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.