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The Whys of Taxes

Theme 6: Understanding the IRSLesson 1: The IRS Yesterday and Today


Political cartoon showing Uncle Sam attempting to apply tax laws fairly to the rich and poor.
The U.S. Constitution gave Congress the power to levy federal taxes. Tariffs were the federal government's chief source of revenue until the Civil War, when Congress passed the first federal income tax to help cover war costs. The Office of the Commissioner of Internal Revenue was set up to collect the taxes.

The Civil War income tax ended in 1872. Congress tried to pass a similar income tax but in 1895 the Supreme Court declared it unconstitutional. No more federal income taxes were levied until 1913, when the Sixteenth Amendment passed.

In 1943, the "pay-as-you-go" system of tax withholding began. In 1953, the Treasury Department completed a reorganization of the Bureau of Internal Revenue, reforming it as a service agency under the name Internal Revenue Service (IRS). Throughout the second half of the twentieth century, tax laws were restructured to better serve taxpayers. The Tax Reform Act of 1969 helped to stop corporations and the rich from avoiding taxes. The Tax Reform Act of 1986 reduced the number and level of tax rates. The Taxpayer Relief Act of 1997 made more than 800 changes to the existing tax code.

Today, the IRS checks tax returns, collects tax payments, and issues refunds to taxpayers. Electronic filing, available nationwide in 1990, makes filing taxes faster, easier, and more accurate than ever before.


quick check
What is the service agency that was created in 1953 after the Bureau of Internal Revenue was reorganized?

tax trivia
Did You Know?
Back in 1913 tax rates ranged from one to seven percent on incomes above $3,000. This tax rate doesn't sound like much until you consider the average annual income for the time.

Test your tax trivia knowledge by answering the following multiple-choice question. To assess your answer, click the Check My Answers button.
The average annual income in 1913 was
  • A.
  • B.
  • C.
  • D.

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