I was reading Bloomberg and came across this great article. I can remember reading about all the clever things people would do to avoid paying taxes and then discovering the notorious words “phantom income”. Oh and by the way, let’s all wish the IRS a happy birthday as they turn 150 on July 1st.
First a lesson in history about the IRS
In July 1863, during the Civil War, President Abraham Lincoln and Congress created the office of Commissioner of Internal Revenue and enacted a temporary income tax to pay war expenses (see Revenue Act of 1862). The position of Commissioner exists today as the head of the Internal Revenue Service.
The Revenue Act of 1862 was passed as an emergency and temporary war-time tax. It copied a relatively new British system of income taxation, instead of trade and property taxation. The first income tax was passed in 1861:
- The initial rate was 3% on income over $800, which exempted most wage-earners.
- In 1862 the rate was 3% on income between $600 and $10,000, and 5% on income over $10,000.
- In 1864 the rate was 5% on income between $600 and $5,000; 7.5% on income $5,000–$10,000; and 10% on income $10,000 and above.
By the end of the war, 10% of Union households had paid some form of income tax, and the Union raised 21% of its war revenue through income taxes
Dubious Deductions
We all love a good tax loophole — as long as we’re the ones benefiting. And there have been some doozies. To celebrate the 150th anniversary of the IRS on July 1, we took a stroll down memory lane to highlight some of the most egregious loopholes that have found their way into the U.S. tax code.
Investopedia defines a loophole as “a technicality that allows a person or business to avoid the scope of a law or restriction without directly violating the law. …” The following are some of the worst or best loopholes in tax history, depending on your point of view.
Here is that famous date in history.
Read the Bloomberg article here