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Internal Revenue Service (IRS): Definition & History

Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

If you have a job and live in the United States, you've probably heard of the Internal Revenue Service, or the IRS - yes, the tax people. In this lesson, we'll discuss the history, structure, and purpose of the IRS.

History of the IRS

While Article I of the U.S. Constitution gives Congress the power to collect taxes for the federal government to ''provide for the common defense and general welfare,'' before the Civil War that power was only used to tax individual goods - a tax known as an excise tax. The Department of the Treasury collected these taxes as Congress passed, and then often repealed, excise taxes on specific goods.

Then, in the Civil War, President Lincoln knew the country would have to raise money to pay for the war. To do this, he enacted the first income tax in 1862 and created a position called the Commissioner of Internal Revenue. Congress approved this position and this tax, but repealed it ten years later, after the war ended.

For about the next 40 years, there was no income tax. Then, in 1913 the 16th amendment was ratified by 38 states, making it part of the Constitution. The 16th amendment gave Congress the specific power to enact an income tax. The first income tax was passed that year - 1% on annual income over $3,000 and 6% on income over $500,000 per year.

In its first 75 years, the federal agency charged with collecting income tax changed its name from the Bureau of Internal Revenue to the Internal Revenue Service. Tax rates changed dramatically in that time, with the highest rate peaking above 90% during World War II and the 1950s. In 1998, the IRS Restructuring and Reform Act directed a comprehensive review and restructuring that created the IRS like we know it today.

Today's Internal Revenue Service

In 2016, the IRS had over 80,000 employees and a budget of around $11.2 billion. These 80,000 employees worked across three divisions in the IRS: Commissioner's Office, Services and Enforcement, and Operations Support. All IRS employees, except two, are civil servants, meaning they are career employees that aren't elected or appointed.

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