April 15 is a special day -- especially for those of us who toil professionally in the tax vineyards. After 40 years, I am still amazed at the breadth and scope of our enormous body of tax law. I also never fail to be amazed and amused by all of the odd, even thigh-slappingly funny, provisions that have wormed themselves into our federal tax law. Here are a few Internal Revenue Code oddities.
Communist exemption
Did you know that if you work for a communist-front organization, you are exempt from having Social Security tax withheld from your wages? Yep – it’s right there in section 3121 in the definition of wages subject to withholding. Listed among the exclusions is service in the employ of any organization registered with the Subversive Activities Control Board as a communist-action organization, a communist-front organization, or a communist-infiltrated organization.
Most of us get socked with heavy Social Security tax withholding. Why should communists be exempt from this tax bite?
Well, during the height of the Cold War, Congress was outraged by newspaper reports of a jailed communist collecting Social Security. In those days, it was assumed that most employees would get far more out of the Social Security system in retirement benefits than they would ever have to pay in. Our ever-vigilant Congress in 1956 therefore exempted communists from the FICA system – no withholding and no benefits.
But the exemption may be in limbo. The statute, which is still on the books, applies to a person doing service in the employ of an organization registered with the Subversive Activities Control Board under the Internal Security Act of 1950. But the mandatory registration requirements of that act were repealed in 1968, and the Subversive Activities Control Board was abolished in 1972.
Touchdown
Fans of Big Ten football have a place in the Internal Revenue Code, too. Here’s what happened.
If I write a check to a charity, I am entitled to a charitable contribution, but that deduction is reduced by the value of any benefits received back from the charity.
Take the charity fundraising dinner: The ticket may cost several hundred dollars, but I can’t deduct the value of the meal I received. So if I contribute to a Big Ten football school and, in return, receive football tickets, the value of those tickets is not deductible.
But if my large contribution doesn’t get me tickets, but puts me on the coveted list of loyal donors entitled to buy tickets? When faced with this question some years ago, the IRS ruled that none of the contribution was deductible. But football fans in Congress enacted Internal Revenue Code section 170(l), which provides that if I make a contribution to an institution of higher education that would be deductible but for the fact that the donor receives the right to purchase tickets at an athletic event at the institution, then 80 percent of the contribution is deductible.
Hunt club
The charitable deduction provisions are loaded with interesting sidebars. Alaskan whaling captains can deduct as a charitable contribution up to $10,000 spent acquiring whaling boats, gear and food for the crew, and storing the catch from “sanctioned whaling activities.” Who knew?
And did you know there are limits on deductions of taxidermy property? Promoters organized hunting trips tied to a “museum,” which would display contributed taxidermy items. So if you contributed your game carcasses to the so-called museum, often just a trailer with no real visitors, you could deduct the value of the taxidermy property contributed. Not as many hunters as collegiate athletic fans in Congress, as this loophole has been closed. Or you might say that Congress put the tax back into taxidermy.
No bull
Looking for sex? You can find it in the Internal Revenue Code. If I exchange property held for investment with “like kind” property, the exchange is nontaxable. But what if I exchange a cow for a bull – is that like kind property? Nope. Congress passed section 1031(e): “livestock of different sexes are not property of a like kind.” Another loophole closed.
Another provision excludes from the definition of something known as “Qualified Gulf Opportunity Zone property” (whatever that is), property used in connection with any massage parlor or hot tub facility.
Matter of pride
So rejoice in a tax law that perfectly reflects the diverse, disorderly world we live in. And on this April 15 be grateful for a tax system that for all its complexity should be the envy of the rest of the world in its lack of corruption and high degree of voluntary compliance. We can all be proud to pay our taxes, although as Will Rogers said we would be just as proud for half the amount.
Lawrence Katzenstein is a lawyer with Thompson Coburn, who specializes in estate planning and charitable giving. He is a member of the board of Friends of St. Louis Public Radio.
