The Internal Revenue Service (IRS): What Is It? Auditing Process

The Internal Revenue Service (IRS) is a department of the United States government in charge of tax collection and law enforcement (such as the wash sale rule). Abraham Lincoln, who was president at the time, established the organization in 1862. Individual income taxes and employment taxes are mostly collected by the Department of the Treasury. Corporate, gift, excise, and inheritance taxes are also handled by the IRS.

Commissioner Charles P. Rettig, who was appointed to the position by then-President Donald Trump in 2018, is the IRS commissioner as of November 2021. He is in charge of an organization with more than 80,000 employees and a $11 billion budget. Rettig, a New York University graduate, is the only commissioner since the 1990s to have entered the position after working in tax law rather than company management.6

The Internal Revenue Service (IRS), a governmental agency of the United States tasked with tax collection and law enforcement, was established in 1862.
Income taxes, both corporate and individual, make up the majority of the IRS’s labor; in 2020, it processed approximately 240 million tax returns.
In 2020, almost 94% of tax returns were submitted online.
IRS audits have decreased annually since 2010, when they reached their peak.

The Operation of the Internal Revenue Service

The IRS, which has its main office in Washington, D.C., handles all taxation for businesses and individuals in the United States. It processed more than 240 million income tax returns and other forms for fiscal year (FY) 2020 (Oct. 1, 2019, through Sept. 30, 2020). The IRS generated more than $3.5 trillion in income over that time and issued more than $736 billion in tax refunds, including $268 billion in reimbursements for the COVID-19 pandemic’s economic impact.

Thanks to computer technology, software, and safe internet connections, both individuals and organizations have the option of filing income tax forms electronically. Since the IRS launched the program, the number of income tax returns that use e-file has steadily increased, and the vast majority are now submitted this way. Nearly 94.3% of all individual returns filed during FY 2020 used the e-file option. In 2001, just roughly 40 million of nearly 131 million returns, or little under 31%, made use of it.

As of October 2021, little over 112 million taxpayers chose direct deposit over traditional paper checks to collect their refunds, and the typical direct deposit amount was $2,851.

Although the IRS encourages electronic filing, it does not support any specific platform or filing software.

Audits and the IRS

The IRS audits a specific subset of tax returns each year as part of its enforcement function. The organization examined 509,917 tax forms for FY 2020. 0.63% of individual income tax returns and 1.0% of corporation tax returns make up this total. Approximately 72.6% of IRS audits took place by letter, and 27.4% took place on the ground.

The volume of audits peaked in 2010, then has been progressively declining since since. Even fewer audits should take place as the amount of money set out for tax enforcement has decreased by around 30% between 2010 and 2020.

Although there are many different reasons for an IRS audit, certain circumstances can make one more likely. The main one is increased income. For all individual income tax returns in 2020, the audit rate was 0.63%. However, it was 9.8% for someone who earned over $10 million.

Owning your own company also entails more risks. Without filing Schedule C (the form for the self-employed), individuals making $200,000 to $1 million in 2018 had a 0.6% probability of being audited, compared to 1.4%—roughly double—for those who did.

Other warning signs for an audit include underreporting income, overclaiming deductions (especially those tied to a business), making abnormally large charitable contributions in comparison to income, and claiming losses on rental real estate. Each year, a variety of factors affect who is subject to an IRS audit and who is not.

Getting in Touch with the IRS

Via mail

There are many ways to get in touch with the IRS. Your state of residence and whether you anticipate receiving a tax refund will influence the address you should use if you are mailing in your tax return. The IRS website contains a list. On the IRS website, there is a list of mailing addresses based on whether you are sending an application or a payment.

Internet or telephone

Callers seeking assistance should dial (800) 829-1040 from Monday through Friday at 7 a.m. to 7 p.m. There are additional toll-free lines for businesses and other uses, as well as Eastern Time (ET). However, getting in touch with a real person can be difficult. On her blog, CPA Amy Northard kindly deciphered the procedure, which entails giving long answers to a succession of automated questions. Its veracity has been verified by Investopedia. Use the Interactive Tax Assistant on the IRS website for online help with a range of questions.

The real

At your nearby IRS office, you can also call to make a personal appointment. You can enter your ZIP code on the IRS website’s locating page to receive the office’s address and phone number.3

Making Tax Payments

You can use a debit or credit card, an electronic transfer of funds from your bank account, or both to pay your taxes to the IRS. Other options include making an electronic money withdrawal when you e-file your return or using a same-day bank wire. You can use the Electronic Federal Tax Paying System if you are a business or are making a sizable payment, but you must first enroll in it.

You have alternatives if you choose not to pay online. A personal cheque, cashier’s check, or money order can be mailed in. Payable to the “U.S. Treasury,” and make sure the following details are included:

  • Names and addresses of you
  • 24-hour telephone number
  • Social Security number (if a joint return, the SSN will be displayed first) or employer identification number
  • Tax season
  • Number of the relevant tax form or notice

If you choose, you may pay in cash, but you should never ship cash. Call (844) 545-5640, 7 a.m., Monday through Friday, to schedule an in-person appointment at an IRS Taxpayer Assistance Center. to 7 p.m. ET. Call 30 to 60 days before to the day you want to make a payment.

The following businesses accept cash payments from customers: 7-Eleven, ACE Cash Express, Casey’s General Stores, CVS Pharmacy, Family Dollar, Dollar General, Walgreens, Pilot Flying J, Speedway, Kum & Go, Stripes, Royal Farms, GoMart, and Kwik Trip. You must first request an email payment number from the IRS, which you must submit when making your payment. The maximum reward is $1,000 per time.

When did the IRS start operating?

Abraham Lincoln, who was president at the time, enacted an income tax in order to finance the Civil War, which led to the establishment of the IRS. In 1872, the tax was eliminated; it was reinstated in 1894 and deemed unlawful by the United States. 1895: Supreme Court. The 16th Amendment to the U.S. Constitution was adopted in 1913. The federal income tax was reintroduced by the Constitution.

How can I file my tax return the best way possible?

In 2020, 94.3% of taxpayers filed their taxes electronically, which is the recommended method. You can still mail in a paper return, but doing so will cause any refunds to take longer to arrive.

How do I file my taxes?

The most common method of paying taxes is by electronic transfer, either through a debit or credit card or straight from your bank account. However, you can also pay in person with cash if you like, along with via check or money order.

What are the chances that the IRS will check my taxes?

For individual tax returns in 2020, the audit rate was 0.63%. But if you earn a lot of money, your chances improve. For those making $10 million or more, the rate in 2020 was 9.8%. However, there is no single characteristic that will guarantee that the IRS will audit you.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *