The History of the IRS How One July Changed Our Country
July is a major month for our country’s history. Not only is it the month we celebrate our independence from England and the Declaration of Independence, but it’s also the month the IRS was born. In 1861, President Lincoln was running out of money to fund the Civil War, and during this time of severe unrest, he needed the money fast. He had an idea, but he needed to find out if it was legal, and he was doubtful that it would fare well with other members of Congress at the time. Lincoln contacted cabinet members like Edward Bates, Gideon Welles, and Salmon Chase to ask if he had the authority to “collect duties” from the common people — their revenue. In particular, he was worried about collecting that money from southern states with seaports, as he feared the Confederacy would Soon gain control over them.
he officially signed it into law, and the Bureau of International Revenue was born. Congress and Lincoln agreed that annual incomes over $800 would be subject to a 3% tax. In the act, “income” is defined as a gain “derived from any kind of property, or from any professional trade, employment, or vocation carried on in the United States or elsewhere or from any source whatever.” For reference, $800 in 1862 is equivalent to about $24,028.75 today. After the war, in 1871, Congress repealed the Revenue Act, declaring it unconstitutional. However, in 1913, when railroad barons were taking over, and the people wanted them to pay their fair share, Congress ratified the 16th Amendment, aka the Revenue Act of 1913, which created the income-tax system we know today.
He knew he had to act fast, so in August 1861, just two months after the start of the Civil War, President Lincoln officially imposed the first federal income tax by signing the Revenue Act. In July 1862,
We’re not saying we should celebrate the IRS this month, but its history is fascinating. Did anything about the birth of income taxes surprise you? If yes, we’d love to hear your thoughts!
–Randy Martin
Clients With IRS Issues?
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