Frank Bernheisel: The View From Here
Frank Bernheisel
Frank Bernheisel
Posted 05.30.13
Just Outside Washington


Tax-free in America

We are going to hear a lot about the big scandal at the American IRS -- who knew what and when and yada, yada, yada. The Congress of the United States seems to think it is more fun to hold circus hearings that doing their jobs.

What job is that? The Constitution gives the Congress the power to tax and it does not limit who can be taxed. The Congress chose to exempt some organizations from taxes and to some makes donation to them tax-free.

Some donors need to be identified, some don't. That is all very clear. The 1986 tax law included most of these organizations in the tax code, Section 501. Section 501 (c) lists 27 separate types of tax-free organizations, each with different rules. Then there are Sections 501, (a) though (n), not to mention Section 521 which applies to farmers and we know that they deserve special treatment. According to, this has resulted in 2,102,437 tax-exempt organizations, with $7,118,997,580,786 in assets and $3,630,914,427,996 in annual income and includes the National Football League. Give me a break!

This is all managed out of the Cincinnati office. Why Cincinnati? Labor is cheaper than Washington.

Of the 90,000 employees in the IRS in 2012, only 876 worked in the Tax Exempt and Government Entities Division (TE/GE), or fewer than 1 in 100 employees. Of those, 335 worked in the office that actually handles applications of nonprofits, that is about 300 worked in Cincinnati and the rest at headquarters, in Washington D.C. TE/GE says it has four functions:

    1. Education subject entities understand about their tax responsibilities; 3. Address non-compliance;
    4. Respond to questions by entities about their accounts.
So, 435 members of Congress make laws that exempt about 2 to 3 million organizations from taxes and they (and we) expect 876 clerks to manage it all?

The 300 clerks in Cincinnati receive about 70,000 applications per year. That is 233 applications per employee, which comes out to about one application per workday.

According to Representative Rob Portman (R-OH): "The income tax code and its associated regulations contain almost 5.6 million words -- seven times as many words as the Bible." So the TE/GE employee has eight hours to determine if an applicant complies with the 5.6 million words and fulfill the other three functions listed above. Piece of cake!

Maybe Congress should simplify the tax laws? Maybe, do away with tax-free status? Now that would be a scandal...