What is the Internal Revenue Service?

The Internal Revenue Service, commonly called the IRS, is the federal agency responsible for collecting federal taxes and administering the Internal Revenue Code, the body of federal tax law. The IRS operates as a bureau within the Department of the Treasury and is led by the Commissioner of Internal Revenue, who is appointed by the President and confirmed by the Senate to a five-year term. The IRS traces its roots to the Civil War, when Congress created the office of Commissioner of Internal Revenue in 1862 to fund the Union war effort. The agency's modern structure took shape after the 16th Amendment was ratified in 1913, allowing Congress to tax incomes without apportionment among the states.

The IRS is headquartered in Washington, D.C., with major operating centers around the country and roughly 80,000 to 90,000 employees. The IRS's main responsibilities include processing federal tax returns; collecting individual income taxes, corporate income taxes, payroll taxes, estate and gift taxes, and excise taxes; auditing returns and pursuing tax evasion; issuing tax refunds; administering tax credits and deductions; and providing guidance to taxpayers and tax professionals on the meaning of the tax code. Each year the IRS processes more than 250 million tax returns and collects more than 4 trillion dollars in federal revenue, the largest single source of federal funding.

The IRS handles individual income tax for the vast majority of American workers through the W-2 wage reporting system and the annual Form 1040 filing. Most American workers have federal taxes withheld from their paychecks throughout the year, then file an annual return between January and the April 15 tax deadline. Self-employed individuals, business owners, and others with non-wage income typically make quarterly estimated tax payments.

The Earned Income Tax Credit, the Child Tax Credit, and other refundable credits administered by the IRS provide major financial support to low- and middle-income families. The Inflation Reduction Act of 2022 provided about 80 billion dollars in additional IRS funding over ten years to modernize technology, hire more employees, and improve enforcement, though some of that funding has been reduced in subsequent legislation.

The IRS has long been one of the most politically sensitive federal agencies. Audits, particularly of high-income taxpayers and large corporations, can be controversial. The agency has faced criticism over the years from many directions, leading to significant reforms in the IRS Restructuring and Reform Act of 1998.