A 1913 amendment allowed Congress to tax incomes to finance World War I. Individuals earning more than $3,000 were taxed 1%; folks earning over $500,000 faced a 6% surtax.
The tax return application was the 1,040th form issued by the Bureau of Internal Revenue.
The first Form 1040 had 12 lines. In 1915, as the tax law expanded, a congressman griped: "I write a law. You drill a hole in it. I plug the hole. You drill a hole in my plug." So was the modern loophole born.
In the early days, taxpayers filed their returns by March 1. Agents verified the calculations and sent bills, with payment due by June 30. The filing deadline was extended to April 15 in 1955. Even so, 8.5 million taxpayers asked for extensions last year.
The bottom line: The IRS is, says a spokesperson, "the most efficient tax collection organization the world has ever known." In 2003, it cost the U.S. 45 cents to collect every $100 in taxes.
A version of this article appeared in the Table of Contents - April 2004 issue of Fast Company magazine.