The Internal Revenue Service (IRS) is an American government agency responsible for the collection of taxes and enforcement of all taxation laws. It was established in 1862 by President Abraham Lincoln and operates under the authority of the United States Department of the Treasury. Its primary purpose includes the collection of individual income taxes and employment taxes and is headquartered in Washington, DC. The IRS also handles corporate, excise, and estate taxes, including mutual funds and dividends.
Individuals and corporations have the option to file income returns electronically, thanks to computer technology, software programs, and secure internet connections. The number of income taxes that use electronic filing has grown steadily since the IRS began the program, and now the overwhelming majority are filed this way. Nearly 90% of tax returns are filed electronically in the US. Nearly 92 million taxpayers received their returns through direct deposit rather than a traditional paper check in 2019, and the average direct-deposited amount was $2,975.
As part of its enforcement mission, the IRS audits a select portion of income tax returns every year. For the 2019 fiscal year, the agency audited 771,095 tax returns. This number breaks down to 0.60% of individual income tax returns and 0.97% of corporate tax returns. However, the number of IRS audits have been on the decline each year since 2010. There are various reasons an audit might occur. The main reason is higher income. In 2018, the audit rate for all individual income tax returns was 0.6%, but for someone who made more than $1 million in income, it was 3.2%. Even running your own business carries a great risk. Individuals making between $200,000 and $1 million in one tax year who don’t file the self employment forms have a much bigger chance of being subject to an audit. Other reasons for an audit include failing to declare the right amount of income, claiming a higher amount of deductions, making disproportionately large charitable donations compared to income, and claiming rental real estate losses. But, no single factor determines who does or does not face an audit each year.
In recent years the agency has struggled with multiple budget cuts and reduced morale. As of 2018, it saw a 15 percent reduction in its workforce, including a decline of more than 25 percent of its enforcement staff. In spite of this, the agency processed more than 245 million returns and collected more than $3.4 trillion in gross revenue, spending a mere 34¢ for every $100 it collected.