The IRS’s long history of scandal

The Week

Why was the IRS created?
When the U.S. was founded, it had no tax-collecting agency and little need for one for the next 80 years. The much smaller federal government of that era was funded largely by customs tariffs and state-collected excise taxes on sugar, liquor, and tobacco. But when the Civil War began, President Abraham Lincoln needed new revenues to cover the immense cost of waging the war, so in 1862 he successfully pushed Congress to create the country’s first income tax, and the Bureau of Internal Revenue to collect it.

Seven years after the Civil War ended, the income tax was repealed, and again the government financed its operations mostly through taxes on alcohol and tobacco. But in the Progressive Era in the early 20th century, reformers argued that such taxes unfairly penalized the poor. At the same time, hawks wanted more revenue to build up the U.S. military. In 1913, the 16th Amendment was ratified, instituting the income tax for good.

How quickly did the taxing authority expand?
Within years of the income tax’s creation, World War I drove top tax rates to 77 percent. The number of tax returns also exploded — from 778,289 in 1916 to 7.6 million in 1920 — and the agency was hard-pressed to keep up. After 1919, it also fell to the Bureau of Internal Revenue to enforce Prohibition. From the outset, overworked agents were susceptible to corruption and political influence in deciding whose returns to audit. Franklin D. Roosevelt brazenly used IRS audits as a weapon against conservative publishers William Randolph Hearst and Moses Annenberg, right-wing radio demagogue Father Charles Coughlin, and industrialist Andrew Mellon. FDR would not be alone in succumbing to that temptation. “In almost every administration since the IRS’s inception,” wrote David Burnham, author of A Law Unto Itself: Power, Politics and the IRS, “the information and power of the tax agency have been mobilized for explicitly political purposes.”

Did that lead to scandals?
Pretty regularly. In 1951, congressional Republicans uncovered widespread corruption at the Bureau of Internal Revenue, leading to the dismissal of 66 agents for such activities as bribe-taking and extortion. President Harry S. Truman proposed a reorganization in which tax agents would be hired through the civil service, rather than political patronage. Republican Dwight Eisenhower endorsed Truman’s reform plans and in 1953 changed the agency’s name to the Internal Revenue Service.

Did those reforms bear fruit?
Too often they did not. Throughout the 1950s and 1960s, FBI Director J. Edgar Hoover’s Counter Intelligence Project — codenamed COINTELPRO — had unlimited access to the IRS files of such suspected “subversive” organizations as the National Association for the Advancement of Colored People and the National Council of Churches; it even ordered an IRS audit of Dr. Martin Luther King Jr. In the early 1960s, the IRS responded to President John F. Kennedy’s public complaints about tax-exempt conservative groups by setting up the Ideological Organizations Audit Project, which challenged their tax status. But it was President Richard Nixon who most blatantly wielded the IRS as a political weapon.

What did Nixon do?
The White House tapes recorded Nixon urging aide John Ehrlichman in 1971 to get the IRS to dig into the tax returns of possible Democratic presidential candidates Sens. Edmund Muskie, Hubert Humphrey, and Ted Kennedy. “I can only hope that we are, frankly, doing a little persecuting,” Nixon said. “There’s a lot of gold in them thar hills.” In 1969, the Nixon administration set up an IRS unit called the Special Service Staff, which used tax records to assemble dossiers on more than 11,000 groups and individuals. After the 1972 election, Nixon staffers gave the IRS a list of 576 supporters of Democrat George McGovern. In 1974, one of the articles of impeachment against Nixon charged him with seeking “confidential information contained in income tax returns for purposes not authorized by law.”

Did Watergate end IRS abuses?
There have been plenty of questionable audits since the Nixon era, including one of Paula Jones after she refused to settle a sexual harassment suit against President Bill Clinton. (His White House denied any role.) The IRS recently admitted that its division overseeing tax-exempt organizations had singled out groups with “Tea Party” and “patriots” in their names for special scrutiny. In its own defense, the IRS says enforcing tax laws effectively but impartially becomes harder each year, given the cuts to its operating budget — which is down 8 percent since 2010 — and the growing complexity of the federal tax code. The tax code has been amended 4,680 times in the past 12 years alone and now runs to 74,000 pages. Such “complexity creep” only confirms “taxpayers’ suspicions that the tax laws are designed to entrap them and obscure what is and is not being taxed,” wrote National Taxpayer Advocate Nina E. Olson in her last annual report. “This is no way to run a tax system.”

Refusing to pay taxes
“I like to pay taxes. With them, I buy civilization,” Supreme Court Justice Oliver Wendell Holmes once said. But ever since federal income taxes were first levied, many Americans have disliked taxes so strongly that they’ve refused to pay them. Wichita contractor Arthur Porth unsuccessfully argued in a 1954 case that taxation amounts to “involuntary servitude,” making it illegal under the 13th Amendment. More recently, a Pennsylvania small-business owner named Larken Rose concocted the so-called 861 argument, named after the section of the code that lays out the sources of taxable income. In Rose’s arcane reading of that section, which he turned into a video that sold more than 15,000 copies, only income derived from “international commerce or federal possessions” is taxable. Courts have repeatedly rejected this reading of the code, and Rose has served 15 months in jail for tax evasion. Nonetheless, actor Wesley Snipes tried a version of the 861 argument to explain why he paid no taxes on $38 million he earned from 1999 to 2004. Unmoved, a judge sentenced him to three years in prison.

7 thoughts on “The IRS’s long history of scandal

  1. Wade, read these comments from this tax post.
    I copied and pasted them below for you.

    I encourage you to read, then take action to file properly as well as amend recent or prior incorrect filings and get back your money that you “VOLUNTARILY” let the feds and state keep. My sis is in NV, so I know you don’t have state income taxes, but if there were you could claim as well.
    By the way the 16th am. changed nothing, amended or not.
    If and when you educate yourself ,THEN make that educated filing and tell everyone you know, it will be one of the greatest gifts. Also, at the website find the video testimonials of people having made an educated filing, or go to you tube and type in cracking the code for a bunch.

    joe says:
    April 18, 2016 at 5:55 am

    This article is rife with assumptions and dead wrong conclusions.
    Folks, a people that refuse to know the rules that govern their lives are chattel, period. So we all are either taxpayers or taxconsumers?
    This is a belief! This has NO basis in reality. This shows a man that is 100% ignorant of any and ALL tax laws in the U.S.
    Folks, imagine you are the owner of a gambling parlor and the dealer in all the games played there (creators of money) and you are in a game of poker. A man sits down at the table with pockets filled with money and ASKS to play (makes an application to be a taxpayer) because he believes he MUST ASK. You hand him a book of the rules of the game in your particular parlor (title 26) so the man has the opportunity to know HOW to play. The man (YOU) throws the book on the floor claiming “I don’t need no stinking rule book” (title 26) and you demand to play this 100% VOLUNTARY game sans ANY knowledge of how to play except what the owner (the fed via lawyers etc) hands down to you! The owner (the fed) knows what he says has NO legal impact since the rules are clear, confusing and complicated but clear. But hey, if YOU want to play a game you have no knowledge of and CAN’T possibly win without knowing THE F*&KING RULES THAT GOVERN THE GAME IN THE FIRST PLACE why would the owner (the fed) complain?
    There is nothing wrong with title 26. There is EVERYTHING wrong with the ASSumptions all you ignorants make and claim as real while you ignore the rules believing changing WHAT YOU ARE 100% IGNORANT OF will free you OF WHAT YOU NOW HAVE NO LEGAL OBLIGATION TO PAY!!
    Pete has done the research FOR YOU taxpayers that are taxpayers out of VOLUNTARY ignorance so you don’t even have to do what I did which was to JUST START TO LEARN THE RULES OF THIS GAME. Just the beginning effort showed you MUST ASK to be a taxpayer unless you are engaged in a FEW VERY limited activities that most likely none of you are engaged in but none of you would know this would you because YOU don’t need no stinking rules! But you sure can complain about what you are 100% ignorant of.
    Go there, read, comprehend, GROW UP!

    Katie says:
    April 18, 2016 at 3:02 pm

    Joe, great comment!
    I was at lost horizons and came across a testimonial of Joe Black, and I wondered if it was The Joe Black, co-host or used to be co-host with Spike. So I clicked, and there you were giving your credit to an educated filing.
    I’m so glad to actually know of someone that has GROWN UP TOO.
    Thanks for being an advocate for the truth about taxation in America.
    Also, because of your video and strong suggestion to read WGRaM we will be doing this as well.

    Katie says:
    April 18, 2016 at 6:00 am

    Unless and until people learn who is responsible for federal and state taxes due to” gains” from a federal activity, they will continue to file incorrectly, thus providing “voluntarily” a portion of their earnings as well as all of SS and medicare “taxes”.

    Read Cracking the Code by Pete Hendrickson and go to and read and witness photos of refund checks in full amount as well as how to make an “educated filing.”

    Too many calls for tax reform proposals, flat tax, etc.. because people either don’t know how to file based on the limitations of the fed. govt’s taxing authority and it’s jurisdiction to tax, or they are afraid to file correctly out of ignorance perhaps.

    Again, get a copy of the book and read it, and then make an educated filing, and remember unless you are involved in receiving “gain” from a federally connected “activity” you have earned no “wages” 0.

  2. The controversy about the states never ratifying the 16th Amendment are quite interesting.

    Not sure if they ever properly ratified by 3/4 of the states that is required for amendment ratification.

    1. Amended or not, it changed nothing as far as who is liable for the tax, and also put no NEW burden on everyone to pay taxes. Unless you “profited” from federally connected activity, YOU owe no taxes.
      Learn to file according to the IR code and the US Constitution, it is so simple and you will be so glad you did.

  3. All I can say is that Turbo Tax becomes more invasive every year.
    I’m waiting for the questions in turbo tax to be…
    Are you hiding a scheckel up your azz ?
    Do you have cash under your mattress ?
    Are you dead ?
    Well if your dead where is the money ?
    Are you a prostitute ?
    If so… how many clients did you have ?
    Are you sure ?
    Do you sell dope ?
    Are you a drug addict and if so how do you pay for your drugs ?
    How many times do you crap a day ?
    Do you talk on the phone while you drive ?
    Please answer yes or no.
    How big is your penis ?
    Ever had sex without love ?
    Can you pay us for sitting on our azzes ?
    Do you own a gun ?
    How many children live in your house ?
    Are they yours ?
    Do you take care of any senior citizens ?
    Are they on drugs and medication ?
    If so…what drugs are they on ?
    Where does your income come from ?
    Are you gay ? Cause there’s a new Gay tax.
    Who lives in your damn house ?
    Where are you hiding your Goddammed money !
    How tall are you ?
    What race are you ?
    What is your weight ?
    What religion are you ?
    Have you ever kicked your pets ?
    Do you pee in a straight line ?
    How many times do you wipe your azz….cause if its more than 3 you owe us money.

    This is how insane these people are.
    Thanks Bill Gates and your H1B programmers.
    I hope someone beats you to death with one of your tablets.

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