We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.
Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.
Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.
The IRS is an important government organization that’s in charge of collecting the taxes that allow the federal government to run.
For many Americans, interactions with the IRS are limited to submitting a federal income tax return once a year and either waiting for a refund or sending in money to pay taxes. But the IRS actually does much more than just collect money or mail refunds. It helps make government possible by ensuring that the U.S. collects revenue necessary to fund essential programs and services. In 2015, the IRS collected nearly $3.3 trillion in revenue and spent only 35 cents for each $100 it collected.
The IRS may not be the most popular government agency — 42% of Americans have an unfavorable opinion of it compared with 45% who regard the IRS favorably, according to a 2018 Rasmussen Reports survey. But it undeniably serves an important purpose.
Whether you love, hate or are indifferent to the nation’s tax collector, it’s worth taking the time to ask: What does the IRS do? Because it turns out that the IRS does a whole lot to help keep our government functioning.
- What does the IRS do?
- History of the IRS
- The controversy over the IRS
- Why is the IRS important?
- We need the IRS
What does the IRS do?
IRS is short for Internal Revenue Service. The IRS is a bureau of the U.S. Department of the Treasury that gets its authority from the Internal Revenue Code. The authority granted by law to the IRS allows the agency to perform many functions, including the following:
- Administer tax laws. The IRS does this by issuing regulations and guidance.
- Process federal tax returns and collect revenue. In 2019, the IRS processed more than 253 million tax returns (and supplemental documents) and collected more than $3.5 trillion in gross taxes.
- Enforce tax laws. The IRS does this by auditing taxpayers and pursuing civil penalties or conducting a criminal investigation against individuals and businesses that it suspects of fraudulent activity. If you don’t pay your taxes, the IRS could try to collect from you via civil action and/or could refer your case for prosecution in criminal court.
- Assist taxpayers. The IRS aims to help taxpayers understand and comply with their obligations. One way the IRS helps is by providing a taxpayer helpline. There are numbers to call for individuals, businesses, exempt organizations, people who live outside the U.S., and those who need help with estate taxes, gift taxes and excise taxes.
Although it has many functions, the IRS is clear in its mission. The bureau’s job is to “Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”
History of the IRS
The Internal Revenue Service didn’t get its name until the 1950s, but the roots of the agency date all the way back to the Civil War.
In 1862, President Abraham Lincoln and Congress enacted an income tax to pay for the war. A commissioner of Internal Revenue was appointed to enforce the new tax rules. Taxes were collected for 10 years before the income tax was repealed. It was then revived for a short time in 1894.
Later in 1895, the Supreme Court ruled income tax unconstitutional. This meant no income taxes could be levied — until the 16th Amendment was ratified by three-quarters of the states to give Congress authority to enact an income tax.
When Wyoming provided the necessary vote for ratification in 1913, Congress levied a 1% tax on incomes in excess of $3,000 and a 6% surtax on incomes exceeding $500,000.
Tax rates rose to finance World War I, fell in the postwar years, and rose again during the Great Depression and World War II, during which tax withholding was instituted.
In the 1950s, the tax collection agency was reorganized and the Bureau of Internal Revenue became the Internal Revenue Service. While the bureau had been a patronage system, career employees took over with the reorganization. Now, only the IRS commissioner and chief counsel are appointed by the president and confirmed by the Senate.
The IRS was reorganized again in 1998 to become more consumer focused. But while the agency says its core mission is to help taxpayers, not everyone likes the IRS.
The controversy over the IRS
Many people are suspicious of tax authorities and don’t like paying taxes, according to National Taxpayer Advocate Nina Olson. The fact the tax code is so complicated doesn’t help matters, she says.
Some politicians have used the public’s dislike of the IRS to suggest abolishing the agency. The IRS has seen its budget slashed in recent years, and funding cuts have eroded customer service.
Why is the IRS important?
While the IRS has been used as a political scapegoat, the importance of the IRS can’t be understated.
The IRS describes itself as “one of the world’s most efficient tax administrators.” And, in fact, in 2013, it collected $255 in tax revenue for each $1 received in appropriated funds.
Tax dollars are used to fund Social Security, Medicare and Medicaid. Funds also go to national defense, aid for veterans and foreign affairs. It provides for community development, pays for law enforcement and supports many services that the government provides.
We need the IRS
Like it or hate it, the IRS performs an important function for Americans. You can call the IRS with questions to make sure you comply with tax laws. And the IRS collects funds the country needs to provide government services we all depend on. So what does the IRS do? It makes the functions of the entire federal government possible.