When the U. The much smaller federal government of that era was funded largely by customs tariffs and state-collected excise taxes on sugar, liquor, and tobacco. But when the Civil War began, President Abraham Lincoln needed new revenues to cover the immense cost of waging the war, so in he successfully pushed Congress to create the country's first income tax, and the Bureau of Internal Revenue to collect it.
Seven years after the Civil War ended, the income tax was repealed, and again the government financed its operations mostly through taxes on alcohol and tobacco. But in the Progressive Era in the early 20th century, reformers argued that such taxes unfairly penalized the poor. At the same time, hawks wanted more revenue to build up the U.
In , the 16th Amendment was ratified, instituting the income tax for good. How quickly did the taxing authority expand? Within years of the income tax's creation, World War I drove top tax rates to 77 percent. The number of tax returns also exploded — from , in to 7.
After , it also fell to the Bureau of Internal Revenue to enforce Prohibition. From the outset, overworked agents were susceptible to corruption and political influence in deciding whose returns to audit. Franklin D. FDR would not be alone in succumbing to that temptation. Did that lead to scandals? Pretty regularly. In , congressional Republicans uncovered widespread corruption at the Bureau of Internal Revenue, leading to the dismissal of 66 agents for such activities as bribe-taking and extortion.
Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Established in by President Abraham Lincoln, the agency operates under the authority of the United States Department of the Treasury , and its primary purpose includes the collection of individual income taxes and employment taxes.
The IRS also handles corporate, gift, excise, and estate taxes , including mutual funds and dividends. Headquartered in Washington, D. For the fiscal year Oct. Individuals and corporations have the option to file income returns electronically, thanks to computer technology, software programs, and secure internet connections. The number of income taxes that use e-file has grown steadily since the IRS began the program, and now the overwhelming majority are filed this way.
During fiscal year , nearly As of Nov. Although the Internal Revenue Service IRS recommends filing tax returns electronically, it does not endorse any particular platform or filing software. As part of its enforcement mission, the IRS audits a select portion of income tax returns every year.
For the fiscal year, the agency audited , tax returns. This number breaks down to 0. Around After rising to a peak in , the number of audits has steadily dropped each year. Reasons for an IRS audit vary, but some factors may increase the odds of an examination.
Chief among them: higher income. And running your own business carries greater risks too. Capone was convicted of tax evasion and sentenced to 11 years. IRS again assumed responsibility for alcohol taxation the following year and for administering the National Firearms Act. Later, tobacco tax enforcement was added. It increased taxes and the number of Americans subject to the income tax.
It also created deductions for medical and investment expenses. It also decentralized service to taxpayers and sought to restore public confidence in the agency.
President Reagan signed the Tax Reform Act, the most significant piece of tax legislation in 30 years.
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