• Video

The Internal Revenue Service: The Origin Story

When and why did Congress create the Internal Revenue Service? Professor Kristin Hickman gives a brief history of the origins of the IRS, dating back to the Civil War. New internal taxes were required to fund the war and a bureaucracy was created to administer them. Professor Hickman explains that the power of the IRS grew gradually over time, mirroring the growth of other federal agencies in the mid to late twentieth century. https://youtube.com/watch?v=NLEakPN09K0


The IRS or really its predecessor was created around the time of the Civil War. Prior to the Civil War, all taxation in the United States, at least at the federal level, consisted of external taxes, specifically tariffs. And we had a system in place for administering those tariffs that involved customs officials at ports of entry and so on. In order to finance the Civil War, Congress enacted a series of what we sometimes refer to as internal taxes, property taxes, income taxes and excise taxes imposed inside the United States on good, services, people, et cetera that were already here. Consequently, we needed a different bureaucracy in order to administer those taxes. The predecessor of the Internal Revenue Service was created even though we repealed many of those internal taxes shortly after the end of the Civil War, we left that bureaucracy in place to administer the internal taxes that remained. And the rest is history. Eventually, we adopted the 16th amendment. We created the modern income tax and the bureaucracy grew from there. Well, the IRS's power has changed much in the way that power of many federal agencies has changed. The IRS has always been tasked with adopting rules to interpret and implement the Internal Revenue Code, but just as the rules and regulations of federal government agencies in general, as of the start of the 20th century, couldn't necessarily carry the force and effect of law or could only carry the force and effect of law when they were promulgated pursuant to specific authority to fill a gap that Congress explicitly identified by statute. The same was true of the IRS that any regulations that it adopted lacked the force and effect of law unless potentially they were promulgated pursuant to a specific authority. All of that changed over time in general across the federal government, we saw a shift to rulemaking. In the 1960s and the 1970s, rulemaking became more prominent across agencies. Agencies started asserting the power to adopt broader regulations pursuant to general grants of rulemaking authority to administer statutes. And Congress started including in statutes more and broader grants of rulemaking power. Certainly, the number of grants of rulemaking power given to the Department of Treasury and the IRS has expanded tremendously over time. The penalty provisions of the Internal Revenue Code were modified in the 1980s to give greater force arguably to Treasury regulations and IRS rulings.

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