Washington, D.C. - The Internal Revenue Service said in mid-July that it would stop its examinations of donors to tax-exempt 501(c)(4) political organizations asking whether they had paid gift taxes, after the agency came under pressure from Republican lawmakers.
The IRS sent letters earlier this year to at least five political donors questioning their donations to tax-exempt 501(c)(4) organizations. In the letters, the IRS wrote, "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)."
501(c)(4) organizations have become a popular vehicle for soliciting political donations, as the donors do not have to be named by the groups. Republican-leaning groups like Crossroads GPS and Americans for Prosperity played a particularly large role in the 2010 elections, and Democrats have also begun organizing their own 501(c)(4) organizations.
In response to reports about the IRS probe, Republican lawmakers began asking the IRS for information about the inquiry. In response, the IRS said that it would stop pursuing the examinations.
"Recently, questions have arisen regarding the applicability of the gift tax to contributions to 501(c)(4) organizations," the IRS said on its Web site. "The Internal Revenue Service has little history to draw from in this area and the limited guidance we previously issued on this matter is almost 30 years old. While we review the need for additional guidance or legislation, we will not use resources to pursue examinations on this issue. Any future action we take will be prospective and after notice to the public. As we consider this issue, it is possible that Congress may choose to clearly articulate through legislation the applicability of the gift tax to contributions to 501(c)(4) organizations."
House Ways and Means Committee Chairman Dave Camp, R-Mich., who was among the lawmakers questioning the probe, welcomed the IRS announcement, but said that he still wanted to know why the IRS had begun the examinations.
