Internal Revenue Service
During the American Civil War, funds were needed to finance the war. In 1861, Congress drafted a bill for a direct tax on personal and corporate income. This first income tax charged 3% on incomes over $800. The bill passed both houses of Congress but never went into effect. In 1862, however, Abraham Lincoln signed a bill that called for a 3% tax on incomes between $600 and $5,000, 7.5% on incomes between $5,000 and $10,000 and 10% on incomes over $10,000. There were debates in Congress over the constitutionality of the direct income tax, but no action was taken. It was allowed to expire in 1872 when it came up for renewal.