A Guide to IRS Practice and Procedure
For most people, taxes can be a stressful, confusing and unpleasant subject to discuss. This makes the Internal Revenue Service (IRS) one of the more unpopular and mystifying government agencies in the U.S. However, taking the time to understand the intricate inner-workings of the IRS can help demystify an extremely important government agency and offer insight into where and how tax dollars are handled.
The LeaderImage via Flickr by LendingMemo Anyone interested in pursuing a career in taxation might look up to the IRS. It employed approximately 90,820 people annually as of the last official count in 2012, according to US News. It starts at the top with the two President-appointment positions, the Commissioner of Internal Revenue and Chief Counsel. The appointment, of course, has to be approved by the U.S. Senate. The Senate can also offer advice to the President on who he appoints to the positions. The Commissioner serves a five-year term that is renewable, and the Chief Counsel provides legal advice to the agency. The agency processes approximately 240 million tax returns on an annual basis and collects close to $3 trillion in taxes (the total can vary from year-to-year).
The BoardThe IRS Oversight Board is made up of nine members, and their job is to ensure that the IRS is treating taxpayers fairly. The board reviews and approves policies and procedures for compliance. In essence, the board “audits” the auditors. The board is also responsible for reviewing and approving the agency’s budget requests. However, the board is currently dormant as six of the nine member seats are open awaiting official nominations from the President.
The DivisionsThe four primary divisions of the IRS handle to processing of tax filings. The divisions include:
- Wage and Investment
- Small Business/Self-Employed
- Large Business and International
- Tax-Exempt and Government Entities
The ProcessWhen individuals and businesses submit their tax forms to the appropriate division of the IRS, the forms are reviewed and processed. Returns are selected for audit through various methods, including, but not limited to, the following:
- Random Selection/Computer Screening
- Document Matching – This happens when certain records or pay claims don’t match the information provided on tax forms.
- Related Examinations – This happens when certain returns are selected because they are involved with issues or transactions with other taxpayers, like a business, whose returns were selected for audit.
CollectionFor those that owe taxes but do not pay them, the agency first sends them a bill and a notice, known as Publication 1 and Publication 594. These publications explain the options and rights taxpayers have. For those unable to pay their taxes, the IRS has a variety of payment solutions available, including:
- Granting an Extension – The IRS can grant an extension for up to 120 days, though interest will still be due.
- Creating an Installment Agreement – The IRS works with you to create a plan to pay your taxes in monthly installments.
- Delaying Collection – The IRS may choose to delay collection until your financial condition improves.
- Offering in Compromise – You may be able to settle the amount you owe for an amount less than what is owed; however the criteria for this option is strict.
The articles, materials and information (referred to as “Content”) provided via this site are for personal, non-commercial, informational purposes only. None of the Content constitutes, or is intended to serve as, legal, financial or tax advice. The Content does not convey the official position or endorsement of Villanova University. The Content is provided “as is” and without any warranties, representations or guarantees, and any implied warranties, representations or guarantees are hereby expressly disclaimed. Any tax analysis or observations included in the Content may not contain a full description of all relevant facts or a complete analysis of all relevant tax issues or authorities. In addition, any tax analysis or observations contained in the Content is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending any transaction or matter addressed herein. Individuals should consult their legal, financial, tax advisors for a full analysis and advice related to their specific facts.