Introduction:
The Internal Revenue Service, or the IRS, is a federal agency responsible for collecting and enforcing tax laws in the United States. It was established in 1862, and over the years, it has undergone various transformations and changes in its structure and scope of responsibilities. This article takes a closer look at the history of the IRS, its origins, key milestones, and its present-day operations.
Origins of the IRS:
The origins of the IRS can be traced back to the Civil War era, when the government levied taxes on citizens to fund the war effort. In 1862, President Lincoln signed into law the Revenue Act, which established the Commissioner of Internal Revenue and a system of taxes on income, sales, and manufactured goods. The first Commissioner of Internal Revenue, George S. Boutwell, oversaw the establishment of a national network of revenue collectors and assessors, as well as the creation of tax forms and documentation.
Early challenges:
Despite its early successes in collecting revenue, the IRS faced numerous challenges in the decades that followed. One of the most significant was the rise of Prohibition, which led to a surge in illegal alcohol production and widespread tax evasion. To combat this problem, the IRS established a new division called the Alcohol Tax Unit, which specifically targeted bootleggers and illegal distilleries.
Another challenge that the IRS had to contend with in the early 20th century was the rapid expansion of American business and entrepreneurship. As more businesses opened their doors and began generating income, the government had to find new ways to regulate and tax these enterprises. The IRS responded by creating new tax forms and refining its processes for assessing and collecting taxes from self-employed individuals and business owners.
The Great Depression and World War II:
The Great Depression and World War II marked a turning point in the history of the IRS, as the agency played a critical role in supporting the nation’s economic recovery and war efforts. During the Depression, the IRS intensified its efforts to collect taxes from wealthy individuals and corporations, as well as from those who had dishonestly evaded taxes. In 1935, Congress passed the Social Security Act, which introduced a new payroll tax to fund social welfare programs. The IRS was given responsibility for collecting this tax, as well as administering Social Security benefits to eligible individuals.
During World War II, the IRS again became instrumental in raising revenue for the war effort. The agency implemented a system of “”withholding”” taxes from Americans’ paychecks, which allowed the government to collect taxes more efficiently and effectively. The IRS also implemented new taxes, such as the Victory Tax and the Excess Profits Tax, to raise additional revenue for the war effort.
Post-war years:
After World War II, the IRS faced new challenges and opportunities as the U.S. economy and society underwent significant changes. One of the most significant was the rise of the middle class, as more Americans pursued careers and opportunities in science, technology, and other fields. To accommodate this shift, the IRS created new tax forms and regulations aimed at simplifying the tax process and supporting small businesses and entrepreneurs.
In the 1960s and 1970s, the IRS faced growing criticism and public scrutiny over its practices and policies. Many Americans viewed the agency as overly aggressive and intrusive, and some accused it of using its power to target political opponents. In response, Congress held hearings and investigations into the IRS, and the agency underwent a process of reform and modernization.
Modern-day operations:
Today, the IRS remains a critical part of the U.S. government and economy, with responsibilities that range from collecting taxes to administering social welfare programs and enforcing tax laws. The agency currently employs more than 70,000 people and operates a network of offices and facilities across the country. Some of its key functions include:
– Collecting taxes and enforcing tax laws: The IRS is responsible for collecting and enforcing taxes on income, property, sales, and other forms of revenue. To do this, it uses a variety of tools and strategies, such as audits, investigations, and legal action.
– Administering social welfare programs: The IRS is also responsible for administering social welfare programs, such as Social Security and Medicare. It collects and distributes funds to eligible individuals and organizations, and ensures that these programs are well-funded and sustainable.
– Supporting small businesses and entrepreneurs: The IRS provides resources and guidance to small businesses and entrepreneurs, helping them navigate the tax system and comply with regulatory requirements. It also supports research and innovation in key industries and areas of the economy.
– Protecting taxpayers: The IRS is committed to protecting the interests and rights of taxpayers, ensuring that they are treated fairly and equitably. It provides information and guidance on various tax issues, and has established a system for resolving disputes and complaints.
Conclusion:
The history of the IRS is a long and fascinating one, full of challenges, successes, and transformations. Since its establishment in 1862, the agency has played a critical role in supporting the U.S. government and economy, collecting revenue, enforcing tax laws, and administering social welfare programs. Today, the IRS remains a vital part of American life, and continues to evolve and adapt to changing economic and social conditions. As the U.S. tax system continues to evolve, we can expect the IRS to be at the forefront of these changes, ensuring that our tax system is efficient, effective, and fair for all.
Since America’s inception, the Internal Revenue Service has evolved from a feeble, unorganized system, to a powerful electronic-based entity. When viewing a government’s functions, a fundamental element of stability is funding.
All governments in the Unites States must tax citizens to provide public goods, that are necessary for progressing and maintaining a society. Although the history of the tax system in America stems back before our Revolution, the development of the Internal Revenue Service commenced nearly a century afterwards. During the Revolutionary and Civil War periods America’s tax system was fragmented; the levying responsibility was widely left up to individual states. The absence of the Internal Revenue Service created a severe disconnect between streams of revenue and the federal government.
During the U.S. Civil War, the Union was struggling with finances due to mounting war costs. To alleviate the financial burden, President Abraham Lincoln and Congress created the position of Commissioner of Internal Revenue in July of 1862.
The preliminary phase of the Internal Revenue Service was created to quickly raise money, but it was stipulated as a temporary bill, that would only 10 years. The maneuver by the President was seen as a necessary function, an emergency attempt to subdue the extravagant costs that war places on a country. The initial tax rates established during the Civil War fluctuated between 3% and 7.5%, depending on levels of income.
The enforcement and collection methods were ineffective, however, the model carried a progressive element, which is still used in present times. The commissioner position, which was established through the Revenue Act of 1862, still exists today, and is regarded as the genesis of the Internal Revenue Service.
Following the Civil War, America embarked on a massive reconstruction and expansionary period. The infrastructure of America was quickly evolving; railroads and highways were being built to connect the once fragmented country. Although such public projects required massive amounts of funding, congress and various lawmakers allowed the temporary tax to expire in 1872. For the ensuing couple of decades America grew desperate for a steady stream of revenue.
In 1894, following the midst of a war sparked depression, Congress in an attempt to fund the reconstruction effort, reinstated the national income tax. The Income Tax Act of 1894 was again shortly lived, as the Supreme Court through Pollock v. Farmers’ Loan & Trust Company (1895), ruled that the taxation was a form of direct tax which in essence was unconstitutional. During the early stages of the Internal Revenue Service and the federal income tax, the national government was attempting to find an appropriate equilibrium between revenue and maintaining harmony among the citizens.
Following a repeated decade of deficient funding, President Theodore Roosevelt and his successor William Taft strongly recommended the implementation of a constitutional amendment that guaranteed a stabilized tax system levied by the federal government. Through their efforts the 16th Amendment (awarded Congress the power to levy a federal income tax) was published in 1906.
The amendment was ratified in 1913, and established a federal tax system without state inclusion. The Internal Revenue Service (still referred to as the Bureau of Internal Revenue) presided over this federal tax, and instituted a 1% tax on incomes of over $3,000-inflation adjusted this figure is around $68,000 in 2010. Naturally at first, the novel federal tax system was highly unorganized.
No taxes were collected the first year; the Internal Revenue Service simply took a consensus during this time to ascertain the population of taxpayers. In response to rapidly expanding responsibility, the Internal Revenue Service doubled its staff and re-invented itself in terms of technology used, organization, and application.
The Internal Revenue Service, over the subsequent decades, grew more powerful and influential. The IRS instituted forms of sin taxes such, as additional fees placed on alcohol, as well as an intelligence unit to crack down on individuals guilty of evasion or fraud. For the first time in American history the federal tax system was organized, empowered, and effective. 1942-1953 was a monumental period in American tax history. For clarity’s sake the WWII era will be categorized based on year and precedent.
1942-Regarded as the greatest tax bill in American history, the Revenue Act of 1942 increased taxes and the number of Americans subjected to them. The act also created a deduction system for investment of medical expenses.
1943-The Current Tax Payment Act was adopted by Congress, which withheld taxes from employee wages and required employers to remit them quarterly.
1944-Congress and the Internal Revenue Service implemented the Individual Income Tax Act which instituted standard deductions and the 1040 form.
1952-President Truman proposed the Reorganization Plan which instituted a career civil service system for the Internal Revenue Service. The plan decentralized service to taxpayers and attempted to restore public confidence in the agency.
1953-President Eisenhower finalized Truman’s proposal and officially changed the name of the Bureau of Internal Service to the Internal Revenue Service or IRS.
Following 1953, the Internal Revenue Service spawned into an enormous, technologically advanced agency. Throughout the 1970’s the IRS developed and instituted computerized tax systems and customer service departments.
The IRS became its own entity; the Alcohol, Tobacco and Firearms Division separated from the IRS in 1972 to further establish the agency and solidify it’s federal tax responsibilities. The most substantial program instituted during the Baby Boomer generation, which further augmented the powers of the IRS, was the Tax Reform Act of 1986. The bill signed by President Regan, contained over 300 provisions and precisely codified federal tax law.
Presently the IRS is a highly organized agency subdivided into four operating divisions. To meet the needs of the varying forms of taxpayers (individuals, small business, mid to large caps, and non-profits) the IRS was appropriately split in 1998, through the adoption of the IRS Restructuring and Reform Act.
Currently the IRS is predominantly electronically run; more than 50 million tax returns are filed via computers. In 2009, the IRS was home to more than 140,000 employees or the size of Microsoft and Intel combined. Much of America’s success in regards to funding and appropriating public services can be awarded to the establishment of a fully-functional federal tax system.
