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The Internal Revenue Service, Its Mission and Function

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The Internal Revenue Service, Its Mission and Function August – September 2006 At-a-Glance: The Internal Revenue Service, its Mission and Function By Charles P. Rettig Charles Rettig provides a history of income taxation in the United States and an overview of the IRS as it is currently structured. hen was the IRS created? Who does the IRS appointment of a Commissioner of Internal Revenue report to? Who makes the decisions as to to administer and supervise the execution and ap- Wwhich players will be on the fi eld? Looking plication of the internal revenue laws. for a complete copy of the Form 1040 fi rst introduced The IRS Mission. “Provide America’s taxpayers top in 1913? Many practitioners know that IRS Special quality service by helping them understand and meet Agents attained national prominence in the 1930’s their tax responsibilities and by applying the tax law for their efforts leading to with integrity and fairness the conviction of “Public to all.” This mission state- Enemy Number One,” Al The IRS role is to help the large ment describes the IRS’s Capone (for income tax majority of compliant taxpayers role and the public’s ex- evasion) and their role with the tax law, while ensuring pectation about how the in solving the Lindbergh IRS should perform that kidnapping.p However, that the minority who are unwilling role. In the United States, dididid yyouuku knkknow the fi rst IRS to comply pay their fair share. Congress passes tax laws crcriminalrimimiinal SSpecialcial AgenAgentss and requires taxpayers to wwereere aactuallyctuaally InspInspectorspecto s comply. The IRS role is to transferredanssferre to the Bureau of Internal Revenue from help the large majority of compliant taxpayers with the United Stateses Postost OOffi cce?e? ththee ttaxax llaw,aw, wwhwhile ensuring that the minority who are A quick look toot theeof offifici ciala IIRSRS iinternetnte net ssite—ite wwww.ww ununwillingnwi lingt to cocomply pay their fair share. irs.gov—will provide all of the information you’ve The Agency. The IRS is a Bureau of the Depart- been searching for these many years! If you haven’t ment of the Treasury and one of the world’s most stopped by, do it now! Not only can you get a detailed efficient tax administrators. In 2004, the IRS players roster (an organizational chart with contact collected more than $2 trillion in revenue and information), but you can get the entire history of the processed more than 224 million tax returns. In organization! Following are random bits of interest- 2005, the IRS spent just 44 cents for each $100 ing information gleamed directly from www.irs.gov. it collected and, for the first time, a majority (52 What you didn’t know won’t be held against you percent) of individual taxpayers filed their tax (yet)...but what you learn may surprise you! returns electronically; more than 8 million busi- Statutory Authority. The IRS is organized to carry ness returns were filed electronically; more than out the responsibilities of the Secretary of the Trea- 75 million individual and business returns were sury under Code Sec. 7801. The Secretary has full prepared by tax professionals using a computer; authority to administer and enforce the internal approximately 120,000 tax professionals used revenue laws and has the power to create an agency IRS’s e-Services, a web-based suite of services to to enforce these laws. The IRS was created based on help prepare, research and submit tax returns elec- this legislative grant. Code Sec. 7803 provides for the tronically; more than 1 million taxpayers enrolled in the IRS’s Electronic Federal Tax Payment System Charles P. Rettig is a Principal with the fi rm of Hochman, (EFTPS) in fiscal year 2005; IRS received 1.4 mil- Salkin, Rettig, Toscher & Perez, P.C., in Beverly Hills, California. lion credit card payments; and approximately 1.2 JOURNAL OF TAX PRACTICE & PROCEDURE 59 IRS: At-a-Glance million tax payments were made via electronic gress passed the Volstead Act, which gave the funds withdrawal. Commissioner of Internal Revenue the primary responsibility for enforcement of Prohibition. Brief History of IRS Eleven years later, the Department of Justice as- sumed primary prohibition enforcement duties. 1862—President Lincoln signed into law a rev- 1931—The IRS Intelligence Unit used an under- enue-raising measure to help pay for Civil War cover agent to gather evidence against gangster expenses. The measure created a Commissioner Al Capone. Capone was convicted of tax evasion of Internal Revenue and the nation’s fi rst income and sentenced to 11 years. tax. It levied a three-percent tax on incomes be- 1933—Prohibition repealed. IRS again assumed tween $600 and $10,000 and a fi ve-percent tax responsibility for alcohol taxation the following on incomes of more than $10,000. year and for administering the National Firearms 1867—Heeding public opposition to the income Act. Later, tobacco tax enforcement was added. tax, Congress cut the tax rate. From 1868 until 1942—The Revenue Act of 1942, hailed by 1913, 90 percent of all revenue came from taxes President Roosevelt as “the greatest tax bill in on liquor, beer, wine and tobacco. American history,” passed Congress. It increased 1872—Income tax repealed. taxes and the number of Americans subject to the 1894—The Wilson Tariff Act revived the income income tax. It also created deductions for medical tax, and an Income Tax Division within the Bu- and investment expenses. reau of Internal Revenue was created. 1943—Congress passed the Current Tax Pay- 1895—The Supreme Court ruled the new income ment Act, which required employers to withhold tax unconstitutional on the grounds that it was a taxes from employees’ wages and remit them direct tax, and not apportioned among the states quarterly. on the basis of population. The Income Tax Divi- 1944—Congress passed the Individual Income sion was disbanded. Tax Act, which created the standard deductions 1909—President Taft recommended Congress on Form 1040. pproproposeopoos a constitutional amendment that would 1952—President Truman proposed his Reorgani- ggivgiveive ththet governmentovernnmen the ppower to tax incomes, zation Plan No. 1, which replaced the patronage wwitwithoutithohout aapportioningpportioning the bburden among the states system at the IRS with a career civil service sys- iin linline with population.l Congress also levied a tem. It also decentralized service to taxpayers one-percentt ttaxx onn nnetet cocorporaterppo te incomesincomees of aandnd sosoughtuggh to restore public confi dence in the more than $5$5,000.00 aagency.gencyy 1913—As the threat of war loomed, Wyoming 1953—President Eisenhower endorsed Truman’s became the 36th, and last, state needed to ratify reorganization plan and changed the name of the the 16th Amendment. The Amendment stated, agency from the Bureau of Internal Revenue to “Congress shall have the power to lay and collect the Internal Revenue Service. taxes on incomes, from whatever source derived, 1954—The fi ling deadline for individual tax re- without apportionment among the several states, turns changed from March 15 to April 15. and without regard to any census or enumera- 1961—The Computer Age began at IRS with the tion.” Later, Congress adopted a one-percent tax dedication of the National Computer Center at on net personal income of more than $3,000 with Martinsburg, W.Va. a surtax of 6 percent on incomes of more than 1965—The IRS instituted its fi rst toll-free tele- $500,000. It also repealed the 1909 corporate in- phone site. come tax. The fi rst Form 1040 was introduced! 1972—The Alcohol, Tobacco and Firearms 1918—The Revenue Act of 1918 raised even Division separated from the IRS to become the greater sums for the World War I effort. It codifi ed independent Bureau of Alcohol, Tobacco and all existing tax laws and imposed a progressive Firearms. income-tax rate structure of up to 77 percent. 1974—Congress passed the Employee Retirement 1919—The states ratifi ed the 18th Amendment, and Income Security Act, which gave regulatory barring the manufacture, sale or transport of responsibilities for employee benefi t plans to intoxicating beverages (“Prohibition”). Con- the IRS. 60 August – September 2006 1986—Limited electronic fi ling began. President Commissioners served the shortest times in offi ce, Reagan signed the Tax Reform Act, the most less than one year: Robert E. Hannegan,10/9/1943– signifi cant piece of tax legislation in 30 years. It 1/22/1944 (3 months, 14 days);William Orton, contained 300 provisions and took three years 7/1/1865–10/31/1865 (4 months); Alfred Pleason- to implement. The Act codifi ed the federal tax ton,1/3/1871–8/8/1871 (7 months, 6 days);George S. laws for the third time since the Revenue Act of Boutwell, 7/17/1862–3/4/1863 (7 months, 16 days); 1918. Shirley D. Peterson, 2/3/1992–1/20/1993 (11months, 1992—Taxpayers who owed money were al- 18 days). lowed to fi le returns electronically. 1998—Congress passed the IRS Restructuring Longest-Serving Commissioners of and Reform Act, which expanded taxpayer rights Internal Revenue and called for reorganizing the agency into four These Commissioners served the longest terms, operating divisions aligned according to taxpayer five years or more: Guy T. Helvering,6/6/1933– needs. 10/8/1943 (10 years, 4 months); David H. Blair, 2000—The IRS enacted reforms, ending its geo- 5/27/1921–5/31/1929 (8 years); Joseph S. Miller, graphic-based structure and instituting four major 3/20/1885–3/20/1889 and 4/19/1893–11/26/1896 (7 operating divisions: Wage and Investment, Small years, 7 months); Green B.
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