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How the IRS Works

The IRS is one of the most loathed and essential organizations in the country. When the United States was first established, America was wary of taxation and there was no organization set up to collect taxes. When the Civil War was over, the Bureau of Internal Revenue was created. This led to the establishment of the Internal Revenue Service (IRS). Today, the IRS is the country’s tax collecting agency. So how does it work?

Government Organization
The IRS is part of the Department of Treasury, and it employs thousands of employees. A commissioner heads the organization and is selected by the President to serve a five-year term. The President also selects a Chief Counsel to the IRS. This person handles all legal matters relating to the agency. The IRS is primarily located in Washington, D.C.; however, there are regional offices located in cities throughout the United States.

Oversight Board
There is an IRS Oversight Board that is compiled of nine members. These people are responsible for supervising the activities of the IRS and ensuring that audits are performed correctly. They also review and approve budget requests each year. However, they do not have any control over policy changes.

Taxes
During 2013, the IRS collected nearly $2.86 trillion in revenue. They also processed approximately 240 million tax returns and paid refunds totaling $364 billion. The money that they collect is used to pay for government operations.

Audits
Each year, certain businesses and individuals will receive audits on their tax returns. The IRS performs audits to make sure that a business or individual is providing accurate financial information and paying the right amount of taxes. The possibility of a future audit encourages the majority of people to be honest on their taxes. However, paying your taxes on time and honestly does not guarantee that you will avoid an audit. Audits are chosen based on different reasons including some of the following:

  • Random computer selections
  • Mismatching documents or information
  • Transactions involving people who have been audited

Computer System
Since the IRS stores and processes so much information, they need extremely powerful computer systems. According to 2290tax.com, the main IRS computer system handles the majority of their work. This computer or server is used for IRS notices, EIN’s, and SSN’s. It also calculates penalties and determines who gets audited. Another important IRS computer system controls the e-file system. Once the returns are filed, it checks for any errors, issues confirmations, and it backs up the information.

Although most people are wary of the agency, the truth is that the IRS is necessary and extremely efficient. While some view the agency as antiquated, in recent years the agency has aimed to work better with taxpayers, even setting up the Office of Appeals, which helps to resolve tax disputes impartially and out of court.

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