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Logo
of the Internal Revenue Service
The
Internal Revenue Service
(
IRS
) is the part of the
Federal government of the United States
responsible for
collecting
taxes
and
enforcing
tax laws
.
[1]
The IRS decides how much tax is
owed
and collects the
revenue
on a regular basis.
[2]
The IRS is the largest
bureau
in the
United States Department of the Treasury
. It is one of the
world
's most
efficient
tax collection agencies.
[2]
The IRS
processed
over 224
million
tax forms
and collected over $2
trillion
in revenue in 2004.
[2]
The IRS collects taxes in advance by withholding them through
employers
. Individuals who overpay through
tax withholding
are issued
refunds
after they file their
income tax return
. In 2006 the
Seattle Times
reported that up to 11.6 million refunds were not paid back because the IRS suspected
fraud
. According to the Seattle Times the affected taxpayers were not informed of the reason for not getting their refund. Many or most of the people who were not issued refunds were
low-income
individuals
[3]
Beginning in 1791, the federal government was supported by taxes on
distilled beverages
,
tobacco
,
sugar
,
corporate bonds
and
slaves
.
[a]
[6]
These were
indirect taxes
, the only kind permitted by the
United States Constitution
. In 1812, the cost of the
war
added the first sales taxes on
gold
,
jewelry
, and
silverware
.
[6]
In 1817, the government did away with all these taxes and relied on the funds from
tariffs
on
imported
goods
.
[6]
During the
American Civil War
, funds were needed to finance the war.
[7]
In 1861,
Congress
drafted a
bill
for a
direct tax
on personal and
corporate
income
.
[7]
This first income tax charged 3% on incomes over $800. The bill passed both houses of Congress but never went into effect.
[7]
In 1862, however,
Abraham Lincoln
signed a bill that called for a 3% tax on incomes between $600 and $5,000, 7.5% on incomes between $5,000 and $10,000 and 10% on incomes over $10,000.
[b]
[7]
There were
debates
in Congress over the
constitutionality
of the direct income tax, but no action was taken.
[8]
It was allowed to
expire
in 1872 when it came up for
renewal
.
[8]
In 1862, Congress had authorized the office of
Commissioner
of Internal Revenue.
[6]
Much as today, he had the power to assess,
levy
and collect taxes. He also had the right to
enforce
the tax laws by
prosecution
and
seizing
property
and income.
[6]
George S. Boutwell
was the first commissioner of the Bureau of Internal Revenue.
[8]
/
In 1894, Congress passed the
Wilson-Gorman Tariff
. It reduced the
Tariffs
on certain
imports
into the
United States
.
[9]
However, it made up for this by charging a 2% direct income tax.
[10]
The
Supreme Court
, in
Pollock v. Farmers' Loan & Trust Co
ruled the income tax
unconstitutional
a year later.
[11]
The Court ruled that the Constitution did not allow an income tax without
apportionment
among the states.
[8]
On February 3, 1913, the
Sixteenth Amendment to the United States Constitution
was
ratified
. Free of the critical apportionment issue, it allowed Congress to
impose
an income tax.
[8]
The Bureau of the IRS was charged with collecting income taxes.
[8]
Personal income tax was 1% on income above $3,000.
[2]
Incomes over $5,000 were subject to an additional 6% tax. Income taxes were as high as 77% in 1918 to help finance
World War I
.
[2]
In 1929 they dropped to a high of 24% but rose again during the
Great Depression
in 1929.
[2]
During
World War II
withholding and quarterly taxes were introduced.
[2]
In 1953, the Bureau of Internal Revenue re
organized
and changed its name to the Internal Revenue Service.
[8]
In 1998, the IRS Restructuring and Reform Act again reorganized and modernized the agency. Taxpayer
rights
were further expanded.
[2]
The current
Commissioner of Internal Revenue
is
Charles P. Rettig
.
- ↑
Article I, Section 2
of the United States Constitution required that direct taxes be apportioned among the states by population.
[4]
As apportionment by population proved to be virtually impossible, direct taxes (a federal income tax is a direct tax) were prevented by this article of the Constitution.
[4]
This remained the law until passage of the Sixteenth Amendment which removed the apportionment requirement.
[5]
- ↑
The
Confederate States of America
also had an income tax during the Civil War. Starting in 1863, the tax exempted the first $1,000 and charged a 1% tax on the first $1,500 over the exemption.
[7]
A 2% tax was levied on all income over that amount.
[7]