Internal Revenue Service (IRS)

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Internal Revenue Service
Irslogo-1-.gif
Founded 1862
Headquarters Washington, D.C.
Products Tax administrator for the United States
Web site http://www.irs.gov/

The IRS is a division of the Department of the Treasury and one of the world's most efficient tax administrators. In 2004, the IRS collected more than $2 trillion in revenue and processed more than 224 million tax returns.[1]

The IRS is responsible for administering and enforcing the Internal Revenue laws and related statutes, except those relating to alcohol, tobacco, firearms, and explosives.[2]

History[edit]

Congress passed a law establishing the Bureau of Internal Revenue on July 1, 1862. It also created the position of commissioner of Internal Revenue and enacted an income tax to pay war expenses. The income tax was repealed 10 years later. Congress revived the income tax in 1894, but the Supreme Court ruled it unconstitutional the following year.

In 1953 the agency was reorganized to replace a patronage system with career, professional employees, and its name was changed to the Internal Revenue Service.

Only the IRS commissioner and chief counsel are selected by the president and confirmed by the Senate.

The IRS began using electronic filing systems in 1991 to reduce paper usage and decrease operating costs of the organization.

The IRS Restructuring and Reform Act of 1998 prompted the most dramatic reorganization and modernization of IRS in nearly half a century. The IRS reorganized itself to closely resemble the private sector model of organizing around customers with similar needs.

The IRS launched the Electronic Installment Agreement in 2002 to give taxpayers the ability to pay their bills online. In 2006, this was renamed the Online Payment Agreement. In 2011, the IRS launched a mobile app. In 2013 the IRS and the Bureau of Fiscal Service launched a web application that allowed taxpayers to pay Federal taxes online.[3][4]

Cryptocurrency[edit]

The IRS treats bitcoin and similar digital assets as property, for taxation purposes. Employees paid in bitcoin or other cryptocurrencies are reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.[5]

On March 25, 2014, the IRS announced that for U.S. taxes, cryptocurrency would be treated like an asset such as property, rather than as a currency, citing its lack of status as legal tender in any governing jurisdiction.[6] The news was mostly met positively, as it meant not only did the IRS officially recognize bitcoin and, by extension, other cryptocurrencies as legal investments, but also that cryptocurrencies would now be able to benefit from the U.S. long-term capital gains rate, as well as other tax benefits.[7] Others rejoiced due to the implication that regulations on cryptocurrencies would increase; some had speculated that the instability of bitcoin and altcoin prices were due, in part at least, to a lack of regulation.[8]

In October 2019, the IRS published a new document to provide guidance on how to pay taxes on cryptocurrency. It addressed a number of long-standing questions, providing clarification.[9] The IRS sent three versions of the letter: Letter 6173, which informed the taxpayer that the information they filed may not have fulfilled reporting requirements for virtual currency, and that they needed to either file delinquent returns, amend previously submitted returns, or providing a statement explaining why they believed they were compliant; Letter 6174, which said that the IRS had information that the taxpayer has or had one or more accounts containing virtual currency, and that a direct response was required; and finally, Letter 6174-A, which warned that the IRS could pursue further enforcement action in the future.[10]

For example, many owners of digital currencies created by hard forks on existing blockchains had long questioned how to pay taxes on them. The document said that if you are the owner of a digital asset created by a hard fork, that new digital asset's value is to be considered "an ordinary income equal to the fair market value of the new cryptocurrency when it is received." Another point of clarification was how to calculate the "cost basis" of a digital asset. According to the document, "cost basis should be calculated by summing up all the money spent to acquire the crypto, including fees, commissions and other acquisition costs in U.S. dollars.”[11]

Letters to cryptocurrency traders[edit]

In July 2019, the IRS sent out letters to more than 10,000 U.S. residents who had either traded digital currency and did not properly report their digital currency earnings on their taxes, or traded digital currencies and did not report them at all. The letters contained "educational" information, including notices of liability for fines or criminal charges for those who fail to report earnings from digital assets on their taxes.[12]

In August 2020, the IRS sent more, similar letters to suspected cryptocurrency traders.[13]

Criticisms[edit]

Although the guidelines provided clarification on some issues, some criticized the document. Jerry Brito, executive director at Coin Center, made a blog post saying that "third parties can now create tax reporting obligations for you by simply forking a network whose coins you own, or foisting on you an unwanted airdrop.”[14] The new guidelines did not spell out that there would be any exemption for transactions made under a certain threshold, saying that "a payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property."[15] This means that small transactions should still be treated as a capital gain or loss for tax purposes. This means that everyday transactions made with digital assets, like buying a cup of coffee, must be tracked and reported, which some interpreted as discouragement from adopting digital assets as an alternative form of currency for everyday purchases.[16][17]

Key People[edit]

To support its structure and ensure accountability, the IRS is divided into three commissioner-level organizations:[18]

Commissioner: Specialized IRS units report directly to the Commissioner’s office. The IRS Chief Counsel also reports to the Treasury General Counsel on certain matters.

  • Commissioner, Internal Revenue, Charles P. Rettig
  • Chief of Staff, Lia Colbert
  • IRS Chief Counsel, Michael J. Desmond
  • Appeals, Donna Hansberry, Chief
  • Taxpayer Advocate Service, Bridget Roberts (National Taxpayer Advocate) (Acting)
  • Communications and Liaison, Terry Lemons (Chief)


Deputy Commissioner for Services and Enforcement: The Deputy Commissioner reports directly to the Commissioner and oversees the four primary operating divisions and other service and enforcement functions:

  • Deputy Commissioner for Services and Enforcement, Sunita Lough
  • Wage and Investment Division, Ken Corbin (Commissioner)
  • Large and Mid-Size Business Division, Douglas O'Donnell (Commissioner)
  • Small Business/Self Employed Division, Eric Hylton (Commissioner)
  • Tax Exempt and Government Entities Division, Tamera Ripperda (Commissioner)
  • Criminal Investigation, Don Fort (Chief)
  • Return Preparer Office, Carol Campbell, Director
  • Office of Professional Responsibility, Elizabeth Kastenberg (Acting Director)
  • Whistleblower Office, Lee Martin (Director)

Deputy Commissioner for Operations Support: The Deputy Commissioner reports directly to the Commissioner and oversees the integrated IRS support functions, facilitating economy of scale efficiencies and better business practices:

  • Deputy Commissioner for Operations Support, Jeff Tribiano
  • Chief Information Officer, Nancy Sieger
  • Chief Facilities Management and Security Service, Richard Rodriguez
  • Chief Research and Analytics Officer, Barry Johnson (Acting)
  • Equity, Diversity and Inclusion, Elita Christiansen, Executive Director
  • Chief Human Capital Officer, Robin D. Bailey, Jr.
  • Chief Financial Office, Ursula Gillis
  • Chief Privacy Officer, Edward Killen
  • Chief Procurement Officer, Shanna Webbers
  • Chief Risk Officer, Thomas Brandt

News[edit]

  • In early 2009, the Treasury inspector general for tax administration said an IRS effort to flush out wealthy investors in abusive tax shelters had fallen short. Specifically, the report involved what was known as "Son of Boss," one of the most sophisticated and widely used abusive tax shelters of the late 1990s through recent years.[19]


References[edit]

  1. The Agency, its Mission and Statutory Authority. Internal Revenue Service.
  2. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). AllGov.com.
  3. IRS History Timeline. Internal Revenue Service.
  4. The History of the Federal Income Tax. Borowatch.com.
  5. IRS Virtual Currency Guidance: Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply. IRS.
  6. IRS Virtual Currency Guidance : Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply. United States Internal Revenue Service.
  7. 3 Reasons The IRS Bitcoin Ruling Is Good For Bitcoin. United States Internal Revenue Service.
  8. Is Bitcoin the Only Cryptocurrency in the Town? Economics of Cryptocurrency And Friedrich A. Hayek. Institute of Economic Research Kunitachi, Tokyo, Japan.
  9. Notice 2014-21. IRS.
  10. New IRS Tax Guidance Targets Crypto, and US Persons Who Use It. Cointelegraph.
  11. The IRS Just Issued Its First Cryptocurrency Tax Guidance in 5 Years. Coindesk.
  12. Virtual currency: IRS issues additional guidance on tax treatment and reminds taxpayers of reporting obligations. Internal Revenue Service.
  13. The IRS has sent another round of letters warning U.S. crypto holders about their taxes. The Block.
  14. IRS Cryptocurrency guidance answers some questions while raising messy new ones. Coin Center.
  15. Notice 2014-21. IRS.
  16. The IRS Just Issued Its First Cryptocurrency Tax Guidance in 5 Years. Coindesk.
  17. IRS’s New Cryptocurrency Rules Create ‘Messy’ Problems for Industry. Fortune.
  18. Today's IRS Organization. IRS.gov.
  19. Treasury Faults I.R.S. in Handling Tax Evaders. New York Times.

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