The Department of the Treasury is responsible for administering and enforcing the internal revenue laws of the United States. The Secretary of the Treasury has delegated most revenue functions and authority to the Commissioner of Internal Revenue, the CHIEF EXECUTIVE OFFICER of the Internal Revenue Service (IRS). The president of the United States appoints the commissioner to a renewable five-year term. The commissioner is responsible for overall planning, directing, and coordinating of IRS programs, as well as policy control. The IRS is one of about a dozen bureaus within the Department of the Treasury, and with more than 100,000 employees, it is the secondlargest federal government agency (after the Department of Defense). The history of the IRS dates from President Abraham Lincoln and the Civil War. Congress created the office of Commissioner of Internal Revenue in 1862 and passed an income tax to pay expenses associated with the war: a 3- percent tax on INCOMEs between $600 and $10,000 and 5 percent on incomes exceeding $10,000. This income tax was repealed 10 years later. The Wilson Tariff Act of 1894 revived the income tax, but the Supreme Court ruled it unconstitutional the next year. Early in the 20th century, Congress sought ratification of an amendment to allow the collection of a tax on income. Wyoming became the last state needed to ratify the amendment in 1913, and that year saw the introduction of a 1 percent tax on personal income greater than $3,000 and an additional surtax of 6 percent on incomes of more than $500,000. Later, the Revenue Act of 1918, in efforts to finance World War I, produced a top income-tax rate of 77 percent. A reorganization of the IRS in 1952 replaced the patronage system—in which politicians had control of who was hired to do the agency’s work—with independently hired professional career employees. A year later President Dwight D. Eisenhower changed the agency’s name from the Bureau of Internal Revenue to the Internal Revenue Service. The next major change for the system came in 1992, when taxpayers were allowed to file income tax returns electronically. Responding to a public outcry concerning a growing insensitivity on the part of the IRS and its possible abuse of power, Congress passed the Internal Revenue Service Restructuring and Reform Act in 1998, intended to protect taxpayer’s rights. The act reorganized the IRS from a geographically based structure into four major operating divisions aligned according to types of taxpayers: the Wage and Investment Income Division, serving taxpayers who file individual and joint tax returns; the Small Business and Self-Employed Division, serving the approximately 45 million small businesses and self-employed taxpayers; the Large and Mid-Size Business Division, serving CORPORATIONs with ASSETS of more than $10 million; and the Tax Exempt and Government Entities Division, serving nonprofit charities and governmental entities. The 1998 act also set up a Taxpayer Advocate Service as an independent agency within the Internal Revenue Service to help resolve taxpayer problems. In 1998 Congress also instituted a nine-member IRS Oversight Board, consisting of the secretary of the Treasury, the IRS commissioner, a representative of IRS employees, and six private-sector representatives; the president of the United States appoints all board members to five-year terms. The Oversight Board’s duties are to review the IRS mission, strategic plans, operational functions, and processes; to review and approve the IRS budget; to recommend candidates for commissioner; and to ensure the proper treatment of taxpayers. The IRS is an important component in the development of tax law. The IRS annually produces thousands of releases that explain and clarify tax law, including regulations, revenue rulings, letter rulings, revenue procedures, and technical advice memoranda. IRS publications, many of which are updated annually, are interpretations written in general terms using understandable language to provide guidance to the public. Although they do not bind the IRS and are not considered substantial authority, these publications can be very helpful for a taxpayer endeavoring to determine the best way to report a given transaction. The IRS has the power to impose interest and penalties on taxpayers for noncompliance with tax law. Provisions such as the penalty for failure to pay a tax or file a return that is due, the NEGLIGENCE penalty for intentional disregard of rules and regulations (“substantial authority”), and various penalties for civil and criminal FRAUD serve as deterrents to taxpayer noncompliance. Another deterrent to taxpayer noncompliance is the IRS audit process, which can take the form of correspondence audits, office audits, or field audits. While field examinations are common for business returns and complex individual returns, most returns are audited in an office audit. An audit notice indicating which items the IRS will examine and what information the taxpayer should bring are sent in advance. The IRS employee and the taxpayer and/or taxpayer’s representative then meet at a nearby IRS office. The IRS also has a computerized matching program through which the tax information filed on taxpayers’ individual returns is compared with the information filed by payers or employers. Wages, interest, alimony, pensions, UNEMPLOYMENT compensation, SOCIAL SECURITY benefits, and other items of income are reported to the IRS by the payers. In addition, payees report deducted items, including state income taxes, local real-estate taxes, home MORTGAGE interest, etc. However, taxpayers who report only these items generally face a 100 percent audit rate.