# What Is the Internal Revenue Service (IRS)?

> **Definition**
>
> The Internal Revenue Service (IRS) is the U.S. government agency responsible for enforcing federal tax laws, collecting taxes, and conducting audits to ensure taxpayer compliance.

## What Is the IRS?

The Internal Revenue Service (IRS) is the division of the U.S. Treasury Department tasked with enforcing the [Internal Revenue Code (IRC)](https://www.investopedia.com/terms/i/internal-revenue-code.asp), administering federal tax laws, and collecting federal taxes from U.S. individual and corporate taxpayers. The IRS collects [gift](https://www.investopedia.com/terms/g/gifttax.asp), [excise](https://www.investopedia.com/terms/e/excisetax.asp), [estate](https://www.investopedia.com/terms/e/estatetax.asp), and [income taxes](https://www.investopedia.com/terms/i/incometax.asp), and routinely conducts audits to ensure that taxpayers comply with tax laws.

### Key Takeaways

*   The Internal Revenue Service (IRS) is the U.S. government agency responsible for collecting federal taxes and enforcing tax laws.
*   Most of the work of the IRS involves individual and corporate income taxes.
*   The IRS audits taxpayers randomly or after detecting irregularities in tax returns.

![Internal Revenue Service (IRS): The U.S. government agency responsible for collecting federal taxes and enforcing tax laws.](https://www.investopedia.com/thmb/AO1SXlLUZXoneSI1W28duLl9mLQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/irs.asp-FINAL-1-7bbef1cef31a4a71bc59337e6389ac70.png)

*— Joules Garcia / Investopedia*

## History of the Internal Revenue Service (IRS)

President Abraham Lincoln created the Office of Commissioner of Internal Revenue in 1862 to collect [taxes](https://www.investopedia.com/terms/t/taxes.asp) levied to fund the Civil War. In 1863, its first year in operation, it collected $39.1 million (the equivalent of $985.79 million today).

In 1913, Congress was given the power to enact income [tax laws](https://www.investopedia.com/tax-laws-4689794), paving the way for the Bureau of Internal Revenue. The first Form 1040 followed in 1914.

The agency’s name was changed to the Internal Revenue Service in 1953. The [filing deadline](https://www.investopedia.com/tax-day-definition-5116810) was changed to April 15 the next year (1954).

Other highlights include:

*   1965—The IRS’s first toll-free telephone site
*   1972—The IRS offers information in Spanish for the first time
*   1992—The first [electronic filings](https://www.investopedia.com/terms/e/efile.asp) are allowed
*   1996—The IRS begins a presence on the World Wide Web, which precedes its IRS.gov website
*   2002—The IRS introduces its first app

## Collecting Revenue

The IRS collects estimated taxes from wage earners throughout the year via payroll deductions and quarterly estimated tax payments from businesses based on quarterly tax filings. An annual filing, usually due by April 15 for the previous tax year, reconciles the amounts paid by each individual and business and the actual amounts owed.

If the [taxpayer](https://www.investopedia.com/terms/t/taxpayer.asp) has overpaid, the IRS issues a [tax refund](https://www.investopedia.com/terms/t/tax-refund.asp). If the taxpayer owes money, the payment is due with the annual tax return. The [IRS website](https://www.irs.gov/) explains how federal tax laws work. U.S. taxpayers must comply with tax laws passed by Congress and meet tax obligations.

### $5.1+ trillion

The amount of tax revenue collected by the IRS in the 2024 fiscal year.

## Tax Returns

Taxpayers may file their [tax returns](https://www.investopedia.com/terms/t/taxreturn.asp) by mail or electronically using tax preparation software designed for consumer use. A taxpayer may use the services of tax professionals, such as [tax preparers](https://www.investopedia.com/articles/personal-finance/022516/how-find-best-tax-preparer-you.asp) or [accountants](https://www.investopedia.com/terms/a/accountant.asp). Nearly all individual taxpayers use [Form 1040: U.S. Individual Tax Return Definition, Types, and Use](https://www.investopedia.com/terms/1/1040.asp) or [Form 1040-SR: Tax Return for Seniors](https://www.investopedia.com/taxes/seniors-get-new-simplified-tax-form/). In 2024, the IRS received 163.4 million individual returns and issued 104.8 million refunds totaling $329 billion.

Many individuals complete and attach additional forms and documents to support the numbers they record on the main forms, including the [W-2](https://www.investopedia.com/terms/w/w2form.asp) and [1099](https://www.investopedia.com/articles/personal-finance/082514/purpose-1099-forms.asp), supplied by the companies that paid money to the taxpayer. [Schedule D](https://www.investopedia.com/terms/s/scheduled.asp) is used to report capital gains received from the sale of stocks, properties, and other taxable income sources, and [Schedule A](https://www.investopedia.com/terms/s/schedulea.asp) records the details of tax deductions claimed by the taxpayer.

Corporations use Form 1120: U.S. Corporation Income Tax Return to report their [income](https://www.investopedia.com/terms/i/income.asp) and [tax liabilities](https://www.investopedia.com/terms/t/taxliability.asp). There are variations of the form, depending on the type of corporation, including:

*   Form 1120-C: U.S. Income Tax Return for Cooperative Associations
*   Form 1120-F: U.S. Income Tax Return of a Foreign Corporation
*   Form 1120-H: U.S. Income Tax Return for Homeowners Associations
*   Form 1120-L: U.S. Life Insurance Company Income Tax Return
*   [Form 1120-S: U.S. Income Tax Return for an S Corporation](https://www.investopedia.com/terms/f/form-1120s.asp)

## IRS Audits

The IRS [audits](https://www.investopedia.com/terms/a/audit.asp) a percentage of income tax returns annually as part of its enforcement mission. The agency randomly selects taxpayers to audit or singles out those whose returns are related to others audited. While there is no single factor that determines who gets an IRS audit each year, there are some [red flags](https://www.investopedia.com/terms/r/redflag.asp) that may trigger a review:

*   Failing to declare the right amount of income
*   Claiming a higher-than-normal number of [deductions](https://www.investopedia.com/terms/d/deduction.asp) (especially business-related ones)
*   Making disproportionately large [charitable donations](https://www.investopedia.com/terms/c/charitabledonation.asp) compared to income
*   Claiming rental real estate losses

The [audit process](https://www.investopedia.com/articles/personal-finance/032415/how-do-irs-audits-work.asp) begins with a review of the return by an auditor. The auditor may either accept the return or request a further review by an examination group. In the latter case, the taxpayer is notified by mail. The audit involves reviewing paperwork and may be conducted by mail or in person at an IRS office or another location, such as the taxpayer’s home, business, or accountant’s office.  

> **Fast Fact**
>
> The IRS reported 582,944 audits as of the end of its 2023 fiscal year, resulting in $31.9 billion in recommended additional tax. Of all these audits, the IRS audited 0.44% of individual returns and 0.74% of corporate returns.

## Contacting the IRS

A list of mailing addresses for the IRS is available on the IRS website. Individuals can contact the IRS by phone at (800) 829-1040, Monday through Friday, 7 a.m. to 7 p.m. local time. There are other toll-free numbers for businesses and other purposes. For online assistance, try the Interactive Tax Assistant on the IRS website. In-person appointments are also available at a local IRS office.  

## How Is the IRS Funded?

The IRS operates on a [budget](https://www.investopedia.com/terms/b/budget.asp) approved by Congress. This is divided into four accounts: Taxpayer Services, Enforcement, Operations Support, and Business Systems Modernization. The money allotted to each cannot be reallocated to other sections. IRS Chief Operating Officer Melanie Krause was announced in February 2025 as acting IRS commissioner.

## What Is the Best Way to File a Tax Return?

It’s best to file taxes electronically, as 92.8% of taxpayers did with the IRS in 2024. Individuals can still file a paper return by mail, but doing so will delay refunds.

## What Are the Chances of Being Audited by the IRS?

The audit rate for individual tax returns was 0.44% in 2023. The IRS has audited the returns of 8.7% of the people making $10 million or more from 2013 to 2021. Individuals may be randomly selected and others triggered by departures from the norm, such as a charitable deduction that exceeds the filer’s reported income.

## The Bottom Line

The IRS emerged to collect money to fund the Civil War. The Internal Revenue Service is part of the U.S. Department of the Treasury and enforces and administers federal tax laws and operates within a budget approved by Congress.

> **Article Sources**
>
> 1.  Internal Revenue Service. “[IRS History Timeline](https://www.irs.gov/irs-history-timeline).”
>     
> 2.  CPI Inflation Calculator. “[$39.10 in 1863 Is Worth $985.79 Today](https://www.in2013dollars.com/us/inflation/1863?amount=39.10).”
>     
> 3.  Internal Revenue Service. “[Historical Highlights of the IRS](https://www.irs.gov/newsroom/historical-highlights-of-the-irs).”
>     
> 4.  Internal Revenue Service. “[The Agency, Its Mission and Statutory Authority](https://www.irs.gov/about-irs/the-agency-its-mission-and-statutory-authority).”
>     
> 5.  Internal Revenue Service. “[IRS Publishes 2024 Financial Report; Resolves Long-standing Significant Deficiency](https://www.irs.gov/newsroom/irs-publishes-2024-financial-report-resolves-longstanding-significant-deficiency).”
>     
> 6.  Internal Revenue Service. “[Filing Season Statistics for Week Ending Dec. 27, 2024](https://www.irs.gov/newsroom/filing-season-statistics-for-week-ending-dec-27-2024).”
>     
> 7.  Internal Revenue Service. “[Instructions for Form 1120, U.S. Corporation Income Tax Return](https://www.irs.gov/pub/irs-pdf/i1120.pdf).” Pages 2, 3.
>     
> 8.  Internal Revenue Service. “[IRS Audits](https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits).”
>     
> 9.  Internal Revenue Service, via Internet Archive Wayback Machine. “[2023 Data Book](https://web.archive.org/web/20250109213101/https://www.irs.gov/pub/irs-pdf/p55b.pdf).” Pages 33, 34, 46.
>     
> 10.  Internal Revenue Service. “[Where to Send Non-Return Forms (Applications and Payments)](https://www.irs.gov/businesses/small-businesses-self-employed/where-to-send-non-return-forms-applications-and-payments).”
>      
> 11.  Internal Revenue Service. “[Let Us Help You](https://www.irs.gov/help/telephone-assistance).”
>      
> 12.  Internal Revenue Service. “[Interactive Tax Assistant (ITA)](https://www.irs.gov/help/ita).”
>      
> 13.  Internal Revenue Service. “[Contact Your Local IRS Office](https://www.irs.gov/help/contact-your-local-irs-office).”
>      
> 14.  Internal Revenue Service. “[IRS Budget & Workforce](https://www.irs.gov/statistics/irs-budget-and-workforce).”
>      
> 15.  Internal Revenue Service. “[Krause to Serve as Acting IRS Commissioner; O’Donnell Retires After Distinguished Career](https://www.irs.gov/newsroom/krause-to-serve-as-acting-irs-commissioner-odonnell-retires-after-distinguished-career).”
>      
> 16.  Internal Revenue Service. “[File Your Tax Return](https://www.irs.gov/filing/individuals/how-to-file).”
>      
> 17.  Internal Revenue Service, via Internet Archive Wayback Machine. “[2023 Data Book](https://web.archive.org/web/20250109213101/https://www.irs.gov/pub/irs-pdf/p55b.pdf).” Page 33.