Paul L. Caron

Wednesday, May 25, 2011

Gift Tax Seen for Wealthy Donors as IRS Probes Campaign Contributions

Bloomberg, Tax Seen for Wealthy Donors as IRS Probes Campaign Contributions:

An IRS investigation of gifts to a type of non-profit advocacy organization that is getting involved in political activity likely affects a small number of wealthy individual donors. At the same time, the inquiry could have wide-ranging implications for groups such as the Disabled American Veterans, the Sierra Club and AARP. They’re organized under the same section of the U.S. tax code as the groups engaged in political giving that the IRS is examining. ...

The IRS confirmed earlier this month it is investigating five donors who hadn’t filed gift tax returns for large contributions to advocacy groups organized under § 501(c)(4). Large donations to such groups, known as social welfare organizations, have been subject to the gift tax, though there’s little evidence the IRS has sought to collect it since the early 1980s. ...

Most corporations are allowed to make gifts to advocacy groups without having to pay the tax. Donations from S corporations, which pass profits directly to shareholders for assessment as personal income, would be treated as though they came from individual shareholders, according to Ellen Aprill, a law professor at Loyola Law School in Los Angeles. ...

Both political parties benefit from the political work of 501(c)(4) entities ... Political activity isn’t supposed to be the primary purpose of such groups, though “the IRS has never defined what primary is,” said Aprill. “It’s very murky.” Another form of non-profit, a so-called 527 organization, can accept unlimited contributions that aren’t subject to the gift tax and has less stringent rules governing political activity. Such groups must disclose the identity of large contributors.

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I'd be interested in seeing the full article from Bloomberg. Anyone got a link?

Posted by: John Pomeranz | May 26, 2011 10:57:24 AM

There is authority to the effect that gifts from closely held C corps should be treated as indirect gifts from shareholders. I am sure that dissenting minority shareholders would be able to escape such a fate.

Posted by: Bill Turnier | May 25, 2011 6:10:48 PM