Paul L. Caron

Friday, September 18, 2020

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Brunson's Georgia, The IRS, And The KKK

This week, Sloan Speck (Colorado) reviews a new work by Samuel D. Brunson (Loyola Chicago), Addressing Hate: Georgia, the IRS, and the Ku Klux Klan.

Speck (2017)

The Ku Klux Klan’s second iteration began at a time of transformation for the American fiscal state. As economists and politicians reoriented the federal tax system towards progressive income taxation, white ethnonationalists consolidated and organized around false and pernicious understandings of the historic hate group. In 1915, a new Klan emerged, claiming as many as four million members at its peak in 1924. As Sam Brunson argues in his important new article, Addressing Hate: Georgia, the IRS, and the Ku Klux Klan, the Bureau of Internal Revenue and the State of Georgia each played crucial roles in both facilitating the rise of the second Klan and hastening its formal demise in the mid-1940s. Brunson’s valuable work resonates in our current political climate, as contemporary supremacist groups claim privileges under state corporate law and the Internal Revenue Code. How we address these groups today should be informed by the important history that Brunson uncovers.

Brunson’s narrative deftly weaves the second Klan’s social history with the economic levers used by and against the terroristic organization. As Brunson elucidates, the Klan initially leveraged an organizational and financial structure common to Progressive Era fraternal organizations, many of which also harbored ethnonationalist sentiment. Along with racism and violence, the Klan peddled identifying paraphernalia and life insurance. Early membership growth was fueled by recruiters who kept 80% of each new member’s initiation fee; later, the Klan formalized a complex pyramid arrangement that parceled out fees to individuals across the organization. To some extent, these cash flows were protected by state law—the Klan was incorporated in Georgia—as well as the group’s apparent claim to exempt status under federal tax law. In these years, the Klan carried both the tacit and explicit imprimatur of state power, and this imprimatur framed efforts—often successful—by various states to fight against the Klan in their jurisdictions. More radical condemnation of the Klan seems to have died in the dry annals of federalism and corporate law.

These prosaic enforcement mechanisms, however, bore fruit two decades later, when the IRS and the State of Georgia together terminated the second Klan’s corporate existence. Although the Klan had bled membership and money since its mid-1920s peak, the hate group’s persistence as a legal structure through the mid-1940s posed the problem of a potential resurgence during a period of intense social change. Then, in 1944, the Bureau of Internal Revenue retroactively revoked the Klan’s tax exemption and served a notice of deficiency on the organization that totaled almost $700,000—more than $10 million in today’s dollars. Much of the deficiency related to taxable years in the 1920s, which presumably remained open because the Klan failed to file returns or committed fraud. Building on this devastating (but unrecoverable) assessment, the State of Georgia revoked the Klan’s corporate charter in 1946. Although a third iteration of the Klan took root in the 1950s, this grotesque and savage version lacked (and still lacks) the second Klan’s centralized, hierarchical structure that was, in part, mediated by state corporate and federal tax law.

One might legitimately question the timing of federal and state intervention in the second Klan’s legal status. In substantial part, the Klan’s delegitimization turned on errors committed years or decades prior, and, by the 1930s, the Klan’s practical demise seemed foreordained. Why, then, did the government vitiate the Klan as a legal concern in the 1940s? One possibility is that officials anticipated a resurgence and acted preemptively. Another is that the Klan’s deeply diminished economic and social position made action possible, either politically or practically. But a third—and I find this idea most compelling—is that crushing the Klan served an expressive purpose. The United States’ historic and current sins of intolerance and bigotry created contradictions as the United States concluded the Second World War and discerned the outlines of a potential postwar world order. By formally disbanding the Klan, the United States may have improved its global position vis-à-vis fascism and communism. Whether this attempt at expurgation is meaningful or cynical requires further exploration.

Furthermore, Brunson’s narrative raises interesting intersections with longer-term attempts by states, media, and antiracist groups to publicize aspects of the second Klan’s operations—and especially its membership lists. My sense is that current historical scholarship casts the second Klan as more urban and less southern than previously understood, and these localities and their constituents fought mightily to unhood and out Klan adherents in their communities. This unwanted publicity was a major tool—and perhaps even the central one—in combatting the Klan’s heinous activities at an organizational level. For me, the federal and state actions of the 1940s read as connected to, and perhaps a continuation of, these efforts at publicity. Shedding renewed light on the Klan may have been as much of an accomplishment as forcing its legal dissolution.

Finally, Brunson’s analysis raises questions about the role of “technical violations” in enforcement against pernicious groups. For example, had the Klan filed federal returns in the 1920s, it presumably could have avoided much of the back taxes assessed against it in the 1940s. Brunson attributes the Klan’s legal abrogation to specific actions that “ran contrary to the objective conditions placed on its exemption and its charter,” rather than to “its hateful ideology.” To me, this seems like thin soup. Constitutional considerations aside, there should be a more direct way to preclude the state sponsorship of terrorist groups. We should expect—and demand—a more full-throated condemnation of hate, intimidation, and violence.

Brunson’s timely article contributes a thought-provoking perspective on current conversations about taxation and antiracism. Tax scholars, historians, and others would benefit from reading Brunson’s accessible and engaging article.

Here’s the rest of this week’s SSRN Tax Roundup:

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