On This Day In Finance: July 1 - Internal Revenue Agency Founded
On July 1, 1862, the introduction of the Revenue Act of 1862 created the Bureau of Internal Revenue to oversee the collection of several new taxes. The Revenue Act was introduced in 1862 in order to collect more money to finance the Civil War, which broke out in 1861. When the war ended in 1865, the U.S. didn't need as much money so many taxes were substantially cut back.

The first commissioner of the Bureau of Internal Revenue was George S. Boutwell. Initially it was just Boutwell and three clerks. But by 1863, the office employed almost 4,000 people. The Bureau of Internal Revenue began to grow in size upon the passage of the 16th Amendment, which gave the Congress the authority to impose an income tax and collect taxes without apportioning the funds to the states. The Bureau's staff increased significantly, and many new taxes were passed following the passage of the 16th Amendment. Among the new changes was the establishment of the Personal Income Tax Division.

It wasn't until 1945 that the Bureau of Internal Revenue's name was changed to the Internal Revenue Service (IRS). The new name was part of a reorganization aimed to fix several inefficient and disorganized practices in the old system. The addition of the word service to the name was also intended to reflect a new emphasis on service to taxpayers. (Take a look at our article 10 Most Overlooked Tax Deductions to learn about some deductions you may have missed.)

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