Much of the Internet is abuzz with stories about the Internal Revenue Service abusing their authority.
Several conservative groups, who labeled themselves as “Tea Party” or “Patriot” organizations, were given extra scrutiny during their 501(c)(4) application process.
The 501(c) section of the U.S. tax code defines how non-profit agencies will be taxed or not taxed. Many charities are 501(c)3 organizations. They are completely tax free because and aren’t allowed to endorse political parties or causes.
By technical definition a 501(c)(4) is a social welfare organization. They differ from charities because they are allowed to engage in political activity and lobby for causes, as long as it is their secondary purpose. In exchange, 501(c)(4)s are not completely tax exempt. Their political expenditures are taxed. Contributions to 501(c)(4)s are not tax exempt either.
Yes. It’s pretty confusing.
In regards to the IRS, much of the media coverage on this scandal has focused on the political ramifications of what they have done by targeting only specific organizations. That’s fine. But once the political part is over, more attention should be paid to the IRS.
The bottom line is the IRS is just too powerful and the tax code creates that power.
Several times over the past few years, a few politicians have indicated a willingness to change and simplify the tax code. That willingness always seems to turn to smoke after an election cycle concludes. Currently, there are 73,954 pages in the United States Tax Code. The Bible has 1,281. “War and Peace” checks in at 1,440.
This presents a perfect opportunity to challenge the politicians to take some of the power away from the IRS so they can’t continue to play politics with the tax code. In 1913, when the income tax was first implemented the tax code was 400 pages. Even that is too much. A flat tax with no exemptions could reduce to tax code to, as Bruce St. James would say, a three-by-five card. Imagine that. It would take minutes to fill out the yearly tax forms, not hours.
A consumption tax might be even better. That would eliminate the need for the IRS and tax forms all together. After this story, that sounds like the best idea of all.
Hopefully, this opportunity for change isn’t dismissed.