Teacher Lesson Plan

Understanding Taxes

Name _____________________ Date ____________

Worksheet

Theme 6: Understanding the IRS

Lesson 4: The Taxpayer’s Rights

Key Terms

income taxes—Taxes on income, both earned (salaries, wages, tips, commissions) and

unearned (interest and dividends). Income taxes can be levied both on individuals

(personal income tax) and businesses (business and corporate income taxes).

Internal Revenue Service (IRS)—The federal agency that collects income taxes in the U.S.

revenue—The income the nation collects from taxes.

Summary

The Constitution gave Congress the power to levy federal taxes. Tariffs were the federal

government’s chief source of revenue until the Civil War, when Congress passed the first

federal income tax to help cover war costs. The Office of the Commissioner of Internal

Revenue was set up to collect the taxes.

The Civil War income tax ended in 1872. Congress tried to pass a similar income tax, but

in 1895 the Supreme Court declared it unconstitutional. No more federal income taxes

were levied until the Sixteenth Amendment was passed in 1913.

In 1953 the completely reorganized Bureau of Internal Revenue was renamed the

Internal Revenue Service (IRS). Throughout the second half of the twentieth century,

tax laws were restructured to better serve taxpayers. The Tax Reform Act of 1969 helped

to stop corporations and the rich from avoiding taxes. The Tax Reform Act of 1986

reduced the number and level of tax rates. The Taxpayer Relief Act of 1997 made more

than 800 changes to the existing tax code.

Today, the IRS is a service agency that checks tax returns, collects tax payments, and

issues refunds to taxpayers. Electronic filing, available nationwide in 1990, makes filing

taxes faster, easier, and more accurate than ever before.

In 1997, President William J. Clinton signed the Balanced Budget Act of 1997 and the

Taxpayer Relief Act of 1997, making more than 800 changes to the existing tax code.

These changes would affect nearly all taxpayers.

IRS History

Understanding Taxes

Activity 1

Match each tax event to its correct date found in the answer key. Write the letter of the

date that each event occurred in the space provided.

Answer Key:

A. 1913

B. 1997

C. 1872

D. 1953

E. 1986

F. 1943

G. 1862

H. 1969

I. 1895

J. 1990

K. 1997

C Civil War income tax ends

E Tax Reform Act reduced the number and level of tax rates

F The “pay-as-you-go” system begins

G First income tax collected

B or K Taxpayer Relief Act brings over 800 changes to tax law

H Tax Reform Act stops corporations from avoiding taxes

J Electronic filing available nationwide

A Sixteenth Amendment provides for a permanent income tax

I Supreme Court declares income tax unconstitutional

D Bureau of Internal Revenue renamed IRS after complete reorganization

K or B Taxpayer Relief Act passes

Understanding Taxes

Activity 2

Match the descriptions of important people in IRS history to the names in the answer key.

Write the letter of each person in the space before each description.

Answer Key:

A. Shirley Peterson

B. Lord Charles Townshend

C. Harry S. Truman

D. Oscar W. Underwood

E. Alexander Hamilton

F. Abraham Lincoln

G. William L. Wilson

H. Franklin D. Roosevelt

E First Secretary of the Treasury. In 1790 he proposed that the United States

government pay its debt to countries and individuals who helped finance the

American Revolution. His Revenue Act of 1791 imposed an excise tax on alcohol

and tobacco products. This “Whiskey Tax” was the first internal tax in the United

States.

B Wrote the Townshend Acts, which set up a Board of Customs Commissioners in

the Colonies and imposed import duties on glass, lead, oil, paints, paper, and tea.

Called “England’s most fateful decision,” the passage of the Townshend Acts was

one of the incidents that led to the American Revolution.

A First female commissioner in the history of tax administration in the United

States; appointed in 1992.

H This wartime President called the 1942 Revenue Act “the greatest tax bill in

American history.” The bill included a Victory Tax to help pay for the cost of

World War II.

D Author of the Underwood Tariff Bill, which provided for lowering tariffs. To

offset the loss of revenue, the bill included an income tax provision, the first to be

written under the Sixteenth Amendment.

G In 1894 this person proposed the Wilson Tariff Bill, which included an income

tax provision. The Supreme Court later found the income tax to be

unconstitutional.

F Was President when the first income tax law was passed during the Civil War.

C In 1952 this U.S. President called for a complete reorganization of the Bureau of

Internal Revenue.

Understanding Taxes

Activity 3

How do you think the United States would have fared if the Bureau of Internal Revenue

(later the Internal Revenue Service) had not been instituted? Answer the questions in the

space provided.

1. How would the United States have fared in the two world wars without revenues

from taxes?

Answers will vary but should imply that much of what we take for

granted is provided for by revenue from income taxes.

2. How would life be different for low-income, disabled, and retired Americans

without Social Security and the other services for which our taxes pay?

Answers will vary but should imply that much of what we take for

granted is provided for by revenue from income taxes.

3. Do you think the United States would have been able to attain and hold its

position in the world today without the support of taxes paying for defense?

Answers will vary but should imply that much of what we take for

granted is provided for by revenue from income taxes.

4. Would the American lifestyle, as we know it, have evolved without income taxes?

Answers will vary but should imply that much of what we take for

granted is provided for by revenue from income taxes.