DC Johnston: How U.S. companies get rich off taxes

My main bearded tax expert David Cay Johnston is back with more perfectly legal scams that big business use to get rich at our expense. Here it is in layman's terms:

Imagine how your bank statement would look if, instead of having taxes taken out of your weekly paycheck, Congress let you keep that dough in return for your promise to pay your taxes years or decades from now—and sometimes, never.

That’s the extraordinary deal Congress gives many big American companies now sitting on hundreds of billions of dollars of what are, essentially, interest-free loans. Apple and GE owe at least $36 billion in taxes on profits being held tax-free offshore, Microsoft nearly $27 billion and Pfizer $24 billion, according to Citizens for Tax Justice, a nonprofit organization respected for the integrity of its numbers even by groups that dislike its progressive perspective.

'Twas not always thus, Johnston reminds us, and as usual, it's Reagan's fault [emphasis mine]:

The use of offshore tax havens to convert profits into expenses stems from a 1986 change to Section 531 of the tax code. Starting in 1909, Congress imposed a 15 percent penalty on corporate cash-hoarding. That was supposed to encourage companies to reinvest and pay salaries and dividends, rather than weaken the economy by stuffing profits into the corporate equivalent of the proverbial mattress.

The 1986 amendment said companies could hold unlimited amounts of cash, provided it was in offshore accounts. Today at least 362 of the Fortune 500 companies have more than 7,800 tax haven subsidiaries, many stuffed with cash, according to a tiny nonprofit research organization, the Institute on Taxation and Economic Policy. 

Johnston also reminds us of the IRS's double standard, one for all of us Joe Schmoes and another for corporations: "For the vast majority of people with regular W-2 jobs, income taxes are taken out before you get your check. Congress does not trust you, so it demands its cut up front and requires your employer, bank and stockbroker to verify what they paid you."

However, [emphasis mine]:

[I]f you are a multinational, the government takes your word on how much you owe, subject only to the increasingly rare audits by the IRS. Top IRS auditors, paid about $150,000, each find on average $19 million of corporate taxes due each year, according to data the IRS discloses to Syracuse University researchers each month. Even though each auditor finds $126 in taxes owed for each dollar he or she earns in pay (a great return on investment), Congress has been steadily shrinking their ranks for more than two decades. It also hobbles auditors by allowing them to look only at issues the companies have been warned about, a practice similar to food, hospital and pet shop inspectors tipping businesses off that they are coming so they can clean up first.

Let me highlight that: the IRS is the only government agency that makes money -- it enhances our government's fiscal position, making our government less likely to go bankrupt -- and yet Republicans in Congress consistently underfund the IRS as it tries to enforce the tax laws already on the books. 

(So next time Republicans say they won't pass immigration reform because President Obama won't enforce existing laws, you'll know they're hypocrites.)

Perhaps the most perverse thing that happens is this:

Many companies, though, take a much simpler and safer approach when investing their untaxed profits. They buy U.S. Treasuries, those bonds the government sells because it spends more than it collects in taxes. In that way, the federal government pays companies to delay paying their taxes.

This is a classic heads-you-win-tails-I-lose economic plan: The government loans money to big companies interest-free, then borrows it back with interest.

Pretty sweet deal, if you can get it!

Corporate Deadbeats: How Companies Get Rich Off Of Taxes

By David Cay Johnston

September 4, 2014 | Newsweek

URL: http://www.newsweek.com/corporate-deadbeats-how-companies-get-rich-taxes-268303

Dems propose Net Neutrality bill that has not a chance in hell

I'd proudly call this a class warfare bill.  Net neutrality is one of those issues that separates the wheat from the chaff.  

So why isn't talk radio and Fox News going nuts over this bill, which should be known as the "Keep the Internet the Way It's Always Been Act"? 

Well, you see, it's much easier for conservative bloviators to foam at the mouth over alleged denials of tax-exempt status by the IRS for clearly political Tea Party groups that are most certainly not "social welfare organizations."  

Yeah, that's the ticket. None of these Tea Partiers are engaged in politics, no sir!....

Democrats Unveil A Bill To Ban Internet Fast Lanes

By Elise Hu

June 17, 2014 | NPR

URL: http://n.pr/1kK5XYR

Guerilla class warfare: IRS audits fewer rich, more poor people

Channeling the spirit of my man David Cay Johnston, I'm gonna tell you why this mundane story matters.

See, Republicans in Congress cynically under-fund the IRS year in, year out. So an undermanned, undertrained IRS makes do and does what comes easier, relatively -- auditing people with lower incomes. Because higher-income filers have lawyers and complicated returns and it requires more manpower to check them.  

What this works out to, in reality, is a calculated game of probability by rich filers: if you're wealthy, and you're lawyered up, chances are you'll come away unaudited; and even if you are audited, you'll come away unscathed.  

And so wealth inequality is a double-whammy for the poor and working class: earning so much less, they are still more likely to be audited. 

BECAUSE THAT'S THE WAY THE GOP WANTS IT.  Don't be naive and believe otherwise.

Finally, do I really have to explain how this makes no business sense?  As every auditor knows, you focus your attention on the weakest control points with the highest potential for losses. The potential for losses among poor filers is minimal, almost nil.  

All the Tea Partyers who are serious about fiscal health should cheer on  the IRS, because every dollar spent on the IRS  brings in $255 to the U.S. Treasury. Just by enforcing existing tax laws passed by Congress, nothing more. No other government agency can boast of such efficiency!  And so it's time for the TPs to put up or shut up about the IRS, the only government agency that reduces the federal deficit.

U.S. IRS audited fewer wealthy Americans in 2013

By  Patrick Temple-West

March 21, 2014 | Reuters

The U.S. Internal Revenue Service said on Friday that it audited fewer high-income Americans in 2013 than it did in 2012 or 2011, while it conducted more audits of people with no income.

Total audits fell by 5 percent from 2012 to reach the lowest level since 2008 as the IRS said it coped with budget cuts.

For the fiscal year that ended September 30, 2013, the IRS said it audited 24.2 percent of individual tax returns with adjusted gross income of $10 million or more. That was down from 27 percent in 2012 and 30 percent in 2011.

There were also fewer individual tax returns audited in the $5 million to $10 million gross income band, the IRS said.

In total, the IRS audited about 1.4 million individual returns. IRS Commissioner John Koskinen said in a statement that budget cuts at the agency have "presented challenges."

Wealthy Americans historically are the likeliest to be audited. The IRS a few years ago started a "Global High Wealth Industry Group" to audit high-wealth individuals more efficiently.

But Congress in January cut the IRS's fiscal 2014 budget by about 4 percent to $11.3 billion.

The funding cuts have forced the IRS to cut the number of customer service representatives it employs during tax season, Colleen Kelley, president of the National Treasury Employees Union said in a statement. "Both taxpayers and employees are frustrated."

Last year, audits were done on 6 percent of individual tax returns reporting no gross income, up from 2.7 percent in 2012 and 3.4 percent in 2011.

MB360: U.S. income divide is a yawning chasm

Here MB360 reminds us how the U.S. middle class has disappeared in our new Gilded Age of wealth inequality, where the top 10 Percent own 75 percent of all wealth [emphasis mine]:

Since the 1950s the trend has only moved in one direction.  People often talk about top tax brackets and how high income taxes are but if you look at the above chart, the average tax rate for those in the top 1 percent is 23.5 percent.  How is that when the top tax bracket is 39.6 percent?  First, many people have better methods of tax avoidance: IRAs, 401ks, dividend income, real estate deductions, etc.  Since the bulk of wealth is in the hands of the top 10 percent, this group is already lowering their tax burden via these deductions and beneficial tax structures.  Since the typical American is living paycheck to paycheck with little saved for retirement these tax reducers don’t really help.  Besides, their income tax burden share is minimal.  However, their other tax burdens are large as a proportion to their income.  This is usually ignored when people talk about how little the working class pay in this country as they try to scapegoat the disappearing middle class.

More to the point, the middle class by definition should be well, the middle.  In this case, being middle class is a household making $35,000 or more.  We often hear about $250,000 being middle class by the media but by the IRS tax data, this is closer to being in the top 2 percent of AGI.  Not exactly middle class when 98 percent are below you.  Even if we look at the bottom 75 percent, the cutoff here is $70,492; certainly a far away cry from $250,000.  Or even the top 5 percent starting point of $167,728.

Remember the 2012 presidential campaign when Romney said, amazingly, that the middle class was any household making "$200,000 to $250,000 and less"?  And less, indeed. The media didn't put his absurd comment in context, although the IRS income data was right there for them to see -- probably because the Obama campaign's definition of middle class was basically the same. 

Folks, U.S. economic inequality is still the elephant in the room; it was the most under-reported story of 2013.

Happy New Year!  Let's hope it's a more equitable one.

The Great Income Divide: IRS data shows 50 percent of households make less than $35,000 per year. Top 10 percent pay 68 percent of income taxes.

Posted by mybudget360 | December 31, 2013

URL: http://www.mybudget360.com/great-income-divide-tax-rates-who-pays-income-taxes-wealth-inequality-tax-pay/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+mybudget360%2FQePx+%28My+Budget+360%29

Cheater nation: The scam that is the U.S. nonprofit sector

In the U.S., charity is becoming big business:

More than 1.6 million nonprofit groups are registered with the federal government, and they control more than $4.5 trillion in assets.... From 2000 to 2010, the number of registered nonprofits increased by 24 percent, according to an Urban Institute study. Annual revenue at such organizations, adjusted for inflation, grew by 41 percent.

And just as in Big Business, cheating is rife.

According to a Washington Post analysis, from 2008 to 2012, more than 1,000 nonprofits declared to the IRS that they had "significant diversion" of assets -- theft, fraud, embezzlement, etc.  And those are only the ones that owned up!

Moreover, the IRS is pretty lax about what "diversions" must be disclosed: only amounts more than $250,000 or those identified as having exceeded 5 percent of an organization’s annual gross receipts or total assets. 

We're talking hundreds of millions of dollars being misspent or just plain stolen.

We'd be better off trusting the U.S. Government to do the poverty-alleviation work of many of these nonprofits. With it comes Congressional oversight, stringent public procurement rules, rigorous accounting and Inspector General audits.

Inside the hidden world of thefts, scams and phantom purchases at the nation’s nonprofits

By Joe Stephens

October 26, 2013 | Washington Post

URL: http://wapo.st/1bqGqAN

Fund the IRS to reduce the deficit

This story will drive my dear Republican friends crazy because it's true:

The Internal Revenue Service’s limited, focused exams of federal tax filings—known as correspondence exams—can yield a $7 return for every dollar spent, the Government Accountability Office found in a December report. Even more complex face-to-face investigations yielded a return of $1.8 for every dollar spent.

My man David Cay Johnston mentioned similar stats in his well-researched books Perfectly Legal and Free Lunch and in his articles on tax policy. Recently, Johnston cited a report by Citizens for Tax Justice that found that, [emphasis mine]:

Every dollar invested in the IRS’s enforcement, modernization and management system reduces the federal budget deficit by $200. Here’s another metric. Every dollar the IRS “spends for audits, liens and seizing property from tax cheats” garners ten dollars back.

And as WaPo describes, Mississippi, one of our 50 "laboratories of democracy," increased its spending on tax collection at the state level and got an even better return: $23 for every dollar spent on tax collection!

So why isn't the Grand Old Tea Party demanding that the IRS and every state do the same, to shore up our deficits and restore our fiscal health? Could it be they don't really care about budget deficits at all, only lowering taxes for themselves?.... 

How Mississippi turned $3.5 million into $80 million

By Niraj Chokshi

September 5, 2013 | Washington Post

URL: http://wapo.st/1aaf3vu

Rush: 'Don't trust Obama!'...'It's too bad people distrust Obama'

Here's the end of a very long rant by Rush Limbaugh today about Obama's order to close 21 embassies in the Middle East and Africa:

But there's another aspect of this that's dangerous. 

The very fact that there are so many people who are cynical about this, the very fact that there are so many Americans who think they're being lied to about a terror threat, is a really dangerous thing.  It is an unhealthy thing for the country.  It is the surest sign of the wanton lack of respect for this country that has swept all across this country.  This threat may be real.  Everything we're being told could be real.  We could be facing something somewhere as bad or worse than 9/11 -- and I dare say, the majority of Americans think it's a lie. 

What does that tell you that what most Americans think of the people who are telling them about this threat? 

They're liars, too. 

Before I comment on that, here's part of a WaPo op-ed by conservative pundit and NSA-spying defender Marc Thiessen that says basically the same thing:

When President Obama dismisses the IRS’ political targeting of his conservative critics as a “phony scandal,” he is not only stretching credulity — he is undermining our nation’s security.

[...] That collapse is a direct result of the disintegration in public trust that has taken place on Obama’s watch. 

Why are Limbaugh and Thiessen both full of shit?

Because they, and the rest of the GOP and talk radio Axis of Evil, spend all day, every day, seeking to undermine the public's trust in Obama, asserting day after day that he hates America, he's a secret socialist, he persecutes Tea Partyers, and on and on.  Then these same scaremongers turn around and bemoan the public's (alleged) lack of trust in Obama when it comes to national security.

The nerve of these self-serving jerks!  ... The same jerks who urged us to rally 'round the flag in the Dubya years, no matter what we thought of him or his foreign policies -- they've never once rallied to Obama.  Hypocrites. We should have nothing but contempt for them.

UPDATE (08.07.2013):  Speaking of hypocrites, why no mention from the Right about how Tom Ridge admitted he was pressured to raise the terror threat level for Dubya just before the 2004 presidential election?  

Rep. McDermott: GOP won't give guidelines for 501(c)(4) tax exemption

Rep. Jim McDermott (D-WA) nailed it.  And the truth obviously hurt because he forced Rep. Paul Ryan to deviate from his prepared accusations, er, statement about the IRS "tempest in a tea party":

The mistake here was that the staff organizing the organizations used the names of the organizations rather than the work they do and asked improper questions to figure that out.

It’s clearly wrong. It was inept, stupid, and a whole lot of other things.

Let’s not forget, this happened under an IRS commissioner appointed by George Bush and was investigated by a Republican inspector general.

I haven’t heard a single word here about what questions you think we ought to be able to ask you about your tax-exempt request. Anything else, like the circus that’s happening in the Oversight Committee or here, is simply political theater.

EXACTLY!  Why isn't anybody else in Congress thinking about how to prevent such mistakes in the future, by coming up with clear and rational guidelines for the IRS to follow when evaluating whether an applicant for tax-exempt status really is a non-political "social welfare organization?"

I'll tell you why not.  Because Republicans want a big scandal.  (Good luck.)  And because they want to intimidate IRS staff so thoroughly that they'll completely stop checking conservative political groups altogether, no matter how obviously they are engaging in politics.  

As I've said before, this whole 501(c)(4) "social welfare" designation is total bullshit and only political hacks pretend it's real.  The GOP is positively giddy about acting all upset at the IRS, like a bunch of teenage boys booing the "bad guys" at a pro wrestling match when they know the whole thing's fake.

Paul Ryan Blasts Dem Rep. For Claiming IRS Investigation Just ‘Political Theater’

By Noah Rothman 

June 4, 2013 | Mediaite

URL: http://www.mediaite.com/tv/paul-ryan-blasts-dem-rep-for-claiming-irs-investigation-just-political-theater/

IRS and Congress must define 'political activity'

It's not the IRS's fault.  It's not even Tea Parties' fault, as I already said.  

Congress should give the IRS guidelines to help them determine what is "political" activity and what is not:

This issue was highlighted last Friday during a House hearing on IRS activity. Asked if he could define when a group applying for tax exemption as a 501(c)(4) “social welfare organization” is being too political, Steven T. Miller admitted that he could not say for sure. If the IRS’s former acting commissioner doesn’t know, it is impossible to expect front-line staff reviewing applications to know what to look for, nor for citizen advocacy groups to understand what rules govern their conduct.

Nonprofits need better guidance on tax-exempt standards

By Gary D. Bass and Elizabeth J. Kingsley

May 24, 2013 | Washington Post

URL: http://wapo.st/11e6AQd

Silver: Repugs NOT singled out for IRS audits

Silver's sober little analysis tickled my mental "Like" icon.  First, because it's a good lesson on how to be a critical consumer of news and information. Silver reminds us of the statistical principle that "a handful of anecdotal data points are not worth very much in a country of more than 300 million people."  That's too bad for many Republicans, whose political views are shaped by handpicked anecdotes.

Second, because it shows Republicans' criticisms of the "evil" IRS are usually baseless and stupid.

Statistics guru Nate Silver, (the political analyst who predicted with perfect precision how Obama would win the 2012 election), estimates that about 380,000 of Mitt Romney’s voters were audited last year vs. 480,000 of President Obama’s voters.  

Too bad Rush Limbaugh didn't see that before his Friday show when he agreed with a paranoid caller: 

This IRS thing, what's the message? The government's after us.  Conservatives have been put on notice here.  You think this is gonna stop?  This isn't going to stop.  They're just going to find new ways to do this.

And like David Cay Johnston, Silver reminds us that "one-third of [IRS] audits pertained to people who claimed the Earned Income Tax Credit, a benefit for low-income taxpayers."  Why?  Because it's easy for the IRS to check up on.  Auditing rich people and corporations is too hard.

The truth is, IRS employees are overworked and underpaid, and their agency is chronically underfunded because of far-right Republicans who equate tax collecting, no matter professionally done, with theft.  Then they turn around and moan about the deficit.

New Audit Allegations Show Flawed Statistical Thinking

By Nate Silver

May 17, 2013 | New York Times

URL: http://mobile.nytimes.com/blogs/fivethirtyeight/2013/05/17/new-audit-allegations-show-flawed-statistical-thinking/

Big chart explains byzantine campaign finance regulation

Long-time readers (all three of you) know that campaign finance is one of my pet issues. If we had shorter, publicly financed campaigns, a whole slew of "unsolvable" political problems would solve themselves, because then politicians would have to pay attention to us voters, not campaign contributors and lobbyists who pay for favors.

Critics who call the U.S. tax code complex should take a look below at our Byzantine campaign finance system!  

And for the record, let me say again that the IRS was correct to pay special attention to groups applying for tax-exempt status with "tea party" in their name. That's party as in political party, as in political activity.  I for one refuse to wink at their open deceit like our stupid tax laws do.

Why does the IRS regulate political groups? A look at the complex world of campaign finance

By Sunlight Foundation 

May 17, 2013

The controversy over the Internal Revenue Service's handling of applications for non-profit status from Tea Party groups has put a spotlight on a subject with which we at the Sunlight Foundation Reporting Group are all too painfully familiar: The migraine-producing complexity of the nation's campaign finance system. To shed some light on the ongoing debate, we've decided to share what we know.

As often is the case with systems worthy of Rube Goldberg, it's easier to draw than to describe.

The graphic above shows why its so hard to track campaign money: Those who raise it report to one (or more) of three federal agencies, depending on how they raise the money, how they spend the money and how much of it they spend and raise.

The starting point for understanding what different kinds of organizations that spend money on politics can and cannot do is the Internal Revenue Code, which contains several sections defining different types of tax exempt organizations and outlining what these organizations can and cannot do if they are organized under a certain section of the Internal Revenue Code. Section 527, for example, defines in some 3,500 words what a political committee is, what types of its income are exempt from tax (contributions, transfers from other 527 committees), what sort of expenditures it can make, and what its tax exempt purpose is ("influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed").

But it doesn't end there: In addition to the Internal Revenue Code's definitions, these these organizations are regulated by federal law and state laws. For example, the Internal Revenue Code does not require nonprofits organized under section 501(c)4 to disclose their donors to the public. But the Bipartisan Campaign Reform Act called for such groups to disclose their donors if they ran "issue ads" (ones that mention a candidate without saying "vote for" or "vote against him--the FEC has a fuller definition here; it's worth noting it took a 2012 court ruling to force the Federal Election Commission to apply this rule).

Further complicating the picture: Organizations under one of the categories listed above can form sub-organizations under another category. For instance, a labor union or trade association can spawn a 501(c)4, a super PAC and a traditional PAC. Many major givers operate under three or four guises, making the financial influence they exercise over elections especially difficult to track.

Understanding who reports what to whom when is complicated, but here are some general guidelines of what federal agencies are involved in overseeing these organizations, their regulatory authority and the disclosures they require:

Internal Revenue Service

• Regulates organizations for compliance with tax law.
• Requires a limited number of 527s--those that do not register with the Federal Election Commission or a state election authority--to disclose information, including initial notices (form 8871), periodic reports of their fundraising and spending (form 8872), an annual information return (form 990) and a tax return if they have taxable income of more than $100 (form 1120-POL). Groups organized under section 527 that file with the Federal Election Commission or state election boards are not required to file with the IRS, unless they have more than $100 in taxable income.
• Regulates nonprofits organized under section 501(c) of the Internal Revenue Code. These include social welfare organizations like Crossroads GPS (section c4), labor unions like the AFL-CIO (section c5) and trade associations like the U.S. Chamber of Commerce (section c6). Nonprofits file an initial application for tax exempt status (form 1024) and annual information returns (form 990). They disclose information on grants they make to other organizations, their boards of directors, salaries of their five highest paid employees and amounts paid to their five biggest outside contractors. They do not disclose information on donors.
• Nonprofits that lobby to influence legislation must disclose the amount expended on lobbying on their 990 forms.

Federal Election Commission

• Administers and enforces federal election law.
• Oversees candidate committees, political party committees, political action committees and independent expenditure-only committees--also known as super PACs. All these types of committees are organized under section 527 of the Internal Revenue Code; because they disclose information to the FEC, they do not file disclosures with the IRS.
• Requires that these political committees file periodic disclosures of their donors, expenditures, loans received and outstanding debts. Committees can choose either monthly or quarterly disclosures.
• Requires disclosures of independent expenditures--that is, spending on advertising, get-out-the-vote or other activities that aim to either elect or defeat a candidate for federal office. These expenditures must be reported within 48 hours until 20 days before an election, when they must be reported within 24 hours. Anyone making an independent expenditure must file a report: 501c organizations, 527 political committees, individuals and for-profit corporations. Both 48 and 24 hour reports require disclosure of the candidate or candidates supported or opposed, the amount spent, the payee or payees, but do not disclose donations.
• Adjusts for inflation the limits on the size of donations individuals can make to candidate, party and political action committees (but not super PACs, which can take contributions in unlimited amounts from individuals, corporations--including 501c4 nonprofits that don't disclose their donors--and labor unions).
• Investigates violations of federal election law.

U.S. Department of Labor

Requires some labor unions (those that have private sector or federal employees, including U.S. Postal Service workers) to disclose information on the amount spent on political activities, including itemized spending. Labor unions that represent state and municipal employees are not required to file annual reports with DoL.

Not on the chart, but also peripherally involved in the regulation of political funding and disclosure, through the requirements it imposes on television advertisers:

Federal Communications Commission

Requires all organizations that purchase advertising on television, radio and cable outlets to disclose to the station, in a filing available for public inspection, to disclose the name of the organization, its officers, the amount spent and other information about the ad buy. Generally, these disclosures are only available to review at the offices of the stations, though in 2012, the FCC required the four biggest broadcast outlets in the 50 largest markets to post the disclosures--known as the station's political file--online at the FCC website. Sunlight makes this records readily searchable via our Political Ad Sleuth tool.

IRS 501(c)(4) 'social welfare' my ass!

This is a case where our stupid tax laws make us dumber. If we let them.  This is also an example of the logical fallacy of argument from authority, as in, the law says it is so, therefore it is so.

Does anybody think that 501(c)(4) Tea Party groups (or a much smaller number of liberal groups) are not primarily engaged in politics?

My mom is in a Tea Party group.  I get her alerts and chain e-mails.  When this Cincinnati-IRS "scandal" came out, I asked her, "What do you guys do, trade recipes and sing folks songs?"  Silence. Crickets chirping.  No, it's more like, "Obama hates America and wants to kill and enslave us all!"  That's what they're really about.

If you ask me, every 501(c)(4) organization should be audited, every year!  No party, no politics -- the IRS should look at what they really do and say!

And yet Republicans and the lamestream media would have us believe that we should give these partisan political groups tax-exempt status.  There's winking at something, there's putting on blinders, there's closing your eyes to the truth, and then there's being Helen Keller. 

The media and GOP are asking us to be Helen Keller and ignore what we all really know to be the truth: what these 501(c)(4) groups (Civic Leagues, Social Welfare Organizations, and Local Associations of Employees) are really doing, which is mostly to spew anti-Obama, anti-Democratic bile.  And they are demanding a tax break while they're at it.  

Here's a quick the IRS's definition of a 501(c)(4) organization:

• Social welfare organizations: Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, and

• Local associations of employees, the membership of which is limited to the employees of designated person(s) in a particular municipality, and the net earnings of which are devoted exclusively for the promotion of social welfare.

Here's how the Washington Post sums it up: "These groups are allowed to to participate in politics, so long as politics do not become their primary focus. What that means in practice is that they must spend less than 50 percent of their money on politics." Neither do 501(c)(4) groups have to disclose their donors.

Gee, well, the evil Koch brothers spend less than 50 percent of their money on politics, so they must be interested only in social welfare.  Right? Wrong. Obviously wrong. We know this.

Indeed, our internal bullshit detectors immediately know what's what.  And yet our tax laws don't.  And yet because our IRS auditors in Cincinnati noted a more than 150% increase in applications for 501(c)(4) status among Tea Party groups year-on-year, and tried to find out why, (albeit clumsily), and yet did not deny a single application, this behavior by the IRS constitutes a "scandal." 

Forgive me if I refuse to participate in, or sanction, this political charade, but the problem is not the IRS, or even these Tea Party groups taking advantage of our stupid laws, the problem is our Supreme Court that made the wrong decision on "Citizens United," and our U.S. Congress.  

Meanwhile, do not ask me to forget what I know and fake outrage at the inconveniences imposed on fake social-welfare organizations.  I'm not a fool.  I hope you're not either.

UPDATE (05.16.2013): Peter Goodman at HuffPo agrees with me that the IRS, by noticing something odd was happening and taking steps to check it out, was doing what auditors are supposed to do: "The IRS Was Dead Right To Scrutinize Tea Party."  Auditors can never check everything and everybody; they have to trouble-spot and exercise judgment.

GOP, IRS abet U.S. sports socialism

You know, I might not be against rampant U.S. sports socialism if all the rabid Red State Republican sports fans out there would just acknowledged how much of their personal self-esteem and enjoyment was tied up in government-funded schools, with teams filled with government-supported minority athletes -- minorities whom they fear or despise in most other contexts.

Take any Red State you want, and on any given Sunday you'll see bumpkins who barely graduated high school proudly wearing the local college sweatshirt, cursing at minority athletes and overpaid coaches on the TV in the local sports bar, all provided to them thanks to the local publicly-funded college team.  

Furthermore, it's a mockery of Republican-Christian notions of "charity" to say that mandatory, tax-deductible donations to a schools sports program in exchange for select seats is some kind of charitable "donation."  We've let Republicans pervert our tax code to this extent.  These so-called boosters of charity are neither charitable nor Christian.  

This is yet more evidence that our country has become dangerously obsessed with sports (and it wasn't always this way): watching a bunch of poor minority athletes competing for a one-in-a-thousand slot in the professional athletics lottery for our selfish enjoyment, subsidized by Joe Taxpayer.  Shame on us!

Read a damn book, take a walk, play a sport yourself, spend time with your family, get a hobby!  Sports socialism reveals the core of America's hollow, atomized, sedentary popular culture.  

College football gets tax breaks; fans ‘contribute’ millions for tickets

By Gilbert M. Gaul

October 18, 2012 | McClatchy Newspapers

URL: http://www.mcclatchydc.com/2012/10/18/171894/college-football-gets-tax-breaks.html

DC Johnston: Eliminate 100 million tax returns

Finally, something Republicans and Democrats can agree on?

More Than 100 Million Unnecessary Tax Returns Filed Each Year

By David Cay Johnston

April 6, 2012 | Reuters

On March 28, the U.S. Justice Department sought to close a nationwide chain of income tax preparation shops it accuses of fraud. The action underscores the potential for abusive business practices that taxpayers face because Congress has failed to embrace technology that would eliminate most tax returns.

The Justice Department wants a federal judge to shut down Instant Tax Service, whose sole owner is Fesum Ogbazion of Dayton, Ohio, saying he is responsible for "extensive and pervasive tax fraud." It also sued four of his 276 franchisees. The company has not responded to the lawsuit.

Congress could easily eliminate fraud by abusive tax preparers, as is alleged in the Ogbazion case, and save taxpayers billions of dollars annually, by simply ending mandatory filing of tax returns for most taxpayers.

About 100 million taxpayers -- those whose income is entirely from wages and retirement funds, and who do not itemize deductions -- should not have to file returns. The government already has the information it needs to calculate the taxes these people owe, once they supply their marital status and number of dependents. It would not take much to automate their income tax payments, as many other modern countries do.

I put the chances of Congress taking such a sensible course at one in 84,000. That's about the same as the odds of being indicted for a tax crime in 2011, based on an analysis of official data by Syracuse University's Transactional Records Access Clearinghouse.

Congress will not act because individual income tax returns, which for most people are make-work that creates a drag on the economy, provide tidy revenues for Intuit, the maker of TurboTax software, H&R Block and other legitimate corporations that profit from preparing tax returns.  These companies have considerable resources at their disposal to spend on lobbying politicians to keep the tax filing requirement. One sign of their determination: Intuit in 2006 donated $1 million in support of an unsuccessful candidate for California state controller who opposed optional state-prepared returns in California. Intuit has said there are serious problems with the program, which remains in operation, but in my view none of Intuit's criticisms stands up to scrutiny.

A SIMPLER TAX CODE

Intuit, H&R Block and other tax firms say that they help people pay the least tax and avoid costly mistakes. But these concerns would be easily addressed by simplifying the tax code. In my view, any business that depends on government-induced inefficiency should be swept into the dustbin of history.

Another reason reform is unlikely is that politicians have learned from Republican pollster Frank Luntz over the years that riling up voters against the Internal Revenue Service attracts votes and campaign donations.  Actually fixing the problem by ending tax filing for the vast majority would require politicians to come up with other ways to get donors to open their checkbooks. Republican politicians who follow Luntz's advice seem not to realize they are attacking law enforcement, a strategy that would offend many of their donors if applied to the FBI or street cops.

Short of ending tax filing for most Americans, Congress could license tax preparers -- instead of only requiring that they identify themselves with a unique number. We don't trust amateurs to inspect elevators or audit charities, so why do we let just anyone charge for preparing tax returns? This is especially true given that U.S. Taxpayer Advocate Nina E. Olson has thoroughly documented false and fraudulent reporting by tax preparers who are exempt from IRS professional conduct rules because they are not accountants, enrolled agents or lawyers.

The case of Instant Tax Service appears to be particularly egregious. The Justice Department alleges that the company charges its customers, who are mostly poor and unsophisticated, as much as $1,000 for 15 minutes of tax preparation. It "encourages its franchisees to lie to the IRS about anything," the department said in court papers.

The government's complaint quoted Ogbazion, the company's owner, as saying that "every tax return being done is pretty much fraudulent" at a franchise in Los Angeles. Ogbazion did not revoke the franchise, but did sue it for royalties, the department said. According to the Justice Department, Ogbazion said he did not pay attention to customer complaints because, if he did, he "wouldn't be able to sleep at night."

Ogbazion's business and personal phones are disconnected. At the one listed number that was answered a woman said he was no longer reachable there. Ogbazion also did not respond to messages to his work and home email addresses.

100 MILLION UNNECESSARY RETURNS

The Justice Department brings a high-profile tax case pretty much every year as the mid-April tax deadline approaches. But this misses the much bigger picture: More than 100 million unnecessary tax returns are filed each year, costing billions of dollars in software or preparation.

Meanwhile, the way Congress has written tax laws, and the way courts interpret them, makes it hard to pursue tax cheats. The average time for each criminal tax prosecution the Justice Department completed last year was 740 days, more than double the 345 days in 1992.  Last year, the Justice Department completed only 3,656 criminal cases in which tax was the main charge, the analysis by Syracuse University's Transactional Records Access Clearinghouse shows. No wonder the odds of a criminal tax indictment, while still minute, were 75 percent higher two decades ago.

The Justice Department relies on a law enforcement theory known as general deterrence. The strategy is to bring widely publicized cases to keep people in line. But the IRS criminal division website lists just 79 criminal cases in 2011. Figuring the others requires perusing 90 websites run by local U.S. Attorneys. Many convictions get little or no news coverage, which means zero general deterrence.

Canada, with a ninth of the U.S. population, listed all 204 tax convictions last year at the Canada Revenue Agency's website.  Claude St-Pierre, Canada's director general for tax enforcement and disclosures, told me that posting all convictions is both a deterrence strategy and an effort to educate Canadians so they do not get lured into tax scams.

Congress should fund more prosecutions, many more, so the Justice Department does not have to reject 40 to 50 percent of criminal referrals by the IRS.  Following Ottawa's lead, the IRS should prominently post every criminal conviction and every request for a civil injunction (a much less expensive law enforcement strategy than prosecution) at its website.

The real solution, though, is to get rid of the archaic, frustrating make-work for 100 million taxpayers whose only benefit is profits for tax preparation firms.

IRS investigating Tea-Party 'social welfare' groups

I'm sorry, everybody knows that Tea Party-related 501(c)(4) groups are not "social welfare" organizations -- teabaggers deny the very concept of social welfare -- and so the IRS would be perfectly correct to investigate whether political activists are abusing the tax system to carry out their political activities.

So far, all the IRS is doing is investigating. In fact, "The only known previous action by the IRS came in July, when it denied C4 status to three units of Emerge America, a group that identifies and trains Democratic women to run for office."

So hey, teabaggers, cool your conspiracy jets for now.

IRS May Make Political Groups Pay Dearly for Keeping Donors Secret -- And Out Them

By Dan Froomkin

February 8, 2012 | Huffington Post

URL: http://www.huffingtonpost.com/2012/03/08/irs-political-groups-501c4-_n_1333389.html

DC Johnston: Shrink the IRS, grow the deficit

Kind of reminds me of Republicans' stance on illegal immigration: Let's enforce the laws currently on the books, eh?

Every hour spent enforcing our tax laws produces almost $10,000 in lawful, legally-owed revenues which go to shore up our deficit hole. Now that's real bang for our taxpayer buck.

Those who want to de-fund the IRS are simply anti-tax zealots who don't believe in the rule of law or fiscal responsibility.

Honey, they shrunk the IRS

By David Cay Johnston

January 17, 2012 | Reuters

Congress will spend a trillion dollars more than it levies this year, so how do Washington's politicians respond to the 11th consecutive year of federal budgets in red ink? They plan to shrink the IRS.

Go figure. Cutting the IRS budget by more than 5 percent in real terms makes as much sense as a hospital firing surgeons or a car dealer laying off salespeople when customers fill the showroom.

Shrinking the IRS makes sense if you believe government is too big and that cutting everywhere is the best way to shrink government. But this is the staff that generates revenue, and there is easy money to be made.

Congress should listen to the national taxpayer advocate, a position it created to make sure taxpayers had a voice in how the IRS operates. In her annual report, released last week, advocate Nina Olson said Congress needed to "ensure that the IRS continues to be effective, either by reducing the IRS' workload or by providing adequate funding to enable it to accomplish its assigned mission."

Instead of cutting, we should be expanding the revenue-generating staff because there is plenty of tax money to be had, even in this awful economy.

IRS data show that auditors assigned to the 14,000 or so largest corporations found $9,354 of additional tax owed for every hour spent testing tax returns in the 2009 fiscal year. The highest-paid IRS auditors make $71 an hour. Based on a 2,080-hour work year, that works out to around $19 million of lost revenue annually for every senior corporate auditor position cut from the payroll.

WHY CUT?

It makes no economic sense to trim the ranks of auditors who generate more than a hundred times their annual salaries. Run a business that way and you go broke.

So why would President Barack Obama and Congress cut the IRS budget? Their actions illuminate the rise of corporate power and values, and the diminishing voice of Joe Sixpack, thanks partly to how we finance election campaigns. Then there is the growing army of corporate lobbyists and the Supreme Court's decision in Citizens United, which allows corporations (and unions) to spend all they can afford on influencing elections.

Keep in mind the IRS costs just a half penny for each dollar of tax collected. Its proposed $11.8 billion budget would be less than the Agriculture Department spends each month.

If the IRS budget is cut, the losers will be workers and ordinary investors, who will find it harder to get their questions answered and their problems resolved by the agency. On the whole, these people do not cheat on their taxes because their incomes are easily checked — through reports by employers, mortgage banks and others. Under a law taking effect in stages between last year and next, brokerages must report the cost basis of securities. This change will reduce capital gains cheating.

TAX CHEATS

The winners will be tax cheats among sole proprietors and other business owners, who are subject to less verification. The latest IRS tax gap report, issued Jan. 6, estimates that just one percent of wages escapes tax, while 56 percent of "amounts subject to little or no" verification do so.

America's biggest corporations, those with more than $250 million in assets, also may escape some tax if the IRS budget is cut. These nearly 14,000 companies pay about 86 percent of corporate income taxes.

Audits of these big firms were down even without a budget cut. And audits have become far more complicated, partly because Congress changed the tax code more than once a day on average from 2001 through 2010, Olson reported.

From 2005 to 2009, hours spent auditing the biggest corporations declined by 33 percent, according to IRS records analyzed by the Transactional Records Access Clearinghouse at Syracuse University in New York.

Two decades ago, when the economy was a third smaller, the IRS staff numbered about 118,000. Now it numbers 95,000 and is on the way to about 90,000. The likelihood of a big company being audited has plummeted 50 percentage points from 72 percent in 1990 to 22 percent in 2010.

Big company audits are now limited to specific issues known to the companies in advance, not unlike when cops tip off owners of favored gambling dens before a raid. Each audit also begins with an "estimated time to completion." Working auditors tell me this is really a hard deadline that allows companies to run out the clock with delays in producing documents.

Some IRS tax detectives privately ridicule this system, calling it "audit lite."

Whether you like the corporate income tax or think it is an abomination, failing to enforce it with the same rigor as taxes on wage earners and most investors is indefensible on economic, budget deficit and moral grounds.

IRS budget cuts worsen budget deficits and send a corrosive signal that only chumps file honest tax returns. So you have a choice. Do nothing and suffer the consequences or call your congressman, senators and the White House — today — and then vote in politicians who support, rather than undermine, tax law enforcement.