21st Century Taxation: Happy 100th Anniversary to the Modern Income Tax

Today - October 3, 2013, marks the 100th Anniversary of enactment of the Revenue Act of 1913. That act responded to the ratification of the 16th Amendment (on February 3, 1913) to allow for a federal income tax.

To honor the event, I've got a list of 100 events that describe the first 100 years of our modern income ta. That is a lot, so I'll present in over installments of 25 items at a time, starting today. I'm also honoring the event with a cake for my students tonight (why not?).

This list is a work in progress. It needs some organization and more details. My goal in creating it was to identify some key events or concepts that have shaped the first 100 years of our modern income tax. I plan to organize it better (with subheadings as well) and convert it into a longer article in the near future.

Leave me a comment if you've got suggestions or disagree with any on my list. Thanks.

Revenue Act of 1913 – enacted October 3, 1913. Passed just 8 months after ratification of the 16^th Amendment allowed for an income tax. This bill reduced tariffs and added an income tax. Individual rates ranged from 1% to 6%. No tax was owed unless income exceeded $3,000 ($4,000 if married)
1921 – first time a capital gain differential was created
Defining gross income – early cases, such as Macomber and Glenshaw Glass involved this issue. We don’t see this litigated much today.
Who is the taxpayer? Some early US Supreme Court cases, such as Lucas v Earl, and Helvering v. Horst dealt with this issue.
1939 – the law was codified into the Internal Revenue Code of 1939
1986 – to highlight the numerous changes of the Tax Reform Act of 1986, Title 26 was reissued as the Internal Revenue Code of 1986
1954 – provisions were renumbered and reorganized into the Internal Revenue Code of 1954
1943 – Current Tax Payment Act - withholding
1951 – Section 1034 enacted to eliminate hardship where personal residence sold at a gain and proceeds reinvested
1978 – Section 530 provides transitional relief for classifying workers; Congress still working on the clarification
1958 – S corporations created
1962 – Subpart F added (Pub. L. 87–834); shapes today’s way of taxing international income
1964 – Section 121 enacted (P.L. 88-272) to allow one-time gain exclusion on sale of a residence if age 55 or older
1986 – last version of comprehensive tax reform; individual rates lowered from 50% to 28% and corporate rate lowered from 46% to 34%
1969 – minimum tax created to address problem of some high income individuals using various tax preferences to reduce their taxes below a perceived minimum based on their income
1981 – ACRS created to help stimulate the economy
1986 – MACRS – to reduce the tax advantages of ACRS
1993 – Section 197 created to allow amortization of goodwill and simplify amortization of intangibles
Section 482 and the White Paper – have created a significant focus on finding the arm’s length price for transactions between related taxpayers. It is used primarily in the international context, but Section 482 is broader than that.
Time value of money – in 1984, Congress focused on this with the addition of OID rules and even the Section 461(h) economic performance rules for accrual method taxpayers.
Tax shelter activity blooms in the 1980s leading to the passive activity rules of the TRA86 and much IRS audit time.
Tax shelter activity by businesses since TRA86 leads to codification of the economic substance doctrine, reportable transactions and special rules, such as Section 163(j).
Revenue needs – in times of revenue needs such as occurred around WWII, rates increased. For example, in 1943, the top individual rate (for high income folks) was 94%. See the history from the Tax Foundation – here.
Budgeting and taxes – various approaches have been used over the decades to determine how much revenue to generate. In the past several decades, “PAYGO” has been a focal point to try to avoid increasing deficits. Rules that lower tax collections needed to be offset by other rules that raised taxes or reduced certain types of spending.
Withholding – various efforts have been made to ensure compliance by requiring withholding from payments made to taxpayers. This has not always worked well though. For example, a recent effort to have governments withhold on payments to contractors was enacted and repealed.