The Internal Revenue Service: America's Strong Arm

The Internal Revenue Service had its beginnings in antebellum society. President Abraham Lincoln established the office of Commissioner of Internal Revenue after the Civil War in order to pay off the expenses of that war. The same organization still exists today as the Internal Revenue Service.

Their purpose is to enforce tax collection on goods or service produced within the United States as opposed to collecting taxes from duties or tariffs. While the change in name from the Bureau of Internal Revenue to the IRS started as early as 1918, it was not officially changed until 1953. The 1950's also saw the replacement of the patronage system with professional employees. In our day only the IRS Commissioner and Chief Counsel are still appointed by the President and approved by the Senate. Further reorganization occurred in the late 1990's.

In an effort to address issues such as customer service and lost revenues a bipartisan commission was created in 1998. The resulting legislation is known as The Internal Revenue Service Restructuring and Reform Act of 1998. The legislation divided the IRS into four operational divisions and assured the inclusion of criminal law enforcement.

The four major divisions of the IRS are: Large & Mid-Size Business (LMSB), Small Business/Self-Employed (SB/SE), Wage and Investment (W&I), and Tax Exempt & Government Entities (TE/GE). However, despite organizational changes problems in lost revenue have carried on, although there are reports of improved customer service. There are also continual efforts to investigate tax scandals.

As of 2007 the IRS estimates that some $300 billion more is owed them than has been collected. That's about an eighth of all taxes collected in Fiscal Year 2006 ($2.2 trillion). While the government has sought to improve IRS operations, some have expressed concern about IRS collection methods which now include outsourcing to private collection agencies.

The IRS uses outsourcing agencies to collect taxes with an agreement that the private agencies will be paid a certain percent of the tax collected. This causes some to worry because they think that private agencies will resort to pressure tactics in their collection in order to make the maximum amount of money.

Also, the use of private agencies means the transfer of personal data to these agencies, a cause for concern in our country where identity theft has become an undeniable threat. Besides collecting tax and investigating problems surrounding collection, the IRS serves other important administrative functions.

These functions include publication of the Internal Revenue Bulletin, the issuance of Revenue Procedures (which help taxpayers correct prior errors), and making both revenue rulings and private letter rulings in response to individual cases.