What It Is:

The IRS is a bureau of the Department of Treasury that is tasked with the enforcement of income tax laws and oversees the collection of federal income taxes. In addition, it is also the responsibility of the IRS to determine pension-plan qualification.

How It Works/Example:

In 1862, President Lincoln and the U.S. Congress created the position of Commissioner of Internal Revenue and enacted the first income tax, which was later repealed. In 1913, the ratification of the sixteenth amendment granted Congress the authority to levy personal income-taxes, and the first 1040 form appeared later that same year, which imposed a 1% tax on personal incomes above $3,000.
 
The 1998 IRS Restructuring and Reform Act reorganized the IRS into four major divisions:

• The Wage and Investment Division, for filers of individual and joint tax returns

• The Small Business/Self-Employed Division

• The Large and Mid-Size Business Division, for corporations with more than $10 million in assets

• The Tax-Exempt and Government Entities Division, for employee benefit plans, charities, and governmental entities

Other divisions include Appeals, Communications and Liaison, and Criminal Investigation. The Office of Chief Counsel provides legal services to the IRS.
 
The IRS commissioner is appointed by the President with the advice and consent of the Senate. Prior to the IRS Restructuring and Reform Act of 1998, which limited a commissioner's tenure to five years, IRS commissioners served at the President's discretion.

Why It Matters:

The IRS is charged with obtaining the United States government's major source of funding. The IRS, through the U.S. Treasury, helps execute and enforce many of the crucial economic, financial, and tax policies that influence the economy.
 
For more information on the Internal Revenue Service go to http://www.irs.gov.