The History of the Internal Revenue Service

Do you ever wonder, how a country that revolted because of the unfair taxation of tea, came to be under the tight control of the Internal Revenue System? It seems kind of ironic, doesn't it, that the very reason we were founded, unfair taxation, is exactly where we are as a country today? How did we come up with our own office of taxation, and how long has it been in existence? This article examines how the Internal Revenue Service was formed, and how we arrived at our present day system. The Internal Revenue Service was formed in 1862 when congress established the office of the Commissioner of Internal Revenue. This office was given the power to assess, levy, and collect taxes, and the right to enforce the tax laws through seizure of property and income, and through prosecution. Not much has changed since the income tax law of 1862, as far as the powers given to the Internal Revenue Service. The income taxation of the individual citizen has changed, somewhat drastically, however. The income tax was repealed in 1872, revived in 1894 and 1895 then laid to the side. It wasn't until the 16th Amendment to the Constitution made the income tax a permanent part of the constitution, and a permanent fixture in 1913 and the growth of the Internal Revenue Service really began to thrive. This amendment gave Congress the legal authority to tax income and resulted in a revenue law that taxed incomes of both individuals and corporations. During the year of 1918, annual internal revenue collections passed the billion dollar mark rising to $5.4 billion by 1920. Thanks to the next series of Wars, employment increased, and so did tax collections, rising to $7.3 billion. The withholding tax on wages was made a part of the tax system in 1943 and this was instrumental in increasing the number of individual taxpayers to 60 million and tax collections increased by to $43 billion in 1945. Under the excellent leadership of Ronald Reagan, the biggest tax cut in history was enacted into law in 1981, and then in 1986, he (Ronald Reagan) signed into law the Tax Reform Act of 1986 that was then, and continues to this day to be one of the most far-reaching reforms of the United States tax system. The top tax rate was reduced from 50% to 28%, and this was the lowest it had been since 1916. The Tax Reform Act of 1986 did try to remain revenue neutral by calling for a $120 billion increase in business taxation and a corresponding decrease in individual taxation over a five year period. In 1993, President Clinton signed the Revenue Reconciliation Act into law, in order to reduce the federal deficit that would otherwise accumulate in the upcoming next few years. Then, in 1997, Clinton signed another tax act that cut taxes; cut capital gains tax for individuals, and provided a child tax credit, and education incentives. President Bush has each year signed tax cuts into law, and with the Job Creation and Workers Assistance Act provided tax relief to businesses in order to foster job growth. An overhaul of the Internal Revenue Service, and an attempt to upgrade their image in the eyes of the public, became a real concern for the IRS during the 90s, and it was also during this time, that the advent of the internet and the electronic filing options began to really take hold with the American public, and with the IRS. Today, electronic filing accounts for a large percentage of the income tax returns completed, and for many that will receive Earned Income Credit, it's an excellent opportunity to receive their refunds much faster. Today, the IRS has been given a much more favorable rating by the American public, than in previous years, but it's thanks to a great effort on behalf of the employees and administrators of the IRS. Let's hope we continue to see a more cooperative relationship between the citizens of this country and the Internal Revenue Service.