indictment and what Minns asserts was an IRS smear campaign that virtually canvassed the taxpayers' own hometown and surrounding area.^[18] The original indictment was associated with the Morans' involvement with a tax shelter provider, Anderson's Ark & Associates. The Morans were eventually acquitted in the case.^[19]

Minns also had previously asserted that the behavior of two IRS attorneys, Kenneth McWade and William A. Sims, constituted legal misconduct and recommended them for disbarment. Following an investigation, the law licenses of the IRS attorneys were duly suspended for a two year period after a federal court ruling found that the two had indeed defrauded the courts in connection with 1,300 tax shelter cases. In 2003, the United States Court of Appeals for the Ninth Circuit concluded that the IRS lawyers had corruptly agreed with certain taxpayers that no tax collection actions would be taken against them - in return for testimony against other taxpayers. The court also asked why the IRS had not punished the two.^[20] To date, however, the IRS still lists the Morans as guilty of the crime they were originally charged with, and has refused to document their subsequent aqcuittal of the case and all charges brought against them. According to Minns, this is proof that the IRS is operating an unfairly slanderous campaign against those who are exonerated in court, as a means of skewing the public record on cases the IRS loses.

Legal status and authority

For more details on this topic, see Tax protester statutory arguments.

Many tax protesters claim that because the IRS itself was not created by statute and because the IRS has no legal capacity to sue or be sued,^[21] the IRS is not a federal government agency. Some claim it is a Puerto Rican trust.^[22]

Tax lawyers at the IRS

Most tax lawyers employed at the IRS are part of the Office of Chief Counsel, either in the home office in Washington, D.C., or in the field. Rulemaking occurs in the home office in various divisions such as Passthroughs and Special Industries, Financial Institutions, Large and Mid Size Business, Tax Exempt and others. Litigators can be found in the field where the Service finds taxpayers who have been given notice of deficiencies.

See also

• Taxation in the United States
• Federal tax revenue by state
• Not-for-profit corporation
• United States of America non-profit laws
• 501(c)(3)
• 527 group
• Misclassification of employees as independent contractors
• United States Department of Justice Tax Division
• Secretaría de Hacienda y Crédito Público
• FairTax

Notes

Further reading

• Davis, Shelley L.; Matalin, Mary. Unbridled Power: Inside the Secret Culture of the IRS. New York: Harper Collins. ISBN 0-88730-829-5. 
• Johnston, David Cay (2003). Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else. New York: Portfolio. ISBN 1-59184-019-8. 
• Rossotti, Charles O. (2005). Many Unhappy Returns: One Man's Quest To Turn Around The Most Unpopular Organization In America. Cambridge: Harvard Business School Press. ISBN 1-59139-441-4. 
• Roth, William V., Jr.; Nixon, William H. (1999). The Power to Destroy. New York: Atlantic Monthly Press. ISBN 0-87113-748-8. 

External links

• Internal Revenue Service Official website
• Internal Revenue Service Careers Web Official IRS careers website
• IRS Appeals - Resolving Tax Disputes Official IRS Appeals Office Website
• Tax Protester FAQ by Dan Evans rebuts claims of the illegitimacy of the income tax and the IRS
• Internal Revenue Service, article in Encarta Encyclopedia

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