As the Monday, April 15, tax-filing deadline mercilessly approaches, millions of Americans will cry as they calculate what they owe Washington and then fork it over. But, amid those tears, there will be plenty of laughs. The U.S. Tax Code is so tangled and twisted that University of Florida law professor Steven J. Willis speaks amusingly about “tax humor.” While not exactly the stuff of stand-up routines, America’s surreal tax code is a masterpiece of dark comedy.
When UF started its Graduate Tax Program in the College of Law, Willis recalls, “one requirement of the graduate school was knowledge of a foreign language. Well, that just wasn’t going to work. Then, the faculty showed the Graduate School the Internal Revenue Code, and they said that would do.”
Willis points to section 467(e)(1), which concerns pre-paid rent. It reads: “The term ‘constant rental amount’ means, with respect to any section 467 rental agreement, the amount which, if paid as of the close of each lease period under the agreement, would result in an aggregate present value equal to the present value of the aggregate payments required under the agreement.”
“I love the sentence because of the poetry,” Willis says. “I always have a student read it aloud and watch the faces.”
Also droll is Section 509(a), which defines private foundations: “For purposes of paragraph (3), an organization described in paragraph (2) shall be deemed to include an organization described in section 501(c)(4), (5), or (6) which would be described in paragraph (2) if it were an organization described in section 501(c)(3).”
For depreciation purposes, Section 168(i)(2)(B) delineates “computers and peripheral equipment:”
For purposes of this paragraph –
(i) IN GENERAL. — The term “computer or peripheral equipment” means –
(I) any computer, and
(II) any related peripheral equipment.
The Tax Code’s treatment of gambling is a hall of mirrors. IRS Form 730 covers “excise taxes for both legal and illegal wagers of certain types. For state authorized wagers placed with bookmakers and lottery operators there is a tax of 0.25% of the wager, if it is legal. If the wager is not legal, the tax is 2% of the wager.” So, one must pay legal federal taxes on gambling revenues obtained illegally under state law. According to Willis:
I’ve seen so many charities hold raffles. In Florida, such a thing is legal only if conducted by a particular type of charity and also only if the charity charges nothing for the raffle tickets. It may request a donation, but if someone asks for a free ticket, it must be provided free. . . . Under Chapter 496 of the Florida Statutes (under which all charities must register with the Department of Agriculture), soliciting a contribution while committing a crime is a third-degree felony. I suspect none of the charities that conduct such raffles have a federal illegal gambling permit, and I suspect none pay the illegal gambling tax. So, add on at least two counts of tax fraud to that, and we have multiple felonies every time a school band has a raffle.
Willis adds: “I once saw a school raffle a basket of wine and fruit. It lacked a liquor license, so add that crime. A minor won the raffle, so add providing alcohol to minors.”
The Tax Code defines contest thusly: “A contest is any competition involving speed, skill, endurance, popularity, politics, strength, or appearance, such as elections, the outcome of nominating conventions, dance marathons, log-rolling contests, wood-chopping contests, weightlifting contests, beauty contests, and spelling bees.”
Log rolling? Wood chopping? This gets deep into Monty Python territory. They’re lumberjacks, and they’re okay!
Pete Sepp of the National Taxpayers Union notes that IRS Publication 529, Miscellaneous Deductions, offers this guidance to those in military school: “If you are a student at an armed forces academy, you cannot deduct the cost of your uniforms if they replace regular clothing. However, you can deduct the cost of insignia, shoulder boards, and related items.” On the other hand, “You can deduct the cost of your uniforms if you are a civilian faculty or staff member of a military school.”