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Monday, August 8, 2011

NY Times: Lawyer Calls Cave-in on 501(c)(4) Groups 'Tumor on IRS's Integrity'

New York Times, I.R.S. Handling of Donations Draws Ire of Both Parties, by Stephanie Strom:

When it comes to things political, the IRS just cannot seem to win. ... [O]n July 7, the IRS announced it was suspending those audits and would not seek gift taxes on donations to 501(c)(4) groups until it had reviewed its policy, which was originally set out in a ruling it issued in 1982.

Now, a group of four anonymous political donors is accusing the agency of playing politics on behalf of those Republicans and demanding that it make a decision immediately about whether the gift tax applies to donations to advocacy groups or not.

“The clear implication left by the IRS action on July 7 is that IRS enforcement activity can be curtailed by intervention from a handful of members of Congress, whatever their party affiliation, when political contributions are at risk,” Marcus S. Owens, the lawyer representing the four complaining donors, wrote in a letter that will be delivered to the tax agency on Monday.

“The July 7 action is like a tumor on the integrity of the IRS because it appears they just caved to political threats,” said Mr. Owens, who formerly led the division of the tax agency that oversees advocacy and other nonprofit groups. “This ought to be a subject for the Treasury inspector general. I cannot recall anything like it happening, at least not after Watergate.”

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The problem is the 501(c)(4) issue was never considered a problem until it started to have political implications I think the IRS acted correctly here

Posted by: mike livingston | Aug 8, 2011 2:49:50 AM

I am not sure what Marcus is upset about. This stuff happens all the time. For example, a few years back when the republicans couldn't get estate tax reform, the IRS furloed estate tax examiners to reduce the number of estate audits--just to appease Congress. It happens.

Posted by: anon | Aug 8, 2011 7:22:16 AM

Marcus may not be aware of the fact that the Democrats initially pressed the IRS to investigate 501(c)(4)s involved with political activities (See Durbin letter - fall 2010). It was after these requests that the IRS decided to impose the gift tax. The Republicans were asking the IRS for documentation related to their decision to see if it was motivated by the political inquiries from the left. The fact that the IRS changed course without providing the requested records suggests that the IRS did not want to provide records related to its decision to enforce the gift tax (probably because such records would tie the enforcement effort back to the Dems). So yes Marcus, the IRS may have been responding to the political pressure from Republicans, but it was only to avoid having to disclose the fact that the entire enforcement effort was the result of political pressure from the Democrats.

Posted by: anon | Aug 8, 2011 9:04:46 AM

For all those seeing partisan boogey men under the bed, consider that it was the Eisenhower Administration that first sought to tax as gifts contributions to political parties and campaigns. They succeeded, by the way.

Posted by: Bill | Aug 8, 2011 10:38:51 AM

last I checked, gift tax makes up negative 0.001% of the tax spectrum. in fact, because it is such an infinitesimal portion of our tax base and there are probably 6 or so gift tax examiners in the entire U.S. you'd have to do something pretty dumb to get audited for gift taxes. that or the gift tax audit was a gift that spun into being because of some other type of tax audit.

and if I have to say there is some hyperbole in here, you must chill.

Posted by: tax guy | Aug 9, 2011 8:45:06 PM