August 10, 2011

IRS Faces New Questions About Gift-Tax Stance

The Internal Revenue Service says it won't comment on a demand from one of its former officials to clarify its policy on gift taxes for donors to politically oriented advocacy groups.

On Monday, as The New York Times reported, Marcus S. Owens, a Washington tax lawyer and the former head of the IRS's tax-exempt division, sent a letter asking the tax agency to say whether it will ever enforce a gift tax on such donations. Mr. Owens says he worries the tax agency is bowing to pressure from Republican lawmakers who objected to the gift-tax enforcement.

Mr. Owen's letter came after the IRS announced in July it was changing course and dropping any plans to enforce the rule, at least until Congress took action to force it to charge the tax or until the tax agency could spend time studying the issue and explain its views to the public.

The tax agency's pursuit of the gift tax was sharply criticized by several Republican lawmakers after donors complained they had received audit letters suggesting that they might be subject the rarely enforced gift tax. Gift taxes apply to contributions of $13,000 or more on groups classified under Section 501(c)(4) of the tax code. Unlike donations to charities, donors to advocacy groups cannot take a deduction for their gifts.

The controversy has been politically tinged because the Republicans said they thought the Obama administration was enforcing the gift tax because groups advocating for GOP causes had been especially successful in attracting private donations in the 2010 election cycles. The White House and the IRS both said the administration had done nothing to suggest enforcing the gift-tax rule.

But Mr. Owens sees politics at work in the IRS decision to drop the audits.

“[The IRS's statement] suggests a politically motivated action by the IRS, if only in the form of a misguided effort to avoid controversy,” Mr. Owens wrote in his letter. “It is imperative that the guidance be issued immediately and that an appropriate investigation be undertaken to ensure that the July 7 memorandum was not the result of improper political influence.”

Asked to comment Mr. Owen's letter, an IRS spokeswoman pointed to the IRS statement that had been issued in July and declined to say more.  Below is a copy of the letter Mr. Owens sent to the tax agency.