About the IRS
The IRS (Internal Revenue Service) is an agency of the United States government whose role it is to collect federal taxes according to the set of laws known as the Internal Revenue Code. It is a division of the Treasury Department. In Fiscal Year 2006, revenues, after subtracting refunds, exceeded $2.2 trillion. Collection from individuals accounts for approximately forty-four percent of total collections.
Income taxes in the US started during the Civil War in order to finance the Northern states' cost of prosecuting the war. The office of Commissioner of Internal Revenue was introduced by Abraham Lincoln and approved by Congress in 1862. The first income tax law was enacted in the same year and was known as the Revenue Act of 1862. The job of Commissioner continues today as chief officer of the IRS.
The reason for the name is that its role of collecting income taxes is differentiated from that of other federal government agencies that collect tariffs and import duties which may be considered to be 'external' taxes, whereas income taxes are by contrast 'internal' revenue. The original name was the 'Bureau of Internal Revenue'.
There are 3 computer centers around the nation but most computer processing is performed in Maryland. There are ten service centers scattered across the country where taxpayers submit their tax returns. Business and individual returns may go to different addresses. The headquartes of the agency is on Constitution Avenue in Washington D.C., but the regional centers do the processing of the returns.
The current name "Internal Revenue Service" first appeared in 1929 on tax forms but the name was not formally adopted until 1953 in accordance with Treasury Decision 6038. Around the same time, the patronage system of hiring employees was phased out and a career employment system was instituted. However, the Chief Counsel and the commissioner are confirmed by the Senate after nomination by the President.
Reorganization
Despite efforts at reforming the agency to enhance its effectiveness, it is estimated that approximately $290 billion of taxes owed were not collected in 2001 alone. For 2007, the estimate is $300 billion. The aim of reform was to improve customer service and increase collections. A bipartisan commission was formed to formulate remedies and following its report the Internal Revenue Service Restructuring and Reform Act of 1998 was enacted.
Pursuant to the Act, there are now 4 primary operating divisions. They are the TE/GE - Tax Exempt and Government Entities, W&I - Wage and Investment, SB/SE - Small Business and Self-Employed, and LMSB - Large and Mid-Size Business. Customer Service may have improved and certain abusive collection practices reined in, but despite the eforts of the criminal law enforcement division, many tax-dodgers still pay less than they should.
OIC
OIC stands for 'offer in compromise' sometimes mistakenly called offer and compromise. When a taxpayer owes back taxes and has no ability to pay and no prospects of being able to pay the amount due, the IRS may accept a lesser amount because that is all that can be collected. The agency must be convinced that there is no likelihood of collecting the full amount, otherwise there would be no reason to allow a taxpayer to pay less than what is due.
Because compliance is an ongoing problem, investigation of abusive tax schemes has been stepped up. The motto is 'Service plus Enforcement equals Compliance'. Following the lead of state and local government agencies, some debt collection is now being assigned to private debt collectors. This started in September, 2006 despite the objection by critics that personal information is being given by a government agency to private operations and that aggressive tactics will be employed by collection agencies so as to extract the maximum amount since they are paid on a percentage basis.
The private agencies get to keep between 22% and 24% of the tax collected as a result of their efforts. The IRS has stated that this is still a collection system that "is a sound, balanced program that respects taxpayers' rights and taxpayer privacy."
IRS Rulings
Because the tax laws can not identify every situation in detail and because interpretation of a law may be necessary, the IRS makes regulations based upon law. There are revenue rulings which are general in nature. There are also private letter rulings which are made specifically for a particular taxpayer for a particular situation but they also indicate how the agency looks at that issue for all taxpsyers. The Service also promulgates Revenue Procedures which inform taxpayers what process should be followed in correcting errors made in returns and other procedures to follow in dealing with the agency.
Revenue rulings and regulations are published in The Internal Revenue Bulletin. They have an authority that gives taxpayers the sort of guidance that can be relied upon. However, they can be challenged in court and can be found to be invalid if the administrative pronouncement is found to contradict the court's interpretation of what the law really means or if the Service has gone beyond its legal authority.
Formal Rule Making
A more formal rule making process is followed when a statute requires that the Secretary of the Treasury do so. To announce the proposed regulation, a Notice of Proposed Rule Making is published in the Federal Register giving notice of the upcoming hearing. The announcement explains the procedure for interested parties to state their views either by mail or in person at the hearing and the date of the hearing. Hearings are always held in Washington, D.C.. Hearings are not always required by law but may also be held because the agency wants to have public input into developing its interpretation of the Internal Revenue Code.
The Adminitrative Procedure Act sets a statutory period before the regulation can be decided. The proposed regulation may be abandoned, modified to embody suggestions, or adopted according to its original formulation. Until a final determination is made, taxpayers can rely on its proposed formulation pending the final outcome.
Different divisions of the IRS may promulgate rules. Rule making divisions include Tax Exempt, Large and Mid-Size Business, Financial Institutions, and Passthroughs and Special Industries.
Critics
Allegations of abuse
The Criminal Investigation Division (CID) has especially come under fire for unfair and abusive practices, although the Service in general is also criticized of incompetence and improper use of its powers. The Senate Finance Committee has held hearings so as to investigate the many complaints from taxpayers. It has been claimed that the general public has no idea of the amount of abuses that have occurred and what abuses any unsuspecting taxpayer could be subject to. As a result of the hearings, the Taxpayer Bill of Rights III was enacted by Congress on July 22, 1998. In limited situations, the burden of proof which had rested entirely on the taxpayer was shifted to the IRS. However, there was no relief from the legal authority of the agency to seize assets and enforce liens even though no judgment has been obtained from a court.
Legal Authority Criticism
There have been legal criticisms of the right of the agency to even exist. Some tax protestors claim that the IRS has no statutory basis to exist as an agency and has no legal standing to sue or be sued. Therefore it is not a bona fide government agency. Such arguments have never succeeded in persuading any court to uphold not paying taxes or not filing a tax return.
Tax lawyers at the IRS
The Office of Chief Counsel employs most of the lawyers that work on behalf of the IRS. They may work in regional offices or in the national headquartes in Washington, D.C.. There are different areas of responsibility such as estate tax work and auditing income tax payments. Civil service rules may not allow transferring internally from one area to another. In order to help influential high net worth tax evaders, there was a move in 2006 to reduce the number of lawyers working on estate tax cases.
