The Internal Revenue Service, or IRS, has been in existence for the better part of 162 years. It was established on 1 July 1862 and served as the revenue service for the federal government of the United States.
The purpose behind the IRS is to collect US federal taxes as well as to administer the Internal Revenue Code. The Internal Revenue Code is the main body of the federal statutory tax law.
This agency forms part of the Department of the Treasury and is run by the Commissioner of Internal Revenue.
A brief review of the tax system
Every Commissioner is appointed by the President of the United States and serves for 5 years.
The IRS has certain tasks that it fulfills, some of them being to provide relevant tax assistance to taxpayers and oversee various benefits programs such as the Affordable Care Act. Furthermore, an important function of the IRS is to resolve and pursue situations of fraudulent or erroneous tax filings.
The IRS has been responsible for collecting revenue that is required to fund the United States federal government, while the rest is being funded by either the Federal Reserve or the US Customs and Border Protection.
For all that it does, the IRS is no stranger to controversy. In more recent scenarios, the agency has also been rocked by serious budget cuts and an understaffed workforce.
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Non-compliance with the IRS
Tax season was set down for January to April this year, with 15 April 2025 being tax day. This is the date by which all income tax returns need to be filed and any taxes due paid. Upon receipt, tax returns are checked to verify the mathematical accuracy. After this, the individual will be provided with a bill indicating taxes owed, interest, or penalties due.
According to Topic no 653 on the IRS official website, interest arises from unpaid taxes, calculated from the date that the return is due until the date of full payment. Every quarter, the interest rate is set. It is the federal short-term rate plus 3%. The interest is compounded daily.
Late payment penalty options become applicable where the return was filed, but not all the taxes were paid on due date.
Evaluating the penalty system
A failure-to-pay penalty is calculated based on one-half the one percent for each specific month or part of a specific month for up to no more than 25% of the total amount of tax that remains unpaid.
Again, this is calculated from the return’s due date up until full payment is made. If 10 days expire after the IRS Notice of intent to levy property was issued, and no payment has been made, the rate will increase to 1%.
A failure-to-file penalty is imposed when taxes are owed and returns are not filed on time. This is calculated at 5% of taxes owed per month or part of a month that the return is filed late, up to the value of 25%. Example – a return that is outstanding longer than 60 days. There will be a minimum penalty that applies to the late filing. This is the lesser of $510 for tax returns filed in 2025, or 100% of the taxes that are owed.
The best way to avoid any of this is to file tax returns as per the IRS due dates and to pay taxes on time. This will prevent any penalties and interest from being charged. In certain instances, it may be better to borrow funds at a lower effective rate to pay off taxes.
This may still work out better than the combined penalty and interest rate of the IRS. There are electronic payment methods available, or the individual can still choose to do a payment by mail.
