Department of Treasury Internal Revenue Service

Making sense of IRS taxes

Taxes are perhaps the most important source of revenue for the government. It is a way through which it gets its people to pay back a lump sum amount of money, so the state and the government can grow as a nation. Taxes are said to help the state in three ways, which are as follows:

  • Economic growth
  • Savings
  • Investment
internal revenue service

Watch out Big Brother is watching you

How does a simple thing such as taxes provide the government with the capability of these three things? Firstly the money that is collected from the people can be used to stimulate the economy by using it as capital. Furthermore, the same money can be invested in some place which can lead to bringing in greater returns. Lastly, this money can be saved to put it into a future project that will lead to economic growth again. To achieve this government collects substantial amount of taxes from different people and there are numerous types of federal tax that is enforced. Mostly people criticize such taxes and call them as a burden upon the poor people, however, the law states that this is mandatory as without taxes the regulation of money and monetary resources will be impossible, and where will the government get the money from to provide its people with all the facilities and services that they need.

What is the IRS?

The regulatory agency that is responsible for tax collection and tax preparation is known as the Internal Revenue Service or IRS for short. This is an agency formed by the United States Government and comes under the department of Treasury. Apart from collection of taxes, this agency is also responsible for determining whether the tax law and code for internal revenue is being implemented correctly or not. The IRS was formed way back in the year 1862 and has been operational since then. Its head these days is Douglas Shulman and the agency employs over 106,000 employees that are responsible for collecting tax from the common man, in a legal manner.

Administrative Functions of the IRS

internal revenue service cash

IRS controls the cash

The Internal Revenue Service has certain responsibilities and functions that it has to perform in a true and rightful manner, so what are these functions and duties? Firstly the agency is responsible for calculating taxes that need to be paid by the individuals. Secondly they need to publish and provide forms to the individuals and corporations. There are separate forms that are made available for individuals and corporations, hence you should be careful while choosing a form for tax preparation that the form is for you. The third function of this agency, IRS is to file its own internal report regarding its operations and the amount of federal tax returns it was about to gather in a matter of a year. The last and the foremost important duty of this agency is to look for people who are indulged in tax evasion and tax fraud. These activities are illegal and such people are involved in showing false balance sheets to show fewer taxes that they actually have to pay. Others just try to avoid paying taxes at all by not filing any income or investments that they have made in the previous year. The objective and duty of this agency is to look for such people and stop them from committing any more tax fraud.
So how does the IRS cater to the problem of tax evasion and how does it deal with individuals who have committed this offense? One has to also see that the government never charges mind boggling and flabbergasting amount of taxes from its people. The government has excluded many goods, commodities and items for tax which are known as federal tax deductions, in order to reduce the amount of tax that a person has to pay. And so the government expects that individual to pay the entire amount in a timely and lawful manner. Not abiding by those rules can have serious consequences and a person may be heavily fined or even sent to jail. So how does a person commit this crime? There are certain things that come under the heading of committing tax fraud, which include:

  • Not reporting the correct amount of income that an individual has earned over time.
  • Writing down unjustifiable personal expenses even in business transactions, hence overemphasizing the deductions.
  • Overstating the amount donated to charity or falsely writing off money and including it in donations to escape taxes.
  • Filing a wrong amount in the federal tax return form
  • Writing an inaccurate amount of property that has been donated to charity to escape from property tax.

If a person is caught committing such fraud by the agency, there are two accusations he or she can be charged with, which include:

  • The offender owed a larger amount than what has been mentioned in the form.
  • The offender, by his or her sole intention tried to escape from paying taxes completely.
tax refund

IRS tax refund

After an individual is accused of such charges, he or she has ample time to prove if not guilty. However, the law takes the matter in own hands. When calculating the taxes of a large corporation, an inspector by the IRS is usually appointed who is responsible for auditing the entire statements and if there is fraud suspected, then he or she may fine the organization themselves or may refer the matter to CID (criminal investigation division). This particular department works very secretly to look for fraudulent tax payers, if they think a certain organization or person is one. The department may not reveal the ongoing investigation until the tax payer submits the form and carries out its own investigation at the back. No one can sue this organization for violation of privacy, as it is the government’s matter whether a person is properly paying his taxes or not, hence this particular organization has a vast amount of powers. So what are the punishments for such a crime is a certain person has been determined as being guilty?

Punishments of Tax Fraud

The punishments of tax fraud depend on the type of tax fraud that has been committed. The following are the punishments for various types of frauds:

  • Tax Evasion – this crime is considered to be a serious offense whose punishment can either be a five year imprisonment or fines up to $100,000.
  • Filing faulty tax returns – the punishment is around a three year imprisonment and $100,000 in fine.
  • Not filling in a tax preparation form at all – this leads to a year of imprisonment with a fine of around $25,000.