When Was the IRS Founded?

The development of many state agencies and departments is an interesting and complicated history. Learn a little more about the IRS and when was the IRS founded, and this can help you learn a little more about our government!

The history of the IRS began during the American Civil War, in 1861. There were a number of tensions regarding the post-American Revolution tax system. This tension was primarily between the Northern and the Southern states. These tensions were one exacerbating factor that led to the Civil War.

In 1862, President Lincoln and Congress created the office of Commissioner of Internal Revenue and began an income tax. This income tax was primarily used to pay wartime expenses. The act was called the Revenue Act of 1862, although the first income tax was officially passed in 1861.

The Union was able to raise over 20% of its war revenue through these taxes. Further, this position that was created—the Commissioner of Internal Revenue—remains to this day, and is considered the head of the IRS. This is thought to be the beginning of the IRS. Today, the Commissioner of the IRS is a political appointment by the President of the United States.

Function of the IRS

The IRS, also known as the Internal Revenue Service, is an agency that is responsible for the collection of taxes and the enforcement of internal revenue laws. The agency is under the Department of Treasury in the United States’ government, and has the important job of the interpretation of Federal tax laws.

Early Income Tax Rules

Even after the Civil War, the government continued to pass income taxes. This culminated with the income tax of 1864. The constitutionality of this act was questioned, and the Supreme Court ruled that the act, in fact, was unconstitutional.

The later presidents of Theodore Roosevelt and William Taft believed that tax reform was necessary. This resulted in the ratification of the sixteenth amendment of the Constitution, which gave Congress the right to determine and collect taxes on incomes.

By 1913, thirty-six states ratified this change to the Constitution and it was soon ratified by an additional six states. In the first year after the sixteenth amendment was ratified, no taxes were actually collected. Rather, taxpayers completed the form that was required, and the IRS checked for its accuracy.

IRS Workload

Since income taxes were now constitutional and also a law throughout the United States, the workload for the IRS increased massively. Thus, the entire bureau had to be restructured and the entire staff had to be doubled. However, the IRS was still attempting to handle the new income taxes. For example, in 1919, the IRS was still processing the returns from 1917.

Electronic Changes for the IRS

One of the technological advancements that truly helped the IRS was the invention of microfilm. Microfilm allowed the IRS to keep their records better, and allowed them to organize their records as well. This microfilm technology helped the IRS become better organized throughout the 1950s, and in fact the microfilm technology was one of the ways in which President Nixon’s illegal tax returns were discovered.

After the 1950s, the IRS began to become more and more computerized. For example, in 1990, the IRS started to use the Internet to allow electronic filing of income taxes. This has greatly improved the efficiency and the pace of the process of filing your taxes.

In 2003, the IRS began a deal with tax software vendors and agreed not to develop online filing software. In return for this agreement, the software vendors agreed that the majority of electronic filling they provided to Americans would be free. Thus, as of today, almost ninety-eight million tax returns are filed electronically.

Thus, the founding of the IRS provides a long and storied history behind the bureau. The bureau, begun during the Civil War, certainly has come a long way!