How Did The Internal Revenue Service (IRS) Begin?

July 17, 2018

 

 

 

The first tax levied in the United States was from the Stamp Act in 1765. The Act was passed by the Parliament of Great Britain. Basically any piece of paper was tax such as documents, ship’s papers, licenses, newspapers, publications and even playing cards were taxed.  Great Britain enacted the tax to help with the costs of their maintaining a military presence protecting the American Colonies.

 

Great Britain continued to levy more taxes. Common products imported into the American Colonies such as paper, paint, glass, lead and tea were taxed. Then taxes on non-imported items (sugar, cloth and coffee) were levied.  Americans began to rebel against the rising taxes leading to the Boston Tea Party in December 1773 and eventually to the forming of the United States.  

 

Our new government’s expenses were covered by consumption-based taxes of property taxes, tariffs and duties on goods purchased abroad. New “tariffs” were added by Congress in 1789, 1790 and 1792 and continued up to the Civil War. 

 

Taxing our income began in 1862 by President Abraham Lincoln and Congress. The “temporary” tax on income was to pay for the Civil War expenses. The Office of Commissioner of Internal Revenue was established. The Commissioner was given power to assess, levy and collect taxes and the power to enforce tax laws through seizure of property and income through prosecution. Those same powers are held today.

 

During the Civil War, citizens were taxed 3% on incomes over $800. The law was modified later to taxing 3% on incomes between $600 and $10,000 and 5% on higher incomes. In 1872, lawmakers allowed the income tax to expire. More than 60 bills were introduced by Congress to restore the income tax between 1871 and 1894. None passed.

 

In 1894 the Wilson-Gorman Tariff Act mandating a 2% flat tax on all incomes over $4,000 was passed in the House, but gutted in the Senate. A weaker tariff law was passed and a fight over indirect and direct taxes plagued the U.S. for another 9 years.

 

The 16th Amendment in 1913 gave Congress the power to lay and collect taxes on incomes from whatever sources it was derived from. Taxes of 1% were placed on citizens making more than $3,000 and 6% on incomes more than $500,000.  The Form 1040 was also introduced.  That first year citizens were required to fill out the Form 1040 although no taxes were collected. After that first year, when taxes were collected there became a need for ‘professional collectors’ rather than just patronage appointments.  Approximately 10% of Union households had paid some form of income tax.

 

During World War II, Congress introduced payroll withholding and quarterly tax payments. In the 1950s the agency was reorganized with all professional employees. The Bureau of Internal Revenue name was changed to the Internal Revenue Service (IRS).

 

In fiscal 2015, the IRS processed almost 240 million returns and collected $3.3 trillion. We’ve come a long way towards the extremely complicated tax system we have today.

 

If you are experiencing issues with the IRS, contact our Denver tax law firm now. All of our experienced tax attorneys have their Master's degrees in taxation law. For more information, call 303-618-2122 or visit www.gantenbeinlaw.com.

   

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