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December 23, 2014

IRS Officials Mulled Gift Tax on 'Dark Money' Donations

An Internal Revenue Service attorney suggested in a 2011 email to superiors that the agency consider imposing gift taxes on donations to politically active nonprofits, The Wall Street Journal writes. That and other internal messages are cited in a report to be released Tuesday by the House Oversight and Government Reform Committee, which has been investigating alleged IRS targeting of conservative groups.

"Social welfare" groups organized under section 501(c)(4) of the tax code have become popular vehicles for financing political ads, especially among conservatives, in large part because such organizations are not required to disclose funding sources. The IRS has long held that 501(c)(4) donations are subject to the gift tax but has not enforced the position, save for a brief attempt in 2011 to audit five donors to a conservative nonprofit.

In a May 2011 email, a lawyer in the IRS counsel's office notes a plan "to elevate the issue of asserting gift tax on donors to 501(c)(4) organizations" and seek a decision on the matter from top agency officials. Republican Rep. Darrell Issa, chairman of the House committee, said the internal communications "demonstrate that the IRS sought to use the gift tax as one part of a larger effort to crack down on the political speech" of conservative groups.