Wednesday, May 11, 2011
The IRS appears to have begun to enforce a tax on gifts to the non-profit organizations that were a key vehicle for anonymous politics in the last five years and had promised to play a large role in the presidential cycle, a move which could reshape the place of money in politics in 2012. "It appears that the IRS Estate and Gift Tax team has also started paying attention to 501(c)(4) organizations," a Los Angeles tax lawyer who has followed the issue closely, Ofer Lion, wrote in a memo to clients today.
Gifts to other political organizations are not taxable under federal law, and lawyers informally say many donors do not typically pay the gift tax -- which may run as high as 35%, mirroring income tax rates -- for contributions to 501(c)(4)s. ...
Now the Republican donors who gave generously to Crossroads GPS and other groups last cycle may find themselves on the hook for substantial back taxes. And Democrats contemplating contributions to Priorities USA Action, the new pro-Obama c4, may face similar questions. ...
Lion also forwarded to POLITICO a letter from the IRS to a client whose identity has been redacted:
"The IRS has received information that you donated cash to [REDACTED], an IRC Section 501(c)(4) organization," the agent wrote to a donor. "Donations to 501(c)(4) organizations are taxable gifts and your contribution in 2008 should have been reported on your 2008 Federal Gift Tax Return (Form 709)."
The question of whether these (c)(4) gifts should actually be taxable could be subject to litigation. But the reason for the emergence of (c)4 gifts presents a bit of a trap for donors: If they go to court to fight for the right to avoid taxation on their anonymous gifts, they will compromise their anonymity. Alternately, they may be forced to pay a hefty premium to remain anonymous.