Tuesday, May 28, 2013

Targeting the IRS

May 28, 2013, n:nn a.m.

Playing Politics or Just Doing Their Job?

"Tax Exempt"
David Fitzsimmons

Arizona Star, May 23, 2013



If you're having trouble reading what the Section 501(c)(4) applicant is saying, it goes like this:

"I'd like to apply for 501c4 tax exempt status as a "social welfare' group."
"No politics, here, Hawkeye. I'm Mother Theresa with tea bags. Don't tread on my fat cat backers."
"Government is not the solution. (Unless you're a corporation.)"
"Never thought I'd be using the words 'social' or 'welfare' in the same sentence." Giggle, snicker.
[And I should note, if either the Arizona Star or the brilliant and insightful David Fitzsimmons, would prefer that I take down my recommendation that you subscribe to the Star and follow David Fitzsimmons' site -- along with this particular editorial cartoon -- all they have to do is ask.]

If you guessed I'm about to say something about the recent IRS flap, you're right. If you went on to guess I'm about to suggest that IRS employees be prosecuted, or exonerated, you're wrong. ("The more information that comes out about the scandal at the Internal Revenue Service, the harder it is to say employees there erred completely in putting more scrutiny on particular groups seeking tax-exempt status. According to the New York Times, for example, several of the tea party groups targeted by the IRS were engaged in overt political activity. One group — the Wetumpka Tea Party in Alabama — sponsored get-out-the-vote training 'dedicated to "the defeat of President Barack Obama."'” Jamelle Boiule, "Some tea-party groups examined by the IRS indeed crossed the line," Washington Post, May 27, 2013.)

Why am I not yet taking sides? Because I don't think anyone -- and certainly not I -- has a clue as to what was going on in their minds when they began investigating Tea Party organizations that were seeking tax exempt Section 501(c)(4) status. And that is the information, and essentially the only information, that is needed before coming to conclusions about what went on.

If it was the case that a small cabal of partisan, rogue IRS employees decided to strike a political blow for their President during a re-election year, and focused on making life as difficult as possible for anything that smelled of right wing Obama haters, then yes, we have a problem here.

That may yet turn out to have been the case. And I haven't been following every twist and turn of this saga. But as of today I am unaware of any evidence that was the case. If it was, possibly criminal prosecutions are in order, and President Obama deserves his lumps.

But if that is not what happened, the best that can be said of the tsunami of contempt and pre-judgment that has wafted over IRS employees is that it has been grossly unfair -- and fully as much a political act as serious as what they have been falsely accused of. The worst that can be said is that these attacks do serious harm to our democracy.

Whether you think it is the role of government to care for what Jesus called "the least of these," or whether you think the only proper role of government is fighting our continuous wars and paying down our debt, the federal government needs tax revenue. And the way it gets that revenue is by way of what comes very close to being a voluntary system. There are far too few IRS employees to insure that everyone pays his or her fair share. Tearing down Americans' confidence in the integrity of their IRS comes close to being a treasonous act -- regardless of whether it comes about as a result of what IRS employees have done, or as a result of what they have been falsely accused of having done.

For starters, the use of the word "targeting" is as unfortunate as it has been deliberate. Whether we are targeting a dart board, an archery target with a bow and arrow, or a fellow human with a gun, "targeting" suggest at a minimum an intention to use force against something, sometimes out of hostility.

As I have often said, "The problem is not that corporations violate the laws; the problem is that they write the laws." There is a difference between "tax avoidance" (using the tax laws, whether you or others have written them, to legally minimize your taxes -- as Apple argues was all it was doing), and "tax evasion" (lying, or otherwise violating the tax laws).

To paraphrase former Secretary of Defense Donald Rumsfeld, "You don't collect taxes with the law you wish you had, you collect taxes with the law Congress hands you." If you and your tax lawyer think the Internal Revenue Code is more complex than it either should or needs to be, at least you only deal with it once a year. IRS employees have to deal with it many times every day.

I used to have to deal with the requirements of sections 501(c)(3) and 501(c)(4) when chair of the National Citizens Committee for Broadcasting. Both are made up of pretty fluffy stuff for even the most honorable among us. For those who wouldn't qualify for membership in that tiny group, the Code offers a great many temptations.

If the IRS doesn't have enough employees to thoroughly investigate every tax return, or request for special status, how can they decide where to put their limited resources?

The same way every other institution does. Doctors on the battlefield, or in an overcrowded hospital emergency room, use something called triage, separating the sick and injured into three groups: those who will die no matter what treatment they receive, those who will live regardless of how long their treatment is postponed, and those who will live if treated promptly and die if they are not. They are not "targeting" the last group; they are simply engaged in rational prioritizing. The management guru Peter Drucker would point out to some businesses that they were spending 90 percent of their sales force's efforts generating 10 percent of their gross sales, and 10 percent of their effort on the customers producing 90 percent. He didn't suggest they "target" those producing 90 percent, just give them a little more tender loving care. If a company is concerned that its sales force's travel expenses have been increasing too rapidly, it may chose to first focus on those employees who are the 5 percent top outliers. As we've recently learned, roughly one-quarter of the nation's 607,000 bridges need attention -- 66,749 are structurally deficient, 84,748 are functionally obsolete. We've been putting this off for at least a half-century. Now that we're going to do something about it, and we can't fix or replace all of them in a year or two, wouldn't a similar kind of prioritizing and focus be a good idea?

That's what IRS employees have to do every day. That's what I think, based on what I've read, they did here. If an increasing number of taxpayers are claiming that they are entitled to a business deduction for the portion of their living quarters in which they are "working on their business," that might call for a little more attention being devoted to taxpayers making that claim. Given the way Congress wrote the law, "more attention" might require a lot of questions the taxpayers consider unduly intrusive. The same would be true of businesses claiming expenses as non-taxable "business expenses" when the items look more like monkey business.

Whether an organization wants to offer its donors a tax deduction for contributions (501(c)(3)) or simply not have to pay taxes on its income or disclose the names of donors (501(c)(4)) each is a request to the IRS for special treatment resulting in less tax revenue for the government. And the answers, under the law, may well turn on who is doing what, and how much of it, and what can fairly be called "political" activity. The only way to find out what is necessary to make such judgments is to ask a lot of questions. That's not the IRS employees' fault. They are just doing their job. It's Congress' fault for not making more precisely clear what their standards are. And it seems to me that, like a doctor doing triage, with all the changes in corporations becoming people, the restraints off on anonymous million-dollar donations, and the new grassroots organizations on the left and right, it was a perfectly sensible thing for the IRS to do to give some attention to possible abuses.

It will be awhile before at least I have any confidence in answering the question of whether these IRS employees were "Playing Politics or Just Doing Their Job." And until we do know the answer it seems to me the less tearing down of Americans' confidence in their IRS, the better.

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