This week's collection of whimsical and curious stories will be dedicated to the IRS (and remind everybody that it is tax season). However, rather than just poking light fun at the institution, our American readers might also learn a thing or two (e.g., whether you need to declare bribes and ransoms*).
The early years (death, taxes, and alcohol) - Taxation (without representation) not only famously sparked the War of Independence, it also sparked the first internal rebellion of the newly formed United States of America. However, this time the casus belli was not tea but whiskey. More specifically, 75 whiskey distillers from Pennsylvania charged for tax evasion promptly started what is now known as the Whiskey Rebellion of 1794. This particular "war of independence" was lost and the central government expanded its power of taxation instead. The IRS continued to have a fraught relationship with distillers and in a successful campaign to not win over any hearts and minds, it was even tasked in the early 20th century to enforce prohibition and destroy any alcohol it could find (even creating a new intelligence unit for the task).
A system almost as old as Income Tax - In the early 1960s, the IRS revolutionized its paper-based record keeping for income taxes by creating the Individual Master File** - the first computer system of its kind to keep taxpayer records. Of course, the same system is still in use today holding some of its more than 1bn taxpayer accounts still on magnetic tapes. Since the software was written in Assembly and COBOL, it would arguably be easier to maintain a system written in ancient Greek. Apparently, the system also has trouble coping with particularly large numbers. Bill Gates mentioned in 2006 that his tax returns have to be "kept on a special computer because their normal computers can’t deal with the numbers" and that he is "constantly getting these notices telling me I haven’t paid something when really it is just on the wrong computer”.
Kidnappings and bribes - It is not always easy to know exactly how to declare different income streams and what circumstances mitigate the tax bill. Luckily, the IRS is sometimes oddly specific. For all those currently preparing their 2020 returns, there is a 40-page document (Link) that helpfully clarifies taxable and non-taxable income. In case you are wondering: if you "receive a bribe, include it in your income". The same is apparently true for proceeds from bank robbery, drug dealing, and other forms of illicit employment. Being the victim of a crime also has tax implications. You can claim tax deductions for ransoms paid (e.g., for a kidnapping or unlocking the files of your computer after a virus attack). Even being on trial for a crime could save you from paying taxes if you manage to claim your legal fees as business expense (Link).
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*Yes, you will have to declare it
**Ironically, the Death Master File was created shortly thereafter tracking all deaths in the United States since 1962. Even more ironically, the Strategic Automated Command and Control System (SACCS) is also still running on 1970s-era IBM Series/1 software and 8-inch floppy disks and coordinates the country's nuclear forces.
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