The Internal Revenue Service: The Origin Story [No. 86]
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The Internal Revenue Service: The Origin Story [No. 86]

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was created even though we repealed many of those internal taxes shortly after the end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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