Who Collects Taxes?

Mrs. Garcia called on a Tuesday morning. She was upset. Her husband had gotten a letter — an official-looking envelope with “Internal Revenue Service” printed on the front. She was convinced they were being audited. Maybe arrested.

Ralph told her to bring the letter in. She was there in an hour.

It was a CP2000. A notice saying the IRS had found some income on their records that didn’t match the return. Not an audit. Not a criminal matter. A question — with a deadline to respond.

“This is totally fixable,” Ralph told her. “Let’s read it carefully.”

That moment happens in tax offices constantly. A client gets a letter, panics, and needs someone who knows what it means. To be that person, you need to understand who’s collecting taxes and how the system actually works.

Taxes get collected at three levels in the United States: federal, state, and local. Each one has its own agency, its own rules, and its own forms. Most of your work as a preparer focuses on the federal level — but you need to understand all three so you can answer questions when they come up.

The Internal Revenue Service is the federal agency that collects income taxes and enforces federal tax law. When your client files a Form 1040, it goes to the IRS. When a refund shows up in someone’s bank account, it came from the IRS. When someone gets audited, the IRS is doing the auditing.

The IRS is not out to get people. For clients with straightforward returns — a W-2, maybe a 1099, standard deduction — the IRS is basically invisible. File accurately, get your refund or pay your balance, move on. The IRS only becomes a problem when something is wrong, something is missing, or something unusual happens.

Here’s something beginners don’t always realize: the IRS already has a lot of information before your client even files. Employers file W-2s directly with the IRS. Banks file 1099s. Uber files 1099-Ks. By the time your client sits down with you, the IRS has a version of their financial picture from all these third-party reports. If what you file doesn’t match what the IRS already has — that’s what triggers a notice.

Most states have a state revenue department that collects state income tax. Florida does not. There is no Florida state income tax return. Your clients who live and work entirely in Florida only file a federal return.

This is great news that new Florida residents often can’t believe. But Florida does collect other taxes — sales tax, property taxes, corporate taxes, documentary stamp taxes. Business owners like Rosa have to think about some of these. Individual clients mostly don’t.

The exception: clients who earned income in another state. That state may require them to file a return. Someone who worked remotely for a North Carolina company, or sold a property in Georgia, or lived in Ohio until July — these situations create multi-state obligations that go beyond a simple federal return.

Local governments collect property taxes, business licenses, and some other local fees. For most individual W-2 clients, local taxes don’t show up on a tax return at all. For small business owners, local business taxes and licenses are real costs. And property taxes matter when a client owns a home or rental property — they can sometimes be deducted.