What Is the IRS? The Internal Revenue Service Explained
The IRS collects roughly $4.7 trillion in federal revenue each year, processes 240 million tax returns, and issues $400 billion in refunds. It also became idth:640px;margin:0 0 8px;"> The IRS collects roughly $4.7 trillion in federal revenue each year, processes 240 million tax returns, and issues $400 billion in refunds. It also became a DOGE target in 2025, with 6,000 employees cut. Here is what the agency does, how it works, and what the cuts mean for taxpayers.
- The IRS collects $4.7 trillion in federal revenue annually and processes 240 million tax returns — it is the financial engine that funds the entire federal government
- DOGE cut roughly 6,000 IRS employees in 2025, concentrated in enforcement — reversing the Inflation Reduction Act's $80B expansion; the result is fewer audits, slower refunds, and reduced revenue collection
- Every $1 of IRS enforcement spending returns approximately $5-9 in additional revenue (CBO estimate) — cutting the IRS saves less than it loses
- Less than 1% of individual returns are audited; audit rates for high-income and corporate filers have dropped sharply with reduced enforcement capacity
What the IRS Actually Does
The Internal Revenue Service was established in 1862 during the Civil War to collect income taxes introduced to fund the war effort. Today it is the federal government’s primary tax collection and enforcement agency, operating under the Department of the Treasury.
Its four core functions are:
The IRS processes approximately 240 million tax returns per year — individual, business, payroll, estate, and gift tax returns. It verifies the mathematics, cross-checks income reported against W-2s and 1099s submitted by employers and financial institutions, and issues refunds. In 2024, the IRS issued approximately 130 million refunds totaling over $400 billion. Processing speed is directly affected by staffing levels: the DOGE-era workforce reduction slowed processing in the 2025 tax season.
The IRS audits less than 1% of individual returns but pursues high-value cases involving wealthy individuals, corporations, offshore accounts, and complex business structures. The “tax gap” — the difference between taxes owed and taxes actually paid — is estimated at approximately $600 billion annually. Enforcement spending is among the highest-return government investments: the CBO estimates $5-9 in additional revenue for every $1 spent on enforcement. This is why the IRA’s $80 billion in IRS funding was projected to reduce the deficit even while expanding spending.
The IRS operates phone lines, walk-in centers, an online portal (IRS.gov), and the Free File program (allowing free federal filing for taxpayers below certain income thresholds). It issues guidance on tax law interpretations, rulings, and regulations. Taxpayer services staffing has been consistently criticized for inadequacy: phone wait times have exceeded 90 minutes at peak season in recent years, and walk-in center availability has declined significantly over the past decade. DOGE cuts further reduced these service levels.
The IRS administers major tax credit programs including the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and Affordable Care Act premium tax credits. The EITC alone distributes approximately $67 billion per year to roughly 25 million households, functioning as one of the federal government’s most significant anti-poverty programs. The IRS is therefore not only a tax collection agency but a major benefit distribution system for lower-income Americans.
DOGE Cuts: What Was Cut and What It Means
In early 2025, DOGE-influenced workforce reductions at the IRS resulted in approximately 6,000 employees being fired or offered deferred resignation. These cuts came primarily from the enforcement division — the revenue agents who conduct audits and pursue high-income and corporate tax cases. This was not simply a bureaucratic efficiency measure; it reversed the Inflation Reduction Act’s specific investment in IRS enforcement capacity.
The IRA had directed $80 billion to the IRS over ten years, explicitly to rebuild enforcement capacity that had been hollowed out by a decade of Republican-led budget cuts. The stated goal was to reduce the $600 billion annual tax gap by auditing more high-income and corporate filers who had effectively avoided scrutiny due to reduced enforcement resources. The CBO estimated this would generate $200+ billion in additional revenue over a decade.
| Impact Area | Pre-Cut Situation | Post-Cut Situation |
|---|---|---|
| Refund processing speed | IRS targeting 21-day average for e-filed returns | Slower processing; delays of 6-8+ weeks reported in 2025 filing season |
| High-income audit rates | IRA expansion: more audits of $400K+ earners planned | Audit rates reduced as enforcement agents fired; tax gap risk increases |
| Phone service wait times | Already strained; 90+ min waits common | Further degraded; fewer customer service reps available |
| Criminal investigation | IRS Criminal Investigation unit largely intact | Some reduction; complex fraud cases may take longer |
| EITC/CTC administration | Functioning but understaffed | Further reduced capacity for error correction and fraud detection |
How IRS Audits Work
Correspondence Audit
The most common type, conducted entirely by mail. The IRS sends a letter identifying a specific item it wants to verify — a deduction, income item, or credit. The taxpayer responds with documentation. These are typically limited in scope and can often be resolved without professional help. They represent roughly 75% of all audits.
Office Audit
Conducted in-person at a local IRS office. Broader than a correspondence audit; covers multiple issues. The IRS agent reviews documentation, asks questions, and may expand the scope if additional issues emerge. Professional representation (CPA, tax attorney, enrolled agent) is strongly recommended.
Field Audit
The most comprehensive type; conducted at the taxpayer’s home or business. Used for complex returns involving businesses, real estate, large estates, and high-income individuals. IRS revenue agents spend significant time reviewing books, records, and business operations. These audits can last months or years. Professional representation is essential.
Related Analysis
What Is DOGE?
The Department of Government Efficiency explained: legal status, what it has done, court challenges.
Who Runs the Government?
Cabinet, federal agencies, civil service, and the DOGE personnel state.
DOGE Federal Spending Cuts
The full scope of DOGE-driven federal spending and workforce reductions.
