Payroll Taxes - IRS Unveils Key Penalty Findings

Payroll Taxes - IRS Unveils Key Penalty Findings 

Courtesy: Robert W. Wood 

I keep noting how bad IRS payroll tax penalties can be.  See When Payroll Taxes Go Criminal.  Although any tax dispute is bad, payroll tax disputes are especially bad.  How does the IRS build a case against you?  An IRS internal  memorandum provides guidance to IRS employees how to document cases against employers.

If you’re in business you must withhold tax money from employee pay.  Then you must account for it and send it promptly to the IRS.  Failing to pay not only makes the business responsible—you are personally on the hook. When you withhold tax but fail to remit it the IRS will come after you. The IRS views it as trust fund money.

In a cash-strapped business, keeping the lights on or the warehouse stocked can seem more important.  You may think you can pay the IRS later.  But these problems have a way of snowballing, so keep payroll taxes current at all times.

Business owners and other “responsible persons” have personal liability. The IRS can assess a Trust Fund Recovery Assessment—also known as a 100% penalty—against every “responsible person.”  Under Section 6672, the penalty equals the entire amount of trust fund taxes. The IRS can seek to collect 100% from the business and 100% from each responsible person. The IRS often makes an assessment against every officer, watching them turn on each other.  One person may get stuck while others get off scot-free.

The new IRS memorandum says revenue officers should determine case-by-case how much documentation will support a penalty.  Key issues are the “responsibility” and “willfulness” factors. In determining “willfulness,” courts focus on whether you had knowledge of the non-payment of taxes or showed reckless disregard whether they were being paid.

But a person need not actually perform the withholding and payment functions to be considered “responsible.”  If you have signature authority (whether or not you exercised it) while other (non-IRS) payments are being made, that can be enough to result in liability. Most of the time, here’s what the IRS will collect to sink you:

1. “Form 4180” interviews: Form 4180 is the form that is used by the IRS to conduct interviews with each potentially responsible person;
2. Articles of incorporation;
3. Bank signature authority cards or electronic PINS/passwords; and
4. Copies of cancelled checks (or electronic payments or debits) demonstrating payment to other creditors (not the IRS).  If the IRS can’t get the records easily from the business, the IRS will issue a summons to the business, the bank or both.

Individual factors will influence the amount of documentation needed to support a penalty. IRS revenue officers are directed to exercise judgment whether they need more.  Often, though, these key elements will be enough to impose and support the penalty so be careful.

For more, see:

Supreme Court Deaf To Payroll Tax Woes

Don’t Cross The IRS On Payroll Taxes
Fail To Pay Payroll Tax: Go To Jail
Robert W. Wood practices law with Wood LLP, in San Francisco.  The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009, Tax Institute), he can be reached at Wood@WoodLLP.com.  This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Offer in Compromise Pre-Qualifier online tool

Offer in Compromise Pre-Qualifier online tool.  This online tool can be used to determine if a taxpayer is eligible for an Offer in Compromise (OIC).  If the taxpayer is eligible for an OIC they must still complete and submit a Form 656 and a Collection Information Statement.  The tool brings the user (the practitioner or the taxpayer) through six steps:

1.    Status: This step contains questions to determine the taxpayer’s eligibility for an OIC.

2.    Basic info: This step contains questions regarding the taxpayer’s location and their tax debt.

3.    Assets: This step contains questions regarding the taxpayer’s assets (FMV and any encumbrances).

4.    Income: This step contains questions regarding gross wages, net business and rental income, and other sources of income.

5.    Expenses: This step requests information regarding the taxpayer’s necessary living expenses. The tool will consider the local allowable expense criteria for the taxpayer.

6.    Proposal: In this step the tool will suggest a starting point for the offer amount representing the sum of asset equity and present value of future income.

The taxpayer or their authorized representative should use the results from the OIC Pre-Qualifier to complete the required forms in the OIC booklet.  If the suggested amount cannot be offered, a lower amount could be justified if the taxpayer has qualifying exceptional circumstances (Section 3 of Form 656).

Filing FBARs Electronically

Filing FBARs Electronically
...on behalf of my clients, here are five items that will be useful to know:
1.  An IRS Form 2848 will suffice to provide "documented authority" to e-file the FBAR.
2.  FinCEN is in the process of creating its own power of attorney form (though we've strongly suggested that continued use of the already common Form 2848 would be highly desirable given that so many individuals turn to their enrolled agents and other tax pros to file the FBAR.)
3.  If an attorney, CPA or EA files on behalf of his client, they are expected to retain (for five years) proof of your authority to do so. This proof may be maintained in electronic format.
4. FinCEN Form 114 supersedes TD F 90-22.1 (the FBAR form that was used in prior years) and is only available online through the BSA E-Filing System website. Report of Foreign Bank and Financial Accounts (FBAR) :: FinCen

5. File Form 8938 if max value of account exceeds $50,000 at any point during the year. Must use US Treasury FMS website Treasury Reporting Rates of Exchange to calculate foreign currency exchange rate.

Can an attorney, CPA or EA submit an FBAR via the BSA E-Filing System on behalf of a client?
Yes.  An attorney, CPA or EA may always assist his client in the preparation of electronic BSA forms for BSA E-Filing, including the FBAR. Consistent with FinCEN's recent proposal to provide for approved third-party filing of the FBAR, if an attorney, CPA or EA has been provided documented authority by the legally obligated filers to sign and submit FBARs on their behalf through the BSA E-Filing System, that attorney, CPA or EA can do so through a single BSA E-Filing account established for the attorney, CPA or EA. If such authority is not provided, the filings must be signed and submitted through a BSA E-Filing account unique to each client.

IRS Releases New Tax Tables and Remaining Inflation Adjusted Amounts for 2013

IRS Releases New Tax Tables and Remaining Inflation Adjusted Amounts for 2013
Now that the American Taxpayer Relief Act (Pub. L. 112-240) has been signed into law, the IRS has released the remaining 2013 inflation-adjusted numbers, including the 2013 tax rates. Rev. Proc. 2013-15.

Last October, the IRS issued inflation adjusted numbers for 2013. However, because of the uncertainty about the fiscal cliff and 2013 tax rates, the IRS withheld releasing some of those numbers. Now the IRS has released Rev. Proc. 2013-15, which provides the remaining 2013 inflation-adjusted numbers, including the 2013 tax rates. In addition, a change was made for 2012 relating to the amount excludable from income for the qualified transportation fringe benefit.

2013 Tax Rates

All 2013 tax rate tables for individuals, estates, and trusts reflect the new 39.6% maximum rate, which begins at the following levels of taxable income:

MFJ or Surviving Spouse	$450,000
Head of Household	$425,000
Unmarried Individual	$400,000
Married Filing Separately	$225,000
Estate or Trust	$11,950

Adoption Credit
For tax years beginning in 2013, the credit allowed for an adoption of a child with special needs is $12,970. For tax years beginning in 2013, the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $12,970. The available adoption credit begins to phase out for taxpayers with modified adjusted gross income in excess of $194,580 and is completely phased out for taxpayers with modified adjusted gross income of $234,580 or more.

Child Tax Credit
For tax years beginning in 2013, the value used to determine the amount of the child tax credit that may be refundable is $3,000.

Earned Income Credit
For tax years beginning in 2013, the maximum earned income credit amounts are as follows:

No Qualifying Children	$487
One Qualifying Children	$3,250
Two Qualifying Children	$5,372
Three or more Qualifying Children	$6,044

The earned income tax credit is not allowed in 2013 if the aggregate amount of certain investment income exceeds $3,300.

American Opportunity (modified Hope) Credit
For tax years beginning in 2013, the American Opportunity (modified Hope) Credit is an amount equal to 100 percent of qualified tuition and related expenses not in excess of $2,000 plus 25 percent of those expenses in excess of $2,000, but not in excess of $4,000. Accordingly, the maximum American Opportunity (modified  Hope) Credit in tax years beginning in 2013 is $2,500.

A taxpayer's modified adjusted gross income in excess of $80,000 ($160,000 for a joint return) is used to determine the reduction in the amount of the American Opportunity (modified Hope) Credit otherwise allowable. 

Lifetime Learning Credit
The Lifetime Learning Credit is a tax credit for any person who takes college classes. It provides a tax credit of 20% of tuition expenses, with a maximum of $2,000 in tax credits on the first $10,000 of college tuition expenses. You can claim the Lifetime Learning Credit on your tax return if you, your spouse, or your dependents are enrolled at an eligible educational institution and you were responsible for paying college expenses. Unlike the American Opportunity credit, you need not be in the first four years of undergraduate classes. Even if you took only one class, you may take advantage of the Lifetime Learning Credit.

A taxpayer's modified adjusted gross income in excess of $53,000 ($107,000 for a joint return) is used to determine the reduction in the amount of the Lifetime Learning Credit otherwise allowable.

Exemption Amounts for Alternative Minimum Tax
For tax years beginning in 2013, the AMT exemption amounts are:

MFJ or Surviving Spouse	$80,800
Head of Household	$51,900
Unmarried Individual	$51,900
Married Filing Separately	$40,400
Estate or Trust	$23,100

The excess taxable income above which the 28 percent tax rate applies is $89,750 for married individuals filing separate returns and $179,500 for joint returns, unmarried individuals (other than surviving spouses), and estates and trusts.

The amounts used under Code Sec. 55(d)(3) to determine the phaseout of the AMT exemption amounts begins at the following AGI levels: 

MFJ and surviving spouse	$153,900
Single individual	$115,400
Head of Household	$115,400
MFS, estates, and trusts	$76,950

ATRA permanently retains the 0% and 15% tax rates on qualified dividends and long-term capital gains, and adds a new 20% tax rate that would apply to taxpayers who fall within the new 39.6% tax bracket. Which capital gains tax rate will apply depends on what tax bracket a person is in. The new capital gains tax rates for 2013 and future years will be

Tax Bracket	Capital Gains Rate
10% and 15%	-0-%
25%, 28%, 33% or 35%	15%
39.6%	20%
Net Investment income:  MfJ                > $250K Unmarried     > $200K MfS               > $125K Additional Medicare Tax Wages & S/E income: MfJ                > $250K Unmarried     > $200K MfS               > $125K (withheld by employer)	3.8%  Medicare surtax 0.9% Medicare surtax

Standard Deduction
For tax years beginning in 2013, the standard deduction amounts are as follows:

MFJ or Surviving Spouse	$12,200
Head of Household	$8,950
Unmarried Individual	$6,100
Married Filing Separately	$6,100

The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,000, or the sum of $350 and the individual's earned income.

The additional standard deduction amount for the aged or the blind is $1,200. The additional standard deduction amount is increased to $1,500 if the individual is also unmarried and not a surviving spouse.
For tax years beginning in 2013, the applicable amounts that are used to determine the AGI phaseout of the deductions are:

MFJ or Surviving Spouse	$300,000
Head of Household	$275,000
Unmarried Individual	$250,000
Married Filing Separately	$150,000

Qualified Transportation Fringe Benefit
For tax years beginning in 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $245. The monthly limitation regarding the fringe benefit exclusion amount for qualified parking is also $245.

For tax years beginning in 2012, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $240. The monthly limitation regarding the fringe benefit exclusion amount for qualified parking is also $240 for 2012.

Adoption Assistance Programs
For tax years beginning in 2013, the amount that can be excluded from an employee's gross income for the adoption of a child with special needs is $12,970. For tax years beginning in 2013, the maximum amount that can be excluded from an employee's gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program for other adoptions by the employee is $12,970. The amount excludable from an employee's gross income begins to phase out for taxpayers with modified adjusted gross income in excess of $194,580 and is completely phased out for taxpayers with modified adjusted gross income of $234,580 or more.

Personal Exemption Phaseout
For tax years beginning in 2013, the personal exemption amount is $3,900. The AGI phaseout ranges for personal exemptions are as follows:

MFJ or Surviving Spouse	$300,000  to  $422,500
Head of Household	$275,000  to  $397,500
Unmarried Individual	$250,000  to  $372,500
Married Filing Separately	$150,000  to  $211,250

Interest on Education Loans
For tax years beginning in 2013, the $2,500 maximum deduction for interest paid on qualified education loans begins to phase out for taxpayers with modified adjusted gross income in excess of $60,000 ($125,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income of $75,000 or more ($155,000 or more for joint returns).

Unified Credit Against Estate Tax
For an estate of any decedent dying during calendar year 2013, the basic exclusion amount is $5,250,000 for determining the amount of the unified credit against estate tax under IRC §2010.

Courtesy:  Parker's Federal Tax Bulletin: January 19, 2013 - Staff Editor at Parker Tax Publishing parkertaxpublishing.com

*CIRCULAR 230 DISCLOSURE: Pursuant to Regulations Governing Practice Before the Internal Revenue Service, any tax advice contained herein is not intended or written to be used and cannot be used by a taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. 

FBAR News

FBAR News
With the upcoming June 30th deadline to file 2013 FBAR forms for US Taxpayers with foreign accounts over $10,000 and so much News regarding FBAR's, it's a good time to review the FBAR requirement as well as the news relating to the IRS' Enforcement Efforts regarding FBAR's and Offshore Voluntary Disclosures, including:

1. Report of Foreign Bank and Financial Accounts (FBAR)
2. New Reporting Requirements by U.S. Taxpayers Holding Foreign Financial Assets (Form 8938)
3. Offshore Voluntary Disclosure Program 

1.  Report of Foreign Bank and Financial Accounts (FBAR) 
If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).

• Who Must File an FBAR (Form TD F 90-22.1)

United States persons are required to file an FBAR (Form TD F 90-22.1) if:

1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

United States person means United States citizens; United States residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Look to the form’s instructions to determine eligibility for an exception and to review exception requirements.

• Reporting and Filing Information 

A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on FBAR-related federal tax return or information return questions (for example, on Schedule B of Form 1040, the "Other Information" section of Form 1041, Schedule B of Form 1065, and Schedule N of Form 1120) and filing the FBAR, satisfies the account holder's reporting obligation.

The FBAR is not filed with the filer's federal income tax return. The granting, by the IRS, of an extension to file federal income tax returns does not extend the due date for filing an FBAR. You may not request an extension for filing the FBAR. The FBAR is an annual report and must be received by the Department of the Treasury in Detroit, MI, on or before June 30th of the year following the calendar year being reported. While FinCEN strongly encourages individuals to electronically file FBARs, the form can be mailed to one of the two addresses below, provided that the mailing is received by June 30, 2013:

File by mailing the FBAR (Form TD F 90-22.1) to:
United States Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621

If an express delivery service is required for a timely filed FBAR, address the parcel to:
IRS Enterprise Computing Center
ATTN: CTR Operations Mailroom, 4th Floor
985 Michigan Avenue
Detroit, MI 48226

Delivery messenger service contact telephone number: (313) 234-1062. 
Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both.

• Electronic Filing for FBAR Forms – MANDATORY Beginning July 1, 2013

On June 29, 2011, FinCEN announced that all FinCEN forms must be filed electronically with certain exceptions. The FBAR was granted a general exemption from mandatory electronic filing through June 30, 2013. E-filing is a quick and secure way for individuals to file FBARs (Form TD F 90-22.1). Filers will receive an acknowledgement of each submission. For more information about FBAR e-filing, read the FinCEN news release.  FinCEN BSA E-filing System.  

The FBAR filing requirements, authorized under the Bank Secrecy Act, have been in place since 1972. The FBAR form is used to report a financial interest in, or signature or other authority over, one or more financial accounts in foreign countries. No report is required for a year if the accounts’ aggregate value does not exceed $10,000 at any time during that year.

2. New Reporting Requirements by U.S. Taxpayers Holding Foreign Financial Assets (Form 8938)
Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. File Form 8938 if max value of account exceeds $50,000 at any point during the year. Must use US Treasury FMS website Treasury Reporting Rates of Exchange to calculate foreign currency exchange rate.

The new Form 8938 filing requirement does not replace or otherwise affect a taxpayers requirement to file FBAR. A chart providing a comparison of Form 8938 and FBAR requirements, and other information to help taxpayers determine if they are required to file Form 8938, may be accessed from the IRS Foreign Account Tax Compliance Act Web page.

3. Offshore Voluntary Disclosure Program
On Jan 9, 2012, the IRS reopened the Offshore Voluntary Disclosure Program following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.

Source: IRS

5 Steps to Delegating & Supervising

5 Steps to Delegating & Supervising
There are 5 steps to delegating and supervising that guarantee that your expectations are met and success results are achieved.

Step One
The first step in delegation is to become perfectly clear about the results that you desire from the job. The greater clarity you have with regard to the results expected, the easier it is for you to select the right person to do the job.

Step Two
The second step is to select a person based on his or her demonstrated ability or success at doing this job. Never delegate an important job to a person who has never done it before. If the successful completion of the task is important to the success of your business, it is essential that you delegate it to someone who you confidently believe can complete the task satisfactorily.

Step Three
Third, explain to the person exactly what you want done, the results that you expect, the time schedule that you require, and your preferred method of working. The reason that you are in a position to delegate a task is because you have probably already mastered this task. Taking the time to teach and explain the best way to do the task based on your experience is an excellent way to ensure that the task will be done as you wish and on schedule.

Step Four
Step four is to set up a schedule for reporting on progress. If it is an important task, set up a deadline for completion that is a day or a week before your actual deadline. Always build some slack into the system. Then, check on the progress of the task regularly, very much like a doctor would check on the condition of a critical care patient. Leave nothing to chance.

Step Five
Step five, inspect what you expect. Delegation is not abdication. Just because you have assigned a task to another person does not mean that you are no longer accountable. And the more important the task, the more important it is that you keep on top of it.

What task can you effectively delegate to someone else? Which one of your employees can handle the task efficiently?

Courtesy: Brian Tracy, Best-Selling Author, Speaker and Success Coach

List of Basic Items for Executor to Obtain

List of Basic Items for Executor to Obtain
The following is a basic list of items for the executor to obtain to enable the practitioner to prepare the estate tax return.  Depending on the size of the estate and other factors, other items may be necessary:

	1.  Last Will & Testament.
	2.  Inventory of  personal effects.
	3.  List of all bank accounts, including savings accounts.
	4.  List of investments.
	5.  List of pension funds.
	6.  Copies of life insurance policies.
	7.  Legal description of all real estate, copies of deeds, promissory notes and deeds of trust.
	8.  Legal description of mineral interests and amount of any income being received from such interests.
	9.  Legal description of property located in other counties or states.
	10.  Gift tax returns and list of lifetime gifts by the decedent.
	11.  Copies of all trust agreements where the decedent was a grantor, trustee or beneficiary.
	12.  Copies of income tax returns for at least the last three years.
	13.  Schedule K-1s from partnerships and S corporations for at least the last three years.
	14.  Copy of homeowner’s insurance.
	15.  List of all administration expenses including funeral expenses.
	16.  Names, addresses, ages, relationship and social security number of all beneficiaries.
*****	17.  Names and addresses of all professional advisors of decedent.

Source:  Practitioners Publishing House, Fort Worth, TX

US Income Tax History

US Income Tax History
The nation had few taxes in its early history. From 1791 to 1802, the United States government was supported by internal taxes on distilled spirits, carriages, refined sugar, tobacco and snuff, property sold at auction, corporate bonds, and slaves.
The high cost of the War of 1812 brought about the nation's first sales taxes on gold, silverware, jewelry, and watches. In 1817, however, Congress did away with all internal taxes, relying on tariffs on imported goods to provide sufficient funds for running the government.
1643: The colony of New Plymouth, Massachusetts levies the first recorded income tax in America.

1861: Congress passed the first income tax law as an emergency measure to fund the Civil War. In order to support the Civil War effort, Congress enacted the nation's first income tax law, Revenue Act of 1861. It was a forerunner of our modern income tax in that it was based on the principles of graduated, or progressive, taxation and of withholding income at the source. During the Civil War, a person earning from $600 to $10,000 per year paid tax at the rate of 3%. Those with incomes of more than $10,000 paid taxes at a higher rate. Additional sales and excise taxes were added, and an “inheritance” tax also made its debut.
The Act of 1862 established the office of Commissioner of Internal Revenue. The Commissioner was given the power to assess, levy, and collect taxes, and the right to enforce the tax laws through seizure of property and income and through prosecution. The powers and authority remain very much the same today.
In 1866, internal revenue collections reached their highest point in the nation's 90-year history—more than $310 million, an amount not reached again until 1911.
In 1868, Congress again focused its taxation efforts on tobacco and distilled spirits and eliminated the income tax in 1872.
1872: Congress repeals (eliminates) the income tax law.
1894: As a response to complaints that excessive reliance on tariffs as a source of revenue resulted in an increase in the cost of imported goods, Congress again passed an income tax law which had a short-lived revival.
1895: The US Supreme Court ruled that the income tax law was unconstitutional. US Supreme Court decided that the income tax was unconstitutional because it was not apportioned among the states in conformity with the Constitution. Pollock v. Farmers' Loan & Trust Company, 157 U.S. 429 (1895), aff'd on reh'g, 158 U.S. 601 (1895), with a ruling of 5–4, was a landmark case in which the Supreme Court of the United States ruled that the unapportioned income taxes on interest, dividends and rents imposed by the Income Tax Act of 1894 were, in effect, direct taxes, and were unconstitutional because they violated the provision that direct taxes be apportioned. (The decision was superseded in 1913 by the Sixteenth Amendment to the United States Constitution.)
1909: Modern income tax: Fifteen years after Pollock, Congress took two actions to deal with their increasing revenue needs.

• Corporate income ("excise") tax. First, they passed a corporate income tax, but labeled it an “excise tax.” The tax was set at 1% on all incomes exceeding $5,000. In 1911, the U.S. Supreme Court upheld this corporate “excise tax” as constitutional in Flint v. Stone Tracy Company, in which the court ruled that the tax was a special excise tax on the privilege of doing business.
• Sixteenth Amendment. More importantly, in 1909 Congress passed the Sixteenth Amendment, which would do away with the apportionment requirement of the Constitution if enacted. This amendment reads as follows:
• The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

1913: In February the 16th Amendment was ratified by the necessary 3/4 of the states. On October 3rd Congress passed the Revenue Act of 1913, making the income tax a permanent fixture in the U.S. tax system. The amendment gave Congress legal authority to tax income and resulted in a revenue law that taxed incomes of both individuals and corporations. Congress almost immediately enacted the Revenue Act of 1913. The tax ranged from 1% on income exceeding $3,000 to 7% on incomes exceeding $500,000. In effect, this statute introduced for the first time the notion of a progressive tax rate structure; the tax rate increases as the base, income in this case, increases. In the first year only 1 out of every 271 American citizens were taxed and $28 Million in revenue was raised.
1916: The Federal Estate Tax was enacted to help generate additional revenue to fund America's anticipated entry into the first World War. The US Supreme Court in 1916 upheld the progressive income tax as constitutional in Brushaber v. Union Pacific Railroad Company, 240 U.S. 1 (1916). The Supreme Court indicated that the amendment did not expand the federal government's existing power to tax income (meaning profit or gain from any source) but rather removed the possibility of classifying an income tax as a direct tax on the basis of the source of the income. The Amendment removed the need for the income tax to be apportioned among the states on the basis of population. Income taxes are required, however, to abide by the law of geographical uniformity.
1917: Congress raised tax rates in response to the increasing cost of the war and approved credit for dependents and deductions for charitable contributions.
1918: The maximum combined basic and super income tax rate reached 77%. In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920.
1922: For the first time preferential tax treatment was provided for capital gains.
1932: The tax law was amended to provide that US presidents were liable for federal income tax on their salaries. Franklin Roosevelt was the first president since Abraham Lincoln to pay federal income tax on his presidential salary.
1935: The Social Security tax, 1% on the first $3,000 of wages, was enacted.
1940: First Social Security benefits were paid.
1941: Tax tables for low-income taxpayers were introduced, simplifying the calculation of tax liability.
1942-1945: With the advent of World War II, employment increased, as did tax collections—to $7.3 billion. New tax laws, in response to the cost of World War II, created withholding on wages in 1943, more tax brackets for lower income taxpayers, the standard deduction, a personal exemption for dependents, a deduction for medical expenses, and increased tax rates. The withholding tax on wages was introduced in 1943 and was instrumental in increasing the number of taxpayers to 60 million and tax collections to $43 billion by 1945. By the end of the war the maximum tax rate was 94%.
1953: The Bureau of Internal Revenue becomes the Internal Revenue Service.
1954: Congress completely revised the Tax Code, changing rates, redefining Adjusted Gross Income, and adding credits for retirement income and dividends and new itemized deductions.
1961: Taxpayers were required to provide their Social Security or other taxpayer identification number to banks and other financial institutions so they could report interest and dividend payments to the IRS.
1964: Tax rates were reduced from a range of from 20% to 94% to from 16% to 77%. The Income Averaging method of tax computation was introduced.
1970: Congress created a Minimum Tax so high-income individuals could not completely avoid paying taxes through the use of preferential tax shelters, loopholes and deductions.
1974: Congress created the deductible Individual Retirement Account (IRA) for taxpayers not covered by employer pension plans as part of ERISA.
1975: Low-income taxpayers were allowed to claim a refundable Earned Income Tax Credit (EITC).
1979: Unemployment compensation was made partially taxable.
1981: Tax legislation reduced tax rates by 25% over 3 years, indexed tax brackets for inflation, and applied the same tax rates to earned and unearned income. In 1981, Congress enacted the largest tax cut in U.S. history, approximately $750 billion over six years. The tax reduction, however, was partially offset by two tax acts, in 1982 and 1984, that attempted to raise approximately $265 billion.
1984: For the first time recipients of Social Security and Railroad Retirement benefits were subject to tax on up to 50% of the benefits received (President Reagan), depending on the recipient's income.
1986: On Oct 22, 1986, President Reagan signed into law the Tax Reform Act of 1986, one of the most far-reaching reforms of the United States tax system since the adoption of the income tax. The top tax rate on individual income was lowered from 50% to 28%, the lowest it had been since 1916. Tax preferences were eliminated to make up most of the revenue. In an attempt to remain revenue neutral, the act called for a $120 billion increase in business taxation and a corresponding decrease in individual taxation over a five-year period.
The largest revision of the Tax Code since 1954, the Tax Reform Act of 1986, was enacted. The law reduced the number of tax brackets from 14 to 2, decreased the maximum tax rate from 50% to 28%, repealed the dividend exclusion, Income Averaging, the itemized deduction for sales tax paid and the preferential treatment of long-term capital gains, introduced the passive activity rules, the Kiddie Tax, the deduction from gross income for health insurance premiums paid by self-employed individuals, and the 2% of AGI limitation on most miscellaneous itemized deductions, phased out the itemized deduction for personal (credit card, auto loan, etc.) interest, limited the deduction for business meals and entertainment to 80%, and replaced the additional personal exemption for age 65 and blind with an increased standard deduction.
1987: For the first time taxpayers were required to list the Social Security number of dependent children, age 5 and over.
1990: Following what seemed to be a yearly tradition of new tax acts that began in 1986, the Revenue Reconciliation Act of 1990 was signed into law on Nov. 05, 1990. As with the '87, '88, and '89 acts, the 1990 act, while providing a number of substantive provisions, was small in comparison with the 1986 act. The emphasis of the 1990 act was increased taxes on the wealthy.
Revenue Reconciliation Act of 1990 added a third tax bracket (31%) and instituted the reduction of itemized deductions and phase-out of personal exemptions for high-income taxpayers.
1993: On Aug. 10, 1993, President Clinton signed the Revenue Reconciliation Act of 1993 into law. The act's purpose was to reduce by approximately $496 billion the federal deficit that would otherwise accumulate in fiscal years 1994 through 1998.
OBRA 1993 increased the taxable share of Social Security and Railroad Retirement Tier I benefits for some beneficiaries. That law taxes up to 85% of benefits for individuals whose provisional income exceeds $34,000 and for married couples whose provisional income exceeds $44,000.
Omnibus Budget Reconciliation Act added the 36% and 39.6% tax brackets, increased the maximum tax on Social Security benefits from 50% to 85% (President Clinton), and reduced the deduction for business meals and entertaining from 80% to 50%.
In 1997, Clinton signed another tax act. The act, which cut taxes by $152 billion, included a cut in capital-gains tax for individuals, a $500 per child tax credit, and tax incentives for education.
1998: In response to abusive treatment of taxpayers by the Internal Revenue Service, the IRS Reform and Restructuring Act of 1998 was enacted.
2001: Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001, the largest tax cut in over 20 years, with 85 major provisions. All provisions of this act will expire in 2011.
President George W. Bush signed a series of tax cuts into law. The largest was the Economic Growth and Tax Relief Reconciliation Act of 2001. It was estimated to save taxpayers $1.3 trillion over ten years, making it the third largest tax cut since World War II. The Bush tax cut created a new lowest rate, 10% for the first several thousand dollars earned. It also established a slow schedule of incremental tax cuts that would eventually double the child tax credit from $500 to $1,000, adjust brackets so that middle-income couples owed the same tax as comparable singles, cut the top four tax rates (28% to 25%; 31% to 28%; 36% to 33%; and 39.6% to 35%).
2003: To stimulate the economy, Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003, the third major tax bill in as many years, and the third largest tax cut in history. The Jobs and Growth Tax Relief and Reconciliation Act of 2003 accelerated the tax rate cuts that had been enacted in 2001, and temporarily reduced the tax rate on capital gains and dividends to 15%.
2004: The US was forced to eliminate a corporate tax provision that had been ruled illegal by the World Trade Organization. Along with that tax hike, Congress passed a cornucopia of tax breaks, which for individuals included an option to deduct the payment of whichever state taxes were higher, sales or income taxes.
Two tax bills signed in 2005 and 2006 extended through 2010 the favorable rates on capital gains and dividends that had been enacted in 2003, raised the exemption levels for the Alternative Minimum Tax, and enacted new tax incentives designed to persuade individuals to save more for retirement.
2010: Commonly called Obamacare or the Affordable Care Act, signed into law by President Barack Obama on March 23, 2010. Together with the Health Care and Education Reconciliation Act, it represents the most significant government expansion and regulatory overhaul of the US healthcare system since the passage of Medicare and Medicaid in 1965.
The PPACA is aimed at increasing the rate of health insurance coverage for Americans and reducing the overall costs of health care. It provides a number of mechanisms—including mandates, subsidies, and tax credits—to employers and individuals to increase the coverage rate.
2012: American Taxpayer Relief Act of 2012  was passed by Congress on January 1, 2013, and was signed into law by President Barack Obama the next day.
The Act centers on a partial resolution to the United States fiscal cliff by addressing the expiration of certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (known together as the "Bush tax cuts"), which had been temporarily extended by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The Act also addressed the activation of the budget sequestration provisions of the Budget Control Act of 2011.
As a compromise measure, the Act gives permanence to the lower rate of much of the Bush tax cuts, while retaining the higher tax rate at upper income levels that became effective on January 01, 2013 as a result of the expiration of the Bush tax cuts. The Act also establishes caps on tax deductions and credits for those at upper income levels.  It did not tackle federal spending levels or debt control to any great extent, instead leaving that for further negotiations and legislation.
Source: Tax Foundation, Wikipedia, Internal Revenue Code