Internal Revenue Service, United States

Internal Revenue Service, United States

Among the most visible arms of the U.S. federal government is the Internal Revenue Service (IRS). As most Americans know, the IRS is an office in the Treasury Department responsible for collecting all individual and corporate taxes. Although dealings with the IRS are sometimes dreaded by taxpayers, it is nevertheless a necessary component of operating the world's only superpower, and the money it collects—more than $2 billion in 2001—serves to fund operations ranging from the war on terrorism to research into the development of non-petroleum-burning engines. Among the most important components of the IRS is its Criminal Investigation (CI) division, which tracks down tax evaders and helps the federal government in its war on drug trafficking, money laundering, and terrorism.


The history of American taxation is inexorably tied with the history of American military activity. For the better part of a century, the federal government funded its operations through customs tariffs, but in 1862, President Abraham Lincoln created the Office of Internal Revenue to pay expenses associated with the Civil War. A decade later, the income tax was repealed, but it reappeared a half-century later in the beginnings of its modern form, with the ratification of the Sixteenth Amendment to the Constitution in 1913.

The amendment gave Congress the power to levy an income tax, which was collected by the Bureau of Internal Revenue (BIR). The latter had been created in 1877 to collect the few types of taxes that existed at the time, and as America entered World War I, its level of activity increased dramatically. In 1918, the top income tax rate reached a staggering 77 percent, but dropped again to 24 percent in 1929, only to rise again during the Great Depression. The coming of the Second World War brought with it the system of payroll withholding still in place today.

Formation and Operations. In 1952, the BIR became the IRS. Up to that time, the agency was staffed by appointees associated with the current presidential administration. Thenceforth, only the IRS commissioner and chief counsel were selected by the President and confirmed by the Senate, with the rest of the IRS run by professionals. Half a century later, the IRS went through a massive program of reform spurred by taxpayer dissatisfaction with the agency, which gained a voice in Washington after Republicans won a majority in Congress in 1994. The result was the IRS Restructuring and Reform Act of 1998, which created provisions to protect taxpayers' rights.

By 2003, the IRS had some 100,000 employees and a budget of $9.9 billion. It consisted of four major operating divisions: wage and investment, which dealt with 116 million taxpayers who filed individual and joint tax returns; small business and self-employment, which involved some 45 million small businesses and self-employed taxpayers; large and mid-sized business, concerned with corporations possessing assets of more than $10 million; and tax exempt and government entities, which also served employee benefit plans. Other areas included the appeals, chief counsel, communications and liaison, and criminal investigation divisions.

Criminal investigation. The roots of CI go back to the BIR's Intelligence Unit, created in 1919 and staffed by six U.S. Post Office inspectors. In the 1930s, the unit succeeded in securing the conviction of gangster Al Capone, and assisted in solving the kidnapping of the Lindbergh baby. In July 1978, it assumed its present name. Over the course of its history, CI has had a conviction rate of 90 percent or better, a record unmatched among federal law enforcement agencies.

Staffed by some 2,900 special agents, CI enforces tax and money laundering laws, as well as the Bank Secrecy Act. Its agents are trained in accounting and forensic computer technology, necessary for recovering financial data that may have been encrypted or otherwise hidden by electronic means. In addition to its investigative work, CI serves as an information clearinghouse regarding taxpayer obligations, as well as tax scams. For example, an IRS advisory released in January 2002, warned of slavery reparation scams whereby unscrupulous companies charge African Americans fees to learn how they can receive tax exemption for their ancestors' enslavement. (There is no such exemption.)

The top investigative priorities of CI are legal tax crimes (that is, evasion of taxes on legal income), illegal source financial crimes, and narcotics-related financial crimes. IRS efforts against terrorists fall under the last of these categories, and include operations alongside other federal agencies in a number of multiagency programs such as the Joint Terrorism Task Force and Operation Green Quest. The Strategic Information Operations Center at Federal Bureau of Investigation headquarters in Washington, D.C., coordinates all these efforts.



Burnham, David. A Law unto Itself: Power, Politics, and the IRS. New York: Random House, 1989.

Davis, Shelley L. Unbridled Power: Inside the Secret Culture of the IRS. New York: Harper Business, 1997.


Leader, Stefan. "Cash for Carnage: Funding the Modern Terrorist." Jane's Intelligence Review. (May 1, 1998): 36.

"Victory in the War on Terrorism Will Not Be Won on the Defensive." New York Times. (September 10, 2002): A19.


Internal Revenue Service. < > (April 4, 2003).


ATF (United States Bureau of Alcohol, Tobacco, and Firearms)
Treasury Department, United States

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