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.”
The Tax Code is highly precise about what constitutes luxury cars. According to Section 280F(a)(1)(A)(iii), for bonus depreciation, a “luxury automobile” must cost at least $24,935. Willis had to use algebra to calculate this figure!
Under Section 1.170A-12(e)(2), the Treasury explains the “special factor” used for “the valuation of a remainder interest following two lives”:
The Tax Code is a museum of run-on sentences. Just the first sentence of Section 509(a) — on private foundations — contains one period, three semi-colons, six dashes, nine parentheticals, and 25 commas. Professor Willis sees 327 words in that sentence. I find 373, using Microsoft Word’s word-count function. Perhaps it depends on what the meaning of the word “word” is. Word considers “170(b)(1)(A)” a word. I would call it something else — although that word fails me.
Now, take a deep breath and try to read this sentence aloud without fainting:
For purposes of this title, the term “private foundation” means a domestic or foreign organization described in section 501(c)(3) other than–
(1) an organization described in section 170(b)(1)(A) (other than in clauses (vii) and (viii)); (2) an organization which –
(A) normally receives more than one-third of its support in each taxable year from any combination of –
(i) gifts, grants, contributions, or membership fees, and (ii) gross receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in an activity which is not an unrelated trade or business (within the meaning of section 513), not including such receipts from any person, or from any bureau or similar agency of a governmental unit (as described in section 170(c)(1)), in any taxable year to the extent such receipts exceed the greater of $5,000 or 1 percent of the organization’s support in such taxable year,
from persons other than disqualified persons (as defined in section 4946) with respect to the organization, from governmental units described in section 170(c)(1), or from organizations described in section 170(b)(1)(A) (other than in clauses (vii) and (viii)), and (B) normally receives not more than one-third of its support in each taxable year from the sum of –
(i) gross investment income (as defined in subsection (e)) and (ii) the excess (if any) of the amount of the unrelated business taxable income (as defined in section 512) over the amount of the tax imposed by section 511;
(3) an organization which –
(A) is organized, and at all times thereafter is operated, exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified organizations described in paragraph (1) or (2), (B) is –
(i) operated, supervised, or controlled by one or more organizations described in paragraph (1) or (2), (ii) supervised or controlled in connection with one or more such organizations, or (iii) operated in connection with one or more such organizations, and
(C) is not controlled directly or indirectly by one or more disqualified persons (as defined in section 4946) other than foundation managers and other than one or more organizations described in paragraph (1) or (2); and
(4) an organization which is organized and operated exclusively for testing for public safety.
A 373-word sentence is a mere monosyllable compared to the totality of the U.S. Tax Code. The CCH Standard Federal Tax Reporter includes every page of the Code, plus the swarm of regulations, decisions, and other fine print that govern federal taxes. CCH estimates that the Tax Code spanned just 400 pages when Congress imposed the income tax in 1913. By 1984, as Ronald Reagan chopped rates and streamlined the tax thicket, it stretched to 26,300 pages. Today, the U.S. Tax Code runs 73,954 pages. That equals 57 copies of Vintage Classics’ 1,296-page edition of War and Peace. And the only thing more hilarious than Tolstoy’s saga is 57 copies of it, standing side by side.
America needs a universal 10 percent flat tax with no deductions. This would be far less knee-slapping than the status quo. However, shutting every loophole, macheteing rates, and requiring every American to have some skin in the game and pay the same fair share would replace today’s vaudeville act with a tax code worthy of Earth’s sole surviving superpower.
Meanwhile, the Tax Foundation reports that Tax Freedom Day will fall on Thursday, April 18. That is five days later than last year. So, the biggest joke of all is that if you pay your taxes on April 15, you still must pay your taxes. You will owe Uncle Sam three more days of hard labor in 2013 before you start working for yourself.
— Deroy Murdock is a Fox News contributor, a nationally syndicated columnist with the Scripps Howard News Service, and a media fellow with the Hoover Institution on War, Revolution, and Peace at Stanford University.