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The Internal Revenue Service

Why Does the IRS Have Tax Refunds?

Why Does the IRS Have Tax Refunds?

The IRS tax refund, given the state of the domestic economy and the bleak outlook of the international markets, has served a crucial role for many American citizens. Over 75% of 2009 tax returns were returned with an IRS tax refund attached. The average amount of the reimbursement was a little over $2,000 for each tax payer. 
The IRS tax refund gives individuals (via direct deposit or paper check) an injection of funds that can either be saved, reinvested into the economy, used to purchase consumer goods, or used to pay off debt. Whatever the maneuver, the funds generated through tax rebates, cuts, or the IRS tax refund offers hard-working Americans a slice of leverage in an otherwise brutal market. 
Tax cuts that have been recently instituted were implemented to revitalize the economy, to offer Americans an outlet of revenue, and to redistribute funds to dying sectors of our domestic markets. Tax incentives such as environmental improvements have become wildly popular to accomplish similar feats-if an individual benefits society through ‘green improvements’ they will be rewarded with a tax cut via the federal government. Refunds awarded by the IRS benefit not only the individual taxpayer, but the surrounding markets and governments as well.
When an individual receives an IRS tax refund he/she will inevitably re-invest the funds in some form. The system placed by the IRS tax model is meant to benefit both federal government and tax payer. Throughout the course of the year individual workers are taxed every pay period. Money is withheld from each paycheck; both federal and state governments hold these assets in the form of an interest-free, short-term loan. 
The money taken each pay period is used to finance necessary public services and pay off debt at all levels of government. At first thought this seems terribly unfair-the government is reaching into my paycheck every other week and taking 25% in addition to the taxes I pay at a local and national level? This is indeed true, however, governments desperately need funding to supply a growing population with schools, roads, protection, parks, social security, and Medicare. Although the money is exchanged every pay period, the purpose of the IRS tax refund is to re-inject the borrowed funds back into the taxpayers bank account. 
The interest-free loan that is taken during each pay period is paid back each April. The IRS tax refund is either supplied via currency or used to offset money owed to the IRS, either way, it is a guaranteed reimbursement of some form that offers taxpayers access to crucial funding.
When an individual works, he/she has an obligation to supply the United State’s governments with funding in the form of taxation. Although this sounds disheartening, the IRS tax refund gives individuals a chance to save, based on the amount of taxation they choose. The IRS tax refund is used to re-balance the monies taken throughout the course of the fiscal year. Individual taxpayers have the opportunity to control levels of taxation based on the amount of dependents they choose. 
If an individual wants to be taxed at a higher rate throughout the year the federal government will reimburse them to a greater extent come every April. People who choose to be taxed at higher levels are partaking in a conservative strategy, that guarantees them increased funding while minimizes their spending throughout the course of the year.
Due to advancements in technology the IRS tax refund has evolved into an online method. The IRS e-file option allows a user to submit all returns online, and subsequently track the status of the refund. The IRS e-file option has streamlined the functions of federal taxation. 
The IRS e-file not only allows individuals to seamlessly file their tax returns, but allows the IRS to keep detailed electronic records of all tax forms in the country. The IRS e-file method has also ensured Americans that the IRS is innovative and willing to make improvements to their refund-distribution methods.

The Facts on Tax Collection

The Facts on Tax Collection

Tax Collection Background:
The federal government of the United States enforces a tax levy on its citizens to fund necessary public projects such as:wars, national parks, social security, construction of roads, and Medicare. 
To properly fund these projects the Internal Revenue Service (federal organization responsible for taxation) enforces taxes on the majority ofindividuals and profit-based businesses in America. The federal tax levy encompasses a variety of methods, and demands taxes to be paid on income, investments, medicare, social security, excise, sales of consumer goods, estate, and gifts. Failure to pay these varying forms of taxation will result in penalties, fines, exorbitant fees, and depending on the severity, a prison sentence. 
The Internal Revenue Service was created to collect taxes on American citizens, it was established as a powerful tool used by the federal government to ensure the national levying system. Unpaid taxes represent a deficit in public funding, which in turn, mitigates the overall effectiveness of the national government. The severity of this deficit is exemplified through the dogged techniques used by the IRS to collect such unpaid taxes. In addition to charging fees and interest on unpaid returns, the IRS can seize an individuals property through the Federal Tax Lien, and subsequently sell the asset using a notice of levy.


Tax Collection Statistics:

The true taxing power of the Internal Revenue Service is revealed simply by looking at tax collection statistics found at the IRS website. In 2007 there were over 138 million tax returns in the United States. From the 138 million returns, the federal government collected 1.3 trillion dollars (gross collection) in income tax alone. The 1.3 trillion accounts for over 50% of the total funds collected by the federal government during the 2007 taxing period. These statistics reveal the importance and enormity of the individual tax levy in America. 
The federal income tax in the United States is a progressive system-the more an individual makes the higher tax rate he/she will be placed under. The highest tax rate in America for instance taxes individuals at 35%. This 35% levy is only placed on individuals making over $373,650 in annual salary. Although a capitalistic society, America enforces a large obligation on the biggest wage earners-the top tax bracket routinely accounts for 60-65% of the federal income tax levy. Statistics are also crucial for understanding how these funds are re-invested into public goods and services. In 2007 for instance, the majority of the tax dollars were spent on Medicare (33%) and the U.S. military (20%.)

Outsourcing of Collection:

Uncollected federal taxes are a mounting problem in America. The IRS estimates that between $270 and $300 billion dollars go uncollected each taxing period. The uncollected taxes pose numerous negative externalities on society such as, cut-backs or deficits in regards to the supply of public goods and services. The number of tax claims that go uncollected increases and carries over to the next year. To alleviate and streamline the collection process, the IRS hired numerous debt collection agencies in 2005. 
The inclusion of collection agencies was administered to pursuit small accounts to avoid carry over, allowing the IRS to focus its energies on bigger, more complicated cases. Numerous problems quickly arose however, as the agencies charged an obscene fee (25-30% of collection) and individuals complained that their private tax information was being exchanged with sketchy 3rd parties. The outsourcing method quickly died and the IRS has attempted to answer increased evasion through strengthening its agency from within.

The Harsh Criticism of the IRS

The Harsh Criticism of the IRS

The Internal Revenue Service and its components have commonly been the source of criticism for their abusive practices, lack of organization, and inept handling of various issues. Granted with 150 million tax returns a year the IRS will inevitably fall short in terms of organization or maximum efficiency, but the criticisms associated with the agency extend to its inner workings. To document all the established criticisms of the organization responsible for levying federal taxes, we will subdivide the gripes into extensive complaints.

Criticisms for managing and accounting practices
         The General Accounting Office (GAO) of the United States is responsible for overseeing and evaluating the book and record keeping procedures of the Internal Revenue Service. Over the past 8 years the Internal Revenue Service has failed the audit administered by the GAO.
         The GAO claimed that the Internal Revenue Service has “pervasive weaknesses in the design and operation of their financial management systems, accounting procedures, documentation, record keeping and internal controls, including security controls, which have prevented the Internal Revenue Service from reliably reporting on the results of its administrative activities.”
         The Internal Revenue Service possesses inadequate financial reporting procedures which result in an inability to prepare the several reliable principal financial statements.
         IRS information is routinely misguided due to improper bookkeeping systems which are necessary for managing in unpaid assessments.
         Much of the $300 billion in unpaid taxes results from inefficient or inept bookkeeping
         There is a lack of preventive controls found in the Internal Revenue Service, causing the distribution of millions of dollars in fraudulent tax refunds. 
         The Internal Revenue Service routinely fails to reconcile deficiencies with the Treasury Fund as it relates to their balances.
         The Internal Revenue Service fails safeguarding or reporting its property and equipment.
         The computer system which holds all pertinent IRS information lacks property security, allowing unauthorized users to access, alter, or abuse IRS programs, taxpayer information, and critical data.
         The Internal Revenue Service does not properly organize tax receipts and tax data which increase the taxpayer’s risk of illegal disclosure of sensitive IRS information.
         The budget of the Internal Revenue Service is not properly reported, accounted, or controlled.
Allegations of Abuse
         The IRS Criminal Investigation Division (responsible for locating tax evaders and collecting unpaid taxes) has been accused of abusive behavior on multiple occasions.
         As a result of the Internal Revenue Services power when seeking a tax evader multiple reports and cases have been filed which revolve around smear campaigns and the improper seizure of personal property. 
         IRS attorneys have been suspended or disbarred from practice for corruption.
         The Internal Revenue Service fails to discipline lawyers or agents who participate in dishonorable practices.
Criticisms on Working for the Internal Revenue Service

         For new workers the IRS information is simply too complicated and verbose to learn. As a result of this, there is very high turnover within the first year of employment. 
         During the training period trainees are expected to obtain massive amounts of IRS information while being paid next to nothing. 
         There is no room for creativity. The Internal Revenue Service is not open to new methods or ideas that would further streamline the levying process.
         Among government agencies, the IRS is known for having the worst resources.
         The office is micromanaged and due to size, individuality is commonly stripped.

What to Know About Filing for a Refund

What to Know About Filing for a Refund

Before worrying about the deadline or specifics revolving around federal taxes, one must develop a system that will ensure the highest possible IRS refund given the situation. Over 75% of tax returns yield a refund of some sort. The most popular form of refund stems from imbalances obtained through the withholding of wages. 
Aside from these prevalent forms of IRS refunds, an individual tax payer can yield a reimbursement through a bevy of tax maneuvers. The amount of refund awarded to the taxpayer is susceptible to fluctuations based on a number of variables such as :a persons age, salary, filing year, energy choices, travelling or medicare costs etc. Each variable must be accounted for and filed to fulfill the maximum potential of the specific IRS refund. Every person and business has a maximum amount owed; finding that pinnacle, and subsequently filing however is a very different story.
Before attempting to figure out the maximum amount available in regards to the IRS refund, one must adopt a strategy to streamline the filing process. An individual, given the multiple variables and copious amounts paperwork, can often be overwhelmed when filing his/her tax returns. When a person is stressed, they are more susceptible to making mistakes. Couple this vulnerability with an impending deadline and the filing process for federal taxes could prove disastrous. 
Developing a clear system, with detailed steps is a more logical route to take. To achieve the maximum IRS refund in a untroubled manner an individual needs to adopt an organized and detailed plan. Before the plan comes to fruition an individual first must decide how they want their taxes filed. 
A taxpayer has a multitude of methods such as: file using the forms sent by the IRS, it use the Internet to e-file, purchase a software program that will compute necessary tax information for the user, or hire an accountant/outside firm. The varying methods are present to meet the differing needs or wants of the individual taxpayer. The choice of what resource to use will Depend on the tax payer’s complexity of case, experience in paying taxes, budget, time, and IRS refund available.


Steps necessary in filing for an IRS refund

         Getting Started-Sitting on your tax refund is the worst move an individual can make. Procrastinating can lead to a rushed job, which in turn, can lead to leaving money on the table or a very stressful month of April. 
         Getting Organized-The IRS mails out hundreds of millions of forms across the nation; a plethora of paperwork is to be expected when calculating a potential IRS refund. Sorting through the necessary paperwork and organizing piles into “easy access” units is a wise maneuver. The IRS refund will be effected by the 1040, which is the main tax form for the individual, and is used to report all necessary tax information. Other smaller attachments that the IRS will send are the W-2 (used for reporting wages), the 1099 (used to report interest), the 1099B (used to report stock and bond sales), and the 1098 (deducts interest and taxes.) 
         Research-With vast changes in the national economy, legislation routinely alters the scope of tax law. Over the past decade tax law has altered to offer the individual tax payer numerous IRS refunds in the forms of incentives for using environmentally safe products, real-estate breaks, and a variety of tax cuts. All novel information as it pertains to changes in tax laws can be found at the IRS website www.IRS.gov, and is available for download under Publication 17. 
         Choose a filing method-Depending on the situation an individual may choose to file joint returns or separate returns. Joint returns possess the lowest rates, however, high medical or miscellaneous deductions may yield higher tax rates while married than single. The most logical move is to file both ways; filing both forms of returns will yield the highest IRS refund. 
         Get Adjusted-Be aware of all the necessary deductions available. Deductions lower an individuals taxable income which decreases the tax rate, while subsequently raising the potential IRS refund. 
         Get Itemized-Figure out which is bigger–the standard deduction or the sum of the itemized deductions. The chart found on section 40a of the 1040 will list all standard deductions; comparing this amount to the total allowable itemized deductions will yield all itemized expenses. Figure out both numbers and choose the higher amount to receive the largest IRS refund available. 
         Get Exemptions-Always be conscience of all the possible exemptions available given the particulars of the situation to maximum an IRS refund. 
File and Checking Status of IRS refund-After mailing or e-filing the return an individual can check his/her status of IRS refund online at www.IRS.gov.

Government Entities According to the IRS

Government Entities According to the IRS

The IRS levies taxes on the majority of U.S. citizens, including individuals who work for government entities or corporations. The only individuals exempt from federal taxation are soldiers engaged in war or peace-making efforts. All other workers, land owners, or employers are subject to federal taxation. The reach of the IRS extends to government entities for both collection purposes and to meet financial reporting requirements. The IRS has outlined policies on its website-www.IRS.gov-to document its procedures, goals, organizational efforts, and directions to fill out all IRS forms.
The primary IRS form required for filing for government entities is the 990, entitled “Return of Organization Exempt from Income Tax.” This IRS form can be found at www.IRS.gov, and fulfillment is necessary for all tax-exempt and non-profit organizations. 
The 990 is not an IRS form that calculates a tax or requires filing for levying purposes, but instead, filed for annual information purposes. The IRS must document and file all financial statements and information gathered by all forms of businesses in America. Forms such as the 990 force non-profits, government organizations, and other tax-exempt groups to keep “clean” books and stray away from illegitimate or corrupt business practices.
The filing requirements of the various non-profit organizations vary based on size and amount of financial impact. For instance, organizations with under $25,000 in gross annual receipts are not required to file the 990, while a short version of the IRS form (990-EZ) is available to government entities with gross receipts between $25,000-$500,000 and total assets of under $2.5 million. The 990 provides the IRS with public information that otherwise would not be made transparent. 
The information-gathering form extends to “higher ups” of the varying agencies and documents salaries, executive maneuvers, investments, and other significant disclosures. The information acquired from the IRS form is made public under the IRC 6104 (d) which states that an organization must supply a requester with all public information. The 990 simply impedes non-profits from abusing their non-exempt status.
Government entities are freed from the federal income tax levied administered by the IRS. In order to be considered tax-exempt a government agency is required to file a “determination” letter to prove its exempt status. Once the letter has been filed the IRS will review it and act accordingly in determining an exempt status. To avoid procedural red tape, government entities usually just supply the IRS with a tax-exempt number for identification purposes. For example, a federal government entity may use its Federal 
Taxpayer Identification Number (FTIN) to prove its non-exempt status. Governmental units such as, states, counties, municipalities, or their agency departments are also freed from paying the federal income tax. The exemption of such governmental units arises pursuant to tax code section 170(c)(1) which the IRS must follow. The income of such entities is excluded from the typical definition of gross income so long as the assets incurred are, (1) derived from public service or utility that offers an essential governmental function or (2) is gathered from a State government or subdivision of a political office.
The “government affirmation letter”, which is sent by the IRS, documents the special exemptions awarded to government agencies in the United States. This letter pursuant to the Internal Revenue Code details the reason for income tax exemption as well as permissible deductible contributions. The letter itself is available for download at the IRS website-www.IRS.gov.

A Short History of the IRS

A Short History of the IRS

Since America’s inception, the Internal Revenue Service has evolved from a feeble, unorganized system, to a powerful electronic-based entity. When viewing a government’s functions, a fundamental element of stability is funding. 
All governments in the Unites States must tax citizens to provide public goods, that are necessary for progressing and maintaining a society. Although the history of the tax system in America stems back before our Revolution, the development of the Internal Revenue Service commenced nearly a century afterwards. During the Revolutionary and Civil War periods America’s tax system was fragmented; the levying responsibility was widely left up to individual states. The absence of the Internal Revenue Service created a severe disconnect between streams of revenue and the federal government.
During the U.S. Civil War, the Union was struggling with finances due to mounting war costs. To alleviate the financial burden, President Abraham Lincoln and Congress created the position of Commissioner of Internal Revenue in July of 1862. 
The preliminary phase of the Internal Revenue Service was created to quickly raise money, but it was stipulated as a temporary bill, that would only 10 years. The maneuver by the President was seen as a necessary function, an emergency attempt to subdue the extravagant costs that war places on a country. The initial tax rates established during the Civil War fluctuated between 3% and 7.5%, depending on levels of income. 
The enforcement and collection methods were ineffective, however, the model carried a progressive element, which is still used in present times. The commissioner position, which was established through the Revenue Act of 1862, still exists today, and is regarded as the genesis of the Internal Revenue Service. 
Following the Civil War, America embarked on a massive reconstruction and expansionary period. The infrastructure of America was quickly evolving; railroads and highways were being built to connect the once fragmented country. Although such public projects required massive amounts of funding, congress and various lawmakers allowed the temporary tax to expire in 1872. For the ensuing couple of decades America grew desperate for a steady stream of revenue. 
In 1894, following the midst of a war sparked depression, Congress in an attempt to fund the reconstruction effort, reinstated the national income tax. The Income Tax Act of 1894 was again shortly lived, as the Supreme Court through Pollock v. Farmers’ Loan & Trust Company (1895), ruled that the taxation was a form of direct tax which in essence was unconstitutional. During the early stages of the Internal Revenue Service and the federal income tax, the national government was attempting to find an appropriate equilibrium between revenue and maintaining harmony among the citizens.
Following a repeated decade of deficient funding, President Theodore Roosevelt and his successor William Taft strongly recommended the implementation of a constitutional amendment that guaranteed a stabilized tax system levied by the federal government. Through their efforts the 16th Amendment (awarded Congress the power to levy a federal income tax) was published in 1906. 
The amendment was ratified in 1913, and established a federal tax system without state inclusion. The Internal Revenue Service (still referred to as the Bureau of Internal Revenue) presided over this federal tax, and instituted a 1% tax on incomes of over $3,000-inflation adjusted this figure is around $68,000 in 2010. Naturally at first, the novel federal tax system was highly unorganized. 
No taxes were collected the first year; the Internal Revenue Service simply took a consensus during this time to ascertain the population of taxpayers. In response to rapidly expanding responsibility, the Internal Revenue Service doubled its staff and re-invented itself in terms of technology used, organization, and application.
The Internal Revenue Service, over the subsequent decades, grew more powerful and influential. The IRS instituted forms of sin taxes such, as additional fees placed on alcohol, as well as an intelligence unit to crack down on individuals guilty of evasion or fraud. For the first time in American history the federal tax system was organized, empowered, and effective. 1942-1953 was a monumental period in American tax history. For clarity’s sake the WWII era will be categorized based on year and precedent.
         1942-Regarded as the greatest tax bill in American history, the Revenue Act of 1942 increased taxes and the number of Americans subjected to them. The act also created a deduction system for investment of medical expenses.
         1943-The Current Tax Payment Act was adopted by Congress, which withheld taxes from employee wages and required employers to remit them quarterly.
         1944-Congress and the Internal Revenue Service implemented the Individual Income Tax Act which instituted standard deductions and the 1040 form.
         1952-President Truman proposed the Reorganization Plan which instituted a career civil service system for the Internal Revenue Service. The plan decentralized service to taxpayers and attempted to restore public confidence in the agency.
         1953-President Eisenhower finalized Truman’s proposal and officially changed the name of the Bureau of Internal Service to the Internal Revenue Service or IRS.
Following 1953, the Internal Revenue Service spawned into an enormous, technologically advanced agency. Throughout the 1970’s the IRS developed and instituted computerized tax systems and customer service departments. 
The IRS became its own entity; the Alcohol, Tobacco and Firearms Division separated from the IRS in 1972 to further establish the agency and solidify it’s federal tax responsibilities. The most substantial program instituted during the Baby Boomer generation, which further augmented the powers of the IRS, was the Tax Reform Act of 1986. The bill signed by President Regan, contained over 300 provisions and precisely codified federal tax law.
Presently the IRS is a highly organized agency subdivided into four operating divisions. To meet the needs of the varying forms of taxpayers (individuals, small business, mid to large caps, and non-profits) the IRS was appropriately split in 1998, through the adoption of the IRS Restructuring and Reform Act. 
Currently the IRS is predominantly electronically run; more than 50 million tax returns are filed via computers. In 2009, the IRS was home to more than 140,000 employees or the size of Microsoft and Intel combined. Much of America’s success in regards to funding and appropriating public services can be awarded to the establishment of a fully-functional federal tax system.

Understanding the Individuals IRS Forms

Understanding the Individuals IRS Forms

IRS forms are filled out by individual taxpayers, businesses, government entities, and charities to report income and calculate taxes owed to the federal government. The IRS forms are the necessary documents used by the Internal Revenue Service to levy federal taxes. 
Each of the above listed groups of taxpayers requires completion of varying forms. The alternate forms exist to organize the levying process; all types of landowners, employees, enterprises, and organizations must pay taxes to the federal government to fund public projects and pay off the national debt. For instance the 1040, is the necessary starting point and most well-known IRS form for the individual taxpayer.
The Form 1040 is the IRS form that documents an individuals Federal income tax return. The form 1040 was first published for use in 1913, 1914, and 1915 to raise revenue for the United States federal government. After successfully generating sufficient funding through the levying of the personal income tax, the form 1040 became an annual staple in 1916. 
Depending on the individuals situation and complexity there are various forms of the form 1040. For example, individuals who do not invest in the stock market (no capital gain or loss) or incur zero itemized deductions, can use a simplified IRS form known as the Form 1040A (short form) or the Form 1040EZ (easy form.)
Income tax returns and other IRS forms for the individual taxpayer are due by April 15th of the subsequent fiscal year. Excluding attachments or add-ons, the standardized Form 1040 consists of two full pages. The first page of the IRS form requires information about the individual tax payer, his/her dependents, adjustments to income, and income items. The second page is used to calculate allowable deductions, credits, tax owed given the income, and implements funds previously withheld from wages or payments made towards a tax debt.
The form 1040 contains 11 attachments, known as schedules, which vary in necessity based on the taxpayer’s situation. Listed below are the IRS forms attached to the Form 1040, their purpose, and the specific tax levied.
         Schedule A-Used to itemize allowable deductions made against income. Itemized deductions are eligible expenses that taxpayers report on their IRS forms to decrease their taxable income. After computing the adjusted gross income, taxpayers will review a lost of allowable deductions, appropriately itemize them, and then subtract the itemized deductions from their AGI amount. Once the calculations have been made the individuals taxable income amount is finalized. 
Examples of allowable itemized deductions include:Medical expenses that exceed 7.5% of the taxpayer’s adjusted gross income, premiums for medical insurance, necessary travel expenses, payments for prescription drugs, charitable contributions, state property taxes (property and income), and investment interest. To save time and dependent on situation, taxpayers may choose to take a standard deduction, which is between, $5,150 and $14,300. 
         Schedule B-IRS form that calculates interest or divided income. Schedule B is required only if the amount received from dividends or interest exceed $1,500 during the tax year. Dividends refer to corporate profits “kicked-back” quarterly to investors of corporations. 
         Schedule C-IRS form that lists all income and expenses related to self-employment. Depending on ease of situation, a streamlined form (C-EZ) is available for sole proprietors. 
         Schedule D-Used to file capital gains and losses incurred during the taxable year. Schedule D is used to calculate the taxable amount given the special rates applied to capital gains. Capital gains are profits which result from investments into an asset, such as real estate, stocks, bonds, or mutual funds. 
         Schedule E-Used to report income and expenses emerging from the rental of royalties or real property. Pass-through entities (partnerships, trusts, estates) are also reported on this IRS form. 
         Schedule EIC-IRS form which documents an individuals Earned Income Tax Credit. Designed to encourage low-income workers and offset the levying burden of payroll taxes, the EIC offers tax credits to individuals who receive a low annual income while disabled, raising a family, furthering an education, or, sharing a residence. 
         Schedule F-IRS form used to report expenses and income related to farming.
 
         Schedule H-Used to document taxes owed to due employment of household aid. 
         Schedule J-IRS form that calculates average farm income over a period of several years. 
         Schedule M-IRS forms applied in 2009 and 2010, used to claim the $400 “Making Work pay” tax credit.  
         Schedule R-Used to calculate tax credits for the elderly or disabled.

The Internal Revenue Service

The Internal Revenue Service

IRS Background: The International Revenue Service is the government agency responsible for administering and collecting federal taxes in the United States. The agency provides the necessary levying of taxes, which is essential in supplying the nation with funding for public services. In order to provide public services (on a federal level) such as health care, defense, national parks, social security, and transportation infrastructure the government must tax its citizens, and businesses. 
The Internal Revenue Service collects taxes through enforcement and interpretation of the United State’s federal tax law. Prior to the creation of the Internal Revenue Service the United States tax collection methods were fragmented and widely state run. The unorganized levy placed a large deficit on the American system. The infrastructure, wars, social security programs, and Medicare were improperly funded, placing a significant strain on the nation.
The implementation of a unified and national tax collection agency has ensured the federal government of guaranteed annual funding. Although the IRS still faces problems in the form of criticisms and uncollected taxes, the creation of an administrative taxing agency was necessary for America’s long term success.
History of IRS: A large factor of a governments effectiveness is the presence of constant funding. During the Revolutionary and Civil War periods America’s tax system was fragmented; the levying responsibility was widely left up to individual states. The absence of the Internal Revenue Service created a severe disconnect between streams of revenue and the federal government. Mounting war costs placed a necessity on the country to establish a unified and empowered taxing agency. 
To alleviate the financial burdens caused by war, temporary taxes were instituted to supply a quick fix. Although the efforts of temporary taxes worked in the short run, a sustainable entity was needed to help America progress for centuries to come. In the early 1900s President Theodore Roosevelt and his successor William Taft recommended the implementation of a constitutional amendment that guaranteed a stabilized tax system levied by the federal government. 
The 16th amendment was eventually ratified in 1916, and instituted a nationwide progressive income tax. Over the subsequent decades the Internal Revenue Service grew more powerful through the creation of new taxes, legislation, and technological innovation.
Tax Collection: The Internal Revenue Service sifts through and organizes over 150 million tax returns a year. Tax collection is a necessary function of a central government. Without taxation, the United States would be inept in providing necessary public services to its citizens. The need for a unified tax collection agency became apparent when the United States was unable to properly fund wars due to the absence of a unified federal taxing system. Before the Internal Revenue Service was created the levying of taxes was left up to individual state governments.
The varying laws and the improper collection enforcement led to the creation of the IRS. Although the IRS answered many of the nations taxation problems, the size and responsibility of the organization has spawned a variety of collection problems. Presently speaking, the high volume of tax returns has placed a necessity for the adoption of an organized and efficient tax collection process. Unfortunately the idea of perfection in regards to tax collection is unrealistic. 
On average nearly $300 billion dollars goes uncollected. Due to neglectful practice or evasion, the uncollected dollars create a significant gap with public funding for goods or services. The IRS recognizes this severe problem and has attempted to mitigate it through the inclusion of debt collection agencies. Although this practice failed, the IRS has focused its energies on empowering its collection departments. Although $300 billion seems like an exorbitant amount, the statistics around tax collection prove otherwise. 
Over 2 trillion dollars are collected annually, with the majority of funding stemming from the individual income tax. When observing tax collection statistics an individual can obtain crucial knowledge as it relates to how his/her taxes are being distributed. Tax collection statistics also reveal the enormity and importance of the Internal Revenue Service.
Administrative Role of IRS: With over 150 million tax paying citizens, the Internal Revenue Service must be highly organized to sustain efficient tax collecting methods. The IRS is subdivided into individual, small business, mid to large cap, and government entity/non profit categories. Each group is responsible for providing the varying entities with appropriate tax forms. IRS agents must ensure the delivery and obtainment of tax documents, records, and returns for each category of entity. Depending on circumstance, filing for taxes may be an arduous process. As a result, the federal IRS agent is responsible for supplying taxpayers with a series of administrative duties. The IRS must follow a tax code, as well as offer assistance or rulings based on individual need. The varying administrative pronouncements and duties are aimed at answering questions and applying appropriate splices of tax laws to specific cases. The procedures and administrative roles are necessary for ensuring the obtainment of accurate and legitimate tax returns on a national level. 
Criticism of IRS: It’s only natural that the federal agency responsible for taxing citizens is under great scrutiny each fiscal year. The common criticisms associated with the IRS are raised due to the agency’s lack of organization, accounting problems, abusive practices, and inner workings. The IRS is home to over 115,000 employees; agencies or corporations this size often struggle with reaching maximum efficiency or organization.
 Many of the criticisms arise simply from the sheer size and responsibility of the agency. It is impractical to think that the IRS can maintain a desirable level of productivity with vacillating tax laws, varying rule changes and complicated procedural upkeep. That being said, the IRS has constantly been under attack due to their inept accounting practices. 
The IRS is known to ironically possess inadequate funding which has lead to improper financial reporting and vast amounts of misinformation. Much of the uncollected taxes are the result of unorganized book keeping and a lack of preventive controls. The Internal Revenue Service has also failed in keeping private information secure. Many individuals have claimed that the IRS has let third parties obtain private information due to the introduction of  outsourcing uncollected taxes. Along with such criticisms, it has been documented that employees for the IRS have many gripes in regards to the agencies lack of budget and impersonal working environment.
IRS Forms and Implication for: To streamline the tax collection process the IRS has divided the taxable entities into 4 different categories. Individuals, small businesses, mid-large cap corporations, and government entities/charitiesall possess responsibilities administrated by the Internal Revenue Service. Each classification is responsible for filing the appropriate IRS forms designated to them. 
The IRS requires the filing of taxation documents for individuals and profit-seeking businesses, but labels government entities and a variety of charities as tax-exempt. The exemption status of a charity is based on their impact and financial status. Churches and other religious affiliated groups are tax-exempt, however, non-religious based charities are commonly taxed solely for excise goods such as gasoline or non-business related costs. In contrast, the individual taxpayer accounts for the majority of revenue for the federal government. Individuals are mainly taxed on their income, but can also face levies based on investments, purchases of goods, excise taxes, social security, unemployment benefits, medical costs, and property. 
The majority of filing for the individual is completed on the all-encompassing 1040 form. As a result of the varying categories and taxation methods applied to each, the most complex taxation models are found for businesses. The IRS has subdivided businesses into 5 categories to represent the varying forms of business models in American society:sole proprietorship, partnerships, corporations, S corporations (pass federal tax responsibilities to shareholders), and limited liability companies. 
The taxes applied to businesses include:income tax, self-employment tax, employment taxes, and excise taxes. Each form of taxation requires specific forms, although, each business category is not required to file all forms of taxation.
Tax Refund: Over 75% of all tax returns were awarded with a tax refund in the fiscal years of 2008 and 2009. The refunds distributed by the IRS represent a relationship between government and individual taxpayer, which is necessary to fund an efficient society. The majority of tax refunds are created through the withholding of wages during pay periods. Both federal and local governments withhold workers wages during the fiscal year as a means to obtain an interest free loan. 
The funds obtained during the pay periods are used by the government to fund public goods and services. When the tax deadline approaches the individual will be sent documentation that details the amount of money withheld from his/her paycheck. Although limited, workers have the ability to alter the amount withheld which in turn causes the tax refund to fluctuate. 
When the documentation is received, an individual will file the tax refund and choose whether he/she would like the reimbursement in check form or deposited straight to a bank account. The reasoning behind the refund is that it supplies the government with a short-term interest-free loan while guaranteeing an individual the reimbursement of funds during the taxation period. 
Tax refunds also arise through tax cuts or legislation implemented congress as a means to revitalize domestic markets. Tax refunds raise an individual’s disposable income, which in turn, increases the likelihood of investment, consumption, or refinancing of debts. 

A Full Background on the IRS

A Full Background on the IRS

The Internal Revenue Service (IRS) is the prominent agency of the United States Federal Government, responsible for collecting taxes. When in typical conversation, the IRS is usually attached with disparaging comments, however, the agency is necessary to support a functioning society. 
Much of the trepidation that surrounds the Internal Revenue Service stems from an unfamiliarity with the organization, most simply assume it is a government agency out to pillage individuals earnings. If broken down into function, as oppose to result, the IRS dealings may become comprehensible.
The Internal Revenue Service collects taxes through enforcement and interpretation of the United State’s federal tax law. The levying of taxes is the main source of revenue for all forms of government in the United States. In order to provide public services (on a federal level) such as health care, defense, national parks, social security, and transportation infrastructure the government must tax its citizens, and businesses. 
Federal taxes are essentially a “toll” that citizens and corporations must pay to use the resources of the United States. Without taxes, our governments would fail to sufficiently supply the population with public services that are necessary to maintain a functioning society.
The Internal Revenue Code (IRC) is the established tax law in America, which covers all forms of federal taxes:income tax, gift taxes, payroll taxes, excise taxes, and estate taxes. The IRC is implemented by the Internal Revenue Service, and enforces a comprehensive tax code to ensure the levying of various federal taxes. Prior to 1874, federal laws were not organized, they were not consolidated, but instead, fragmented into various acts passed by Congress. 
Over the ensuing decades the federal laws were codified to establish an organized system. The USC (United States Code) was subsequently adopted, which solidified the federal law system in the United States. The Internal Revenue Code, which fundamentally acts as the framework for the IRS is the 26th of the 50 titles found in the USC.
To clarify the IRS and it’s functions, hierarchy, history, and methods we will breakdown and summarize the appropriate categories:
IRS Hierarchy
 The chief executive of the IRS is known as the Commissioner.
 Commissioners are appointed by the President, and must be approved by the Senate for ratification purposes.
 Commissioners oversee all operations of the IRS:collection of taxes, processing of tax returns, enforcement of tax law, and interpretation of tax laws written by Congress.
 The Commissioner serves a 5 year term.
 The IRS is an extension of the federal government, the Secretary of the Treasury Department has the authority to administer the IRC, however, the secretary has delegated the majority of responsibility to the Commissioner.

How is the IRS organized?

 The IRS is organized into four divisions:Individual taxpayers (wages and investments), small businesses, mid-to large cap corporations, and non profits or government entities. The categories exist because each enterprise is taxed differently. 
 These four divisions all possess unique operating departments which oversee the activities of the IRS:communicating with taxpayers, processing of tax returns, conduct audits, and collect taxes. 
 The four divisions that enforce tax laws for the varying categories are over sought by broad departments that impact the entire scope of the IRS. Human Resources, IT department, criminal investigations, and support services are all examples of the broad departments within the IRS.   
History of the IRS



 The first agency responsible for collecting and enforcing taxes in the United States was Bureau of Internal Revenue. 
 In 1862 the Bureau of Internal Revenue was disbanded due to income tax repeal following the Civil War. 
 The IRS was re-established in 1913 following the adoption of the 16th Amendment, which granted taxing power of income to Congress.
 The institution of the Internet, and technological advancements of the 21st century, computerized the tax collection process of the IRS. 
Contacting the IRS
 For general tax inquiries, specific questions regarding tax returns, problems, or status inquiries involving refunds, individuals can call the IRS at 1-800-829-1040. 
 For similar inquiries involving business taxes call 1-800-829-4933 
 Cases regarding identify theft (i.e. someone has filed a tax return using an incorrect social security number) contact 1-800-908-4490 
 Representatives who assist such matters are generally friendly and will help resolve any issues an individual, business, or non profit may have. 

How the IRS Handles Charities

How the IRS Handles Charities

The Internal Revenue Service has awarded charitable donations as tax deductible expenses. “You may deduct charitable contributions of money or property made to qualified organizations if you itemize your deductions.” (IRS Publication 78.) 
Donations made to charities will reduce an individual’s taxable income which subsequently decreases the amount of tax owed. In order to claim such deductions an individual must itemize his/her donations made using the standard 1040 IRS tax form.
Under Schedule A of the 1040 IRS tax form, an individual will claim his/her tax deduction received from a charitable contribution. In order to be considered tax-deductible the gift of cash or property must meet certain criteria outlined by various IRS tax forms. Firstly, the tax-deduction is not eligible until the pledge is fulfilled and the gift is fully transferred to the charitable organization. 
In order for the gift to be ruled deductible, it must be transferred to a charity, that under IRS rules, is designated as a qualified tax-exempt organization. Charities receive exemption through the completion of the IRS form 501-C, and will publicize their status as tax exempt to individuals interested in donation. 
Some organizations such as churches or other religious organizations are not required to fill out IRS forms which designate tax-deductible statuses. If a donation was made to a tax-exempt organization the individual will not receive a deduction until his tax return is properly itemized in the 1040.
The Pension Protection Act requires all donations made to charitable organizations to be properly organized and filed. All donations made that do not exceed $250 will not be rendered as tax-deductible unless supporting documentation is obtained. Records must contain the amount of money donated, the name of the organization, and the date which the transfer occurred. Non-cash charitable donations must follow the strict rules outlined by the federal government to substantiate the fair market value of goods or property transferred to organizations. 
If property is transferred it must contain the assessment value of the land in question and must coincide with the IRS form 8283 i the contribution exceeds $500. Non-cash contributions such as property, boats, cars, trucks, or airplanes must be attached with a market appraisal of the item and subsequently confirmed via a written document by the charity to solidify a tax deduction.
The Internal Revenue Service limits the amount of deduction awarded to individual donations. The IRS has instituted a 20%, 30%, and 50% rule for charitable donations-an individual can deduct cash contributions up to 50% of the adjusted gross income, 30% for property contributions, and 20% for appreciated capital gains contributions.
The following contributions are not made tax-deductible under IRS rules.
         Donations made to political parties or campaigns
         Contributions to individual people
         Contributions to labor unions
         Contributions to for-profit schools or hospitals
         Contributions to foreign governments
         Contributions made to professional organizations
Federal law has exempted charities from paying federal income tax. Under the IRS form 501(c)(3) the government has created two basic requirements that a charity must meet in order to be exempt from federal taxation-the organization in question must be created for a purpose that Congress recognizes as charitable and their ensuing actions must directly benefit others. 
If successful in meeting these requirements; the only IRS forms that a charity must file are excise taxes in the form of telephone and gasoline levies. Charities also may be responsible for filing the IRS Form “UBIT”-Unrelated Business Income Tax-which taxes net earnings from activities that do not meet their charitable purposes.
All charities other than religious groups and small foundations (under $5,000 annually) are over sought by the Internal Revenue Service. Charities that receive over $25,000 a year in contributions must file an annual IRS tax form known as Form 990 or Form 990-PF. 
These IRS forms are not for tax collection purposes, but instead, information documents that are made public to reveal the tax-deductible status of a charity and to report necessary financial numbers.
Under IRS form 501 (c)(3) the IRS separates charities into 2 broad groups:public charities and private foundations. Public charities commonly support universities or hospitals and are driven by public donations or funding. 
Private foundations mostly receive funding from a limited group of individuals such as family members, or specific corporations. Private foundations are subject to harsher federal regulation and susceptible to more federal taxation methods.

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