IRS
The IRS is one of the most feared government institutions. While the IRS used to be a seriously nasty beast, it has taken steps to back off of more aggressive tactics.
IRS
The roots of IRS go back to the Civil War when President Lincoln and Congress, in 1862, created the position of commissioner of Internal Revenue and enacted an income tax to pay war expenses. The income tax was a whopping 1 to 7 percent, depending on your income. The income tax was repealed 10 years later. Congress revived the income tax in 1894, but the Supreme Court ruled it unconstitutional the following year.
Looking for a little extra cash, President Roosevelt first sought the creation of a nation wide income tax. Facing Supreme Court rejection, he swung for the fences by trying to amend the constitution to allow for the collection of income taxes, but failed to do so during his term. His successor, President Taft, was able to complete the political mission to tax our income. In 1913, Wyoming ratified the 16th Amendment, providing the three-quarter majority of states necessary to amend the Constitution. The 16th Amendment gave Congress the authority to enact an income tax.
In 1918, during World War I, the top rate of the income tax rose to 77 percent to help finance the war effort. It dropped sharply in the post-war years, down to 24 percent in 1929, and rose again during the Depression. During World War II, Congress introduced payroll withholding and quarterly tax payments.
IRS – A New Name
In the 1950s, the agency was reorganized to replace a patronage system with career, professional employees. The Bureau of Internal Revenue name was changed to the Internal Revenue Service, better known as the current IRS. Only the IRS commissioner and IRS chief counsel are selected by the president and confirmed by the Senate. The rest of the staff are simply IRS employees.
As the years passed, the IRS developed a nasty reputation for not only trying to collect taxes but give people heart attacks as well. Part of this reputation arose from the fact the IRS would spend thousands of man hours to collect relatively small amounts of tax. In short, it was run like a typical bloated government entity, which meant wasting money right and left.
In the late 1990s, the IRS underwent a radical change. A retired business executive, Charles Rossotti, was appointed IRS commissioner and given the task of reforming the agency. The new IRS commissioner immediate converted the IRS into a for profit business model. This meant the IRS was no longer interested in spending thousands of IRS agent man hours to hunt small amounts of tax. Instead, the basic policy of the IRS is to get taxpayers back into the system since far more money will be received over time than hunting small amounts.
Make no mistake, the IRS can still be a beast if you mess with it. An IRS audit never has and never will be anything to laugh at. With the new business model, at least IRS agents are now fairly reasonable. Well, so long as you send the IRS your taxes!