Money & Finance › Government agencies & regulation › Fiscal policy: Congress, taxes and spending
Internal Revenue Service (IRS)
Since 1862; income tax 1913· Institution or agency
Fact, law or dataA rule, statute, definition or measured number.
The Treasury bureau that collects federal taxes, about $5 trillion a year, processes returns and refunds, and audits.
See it on the Money & Finance map →How it works
Lincoln created a Commissioner of Internal Revenue in 1862 to fund the Civil War. That income tax lapsed in 1872, and the Supreme Court struck down an 1894 version; the 16th Amendment of 1913 settled its legality. Renamed the IRS in 1953, it processes about 160 million individual returns a year, plus business, payroll and estate taxes, and audits under 1% of individual returns. Its predecessor's agents built the 1931 tax case against Al Capone. It lost about a quarter of its staff in 2025.
Why it matters
Tax rules shape nearly every financial decision, from depreciation and 1031 exchanges in real estate to retirement accounts; how well the IRS enforces them decides how much revenue actually comes in.
Facts, rules and data
The IRS Data Book publishes collections, returns and audit rates yearly; IRS tax-gap studies estimate about $696 billion owed but unpaid for 2022; TIGTA, its inspector general, audits the agency.
Debates and risks
Whether extra enforcement money pays for itself several times over, as IRS and CBO estimates suggest, or mainly burdens honest taxpayers is politically contested.
Inside this (1)
Connections (8)
▸Municipal bonds and tax-free interest pay interest mostly untaxed by Internal Revenue Service (IRS)Fact, law or data
The connection
Since the first modern income tax law in 1913, interest on state and local bonds has been excluded from federal taxable income, now under Section 103 of the tax code. The IRS polices which bonds qualify and audits issuers that misuse proceeds. Interest on some 'private activity' bonds counts toward the alternative minimum tax.
When and why
Nationwide since 1913; the IRS's Tax Exempt Bonds office reviews issuers, and investors report tax-exempt interest on line 2a of Form 1040.
How we know
Internal Revenue Code Section 103 and the Revenue Act of 1913; IRS audits that can declare bonds taxable when issuers break the rules.
Debates and risks
Supporters say the exemption cheaply funds local infrastructure; critics say it mostly benefits high earners and costs the Treasury tens of billions a year. Congress periodically weighs limits.
▸One Big Beautiful Bill Act (2025) rewrote tax rules enforced by Internal Revenue Service (IRS)Fact, law or data
The connection
The IRS had to turn the law into forms, withholding tables and guidance: new deductions for tips, overtime, car-loan interest and seniors, a higher SALT cap, permanent 100% bonus depreciation and new 'Trump accounts' for children. Many changes applied retroactively to 2025, so the IRS granted transition relief while building them into the 2026 filing season.
When and why
Nationwide from July 2025, first visible on 2025 returns filed in early 2026, while the IRS was operating with far fewer staff.
How we know
IRS notices and forms issued after enactment, such as a new Schedule 1-A for the added deductions; the tax title of Public Law 119-21.
Debates and risks
Whether a smaller IRS can administer the added complexity, and how the temporary deductions affect compliance, are open; the IRS's inspector general and GAO track it.
▸US Department of the Treasury oversees Internal Revenue Service (IRS)Fact, law or data
The connection
The IRS is a bureau of the Treasury. Treasury's Office of Tax Policy writes regulations with the IRS's chief counsel, and the IRS administers them: processing returns, collecting payments and auditing. The commissioner, appointed by the President, reports to the Treasury Secretary, and the money collected flows into Treasury accounts.
When and why
Since the Commissioner of Internal Revenue was created within the Treasury in 1862; in 2025 the IRS cycled through several leaders, and Secretary Scott Bessent served as acting commissioner.
How we know
The Internal Revenue Code (26 U.S.C. 7801–7803) places the IRS under the Secretary; Treasury organization charts and budget documents.
Debates and risks
How independent the IRS should be from political leadership is debated, especially after 2025 disputes over sharing taxpayer data with immigration enforcement.
▸Internal Revenue Service (IRS) collects Capital gains and dividend taxesFact, law or data
The connection
When an asset sells for more than its cost basis, the gain goes on Form 8949 and Schedule D; brokers send the IRS matching 1099-B forms, and 1099-DIV for dividends. Gains on assets held over a year are taxed at 0%, 15% or 20%, plus a 3.8% surtax on high earners; real estate depreciation recapture is taxed up to 25%.
When and why
Nationwide; gains have been taxed since 1913, broker cost-basis reporting phased in from 2011, and crypto broker reporting began with 2025 sales.
How we know
The Internal Revenue Code (Sections 1(h), 1250 and 1411) sets the rates; IRS Statistics of Income data show realized gains by year.
Debates and risks
Whether lower capital gains rates boost investment or mainly benefit the wealthy is debated, as is the 'stepped-up basis' that erases unrealized gains at death.
▸Internal Revenue Service (IRS) pays awards under Whistleblower award programs (SEC, IRS, CFTC)Fact, law or data
The connection
The IRS has paid informants since 1867, but small, discretionary rewards drew few strong tips. A 2006 law created a Whistleblower Office and required awards of 15–30% of collected tax, penalties and interest in cases over $2 million. That made big tips worth the career risk, notably on offshore accounts.
When and why
Tax Relief and Health Care Act of 2006; the office opened in 2007 and paid Bradley Birkenfeld $104 million in 2012.
How we know
Internal Revenue Code Section 7623 and the Whistleblower Office's annual reports to Congress listing awards and collections.
Debates and risks
Claims often take many years to pay, and tipsters say delays discourage reports; how well the office is run is a recurring complaint.
▸Scams on individuals: impostors and elder fraud often impersonate Internal Revenue Service (IRS)Fact, law or data
The connection
Impostors claim to be IRS agents and threaten arrest, deportation or license loss unless a 'tax debt' is paid at once by gift card, wire or crypto. The real IRS first contacts people by mail, allows appeals, and never demands a specific payment method by phone. Fake refund and 'tax relief' offers are variants.
When and why
Nationwide; a surge began in 2013, much of it run from call centers in India. Indian police raided centers near Mumbai in 2016, and US prosecutions followed.
How we know
TIGTA, the IRS's inspector general, has logged millions of impostor reports since 2013 and helped convict US-based money handlers; the IRS lists such scams in its yearly 'Dirty Dozen'.
Debates and risks
Total losses are uncertain because many victims never report; AI voice cloning and spoofed caller ID make impersonation harder to spot.
▸Offshore tax evasion and FATCA/FBAR foreign-account reporting is a long-running crackdown target of Internal Revenue Service (IRS)Fact, law or data
The connection
Since US tax applies to worldwide income, unreported foreign interest and gains are evasion. The IRS uses FATCA reports from foreign banks, FBAR data, whistleblowers and bank cases to find accounts, and ran amnesty programs that traded lower penalties for disclosure.
When and why
Intensified after 2008; Offshore Voluntary Disclosure Program 2009–2018; foreign banks' FATCA reporting since 2014.
How we know
IRS program statistics, over 56,000 disclosures and over $11 billion collected, plus DOJ cases against Swiss banks.
Debates and risks
How much evasion remains is unknown, and the Treasury's own tax inspector general has questioned how well the IRS uses FATCA data.
▸REMIC: the tax-free trust that holds a CMBS loan pool avoids entity-level tax under rules enforced by Internal Revenue Service (IRS)Fact, law or data
The connection
The IRS treats a qualifying REMIC as a pass-through: the trust pays no tax and investors report the income. If the trust breaks the rules, by adding loans late, holding non-qualified assets or modifying loans improperly, it faces a 100% tax on prohibited income or loss of REMIC status.
When and why
Under Internal Revenue Code sections 860A–860G since 1987; IRS guidance such as Rev. Proc. 2009-45 addresses CRE workouts.
How we know
The tax code, Treasury regulations and IRS revenue procedures; every REMIC files Form 1066 annually.
Debates and risks
IRS enforcement against CMBS trusts has been rare, so how strictly it would police aggressive modifications is untested.