In an online memorandum to clients this week, Ofer Lion, a California lawyer and expert on tax-exempt organizations, includes an excerpt from a Feb. 16 letter from the IRS to an undisclosed donor. The name of the recipient organization is blacked out.
“Your 2008 gift tax return (Form 709) has been assigned to me for examination,” the letter said. “The Internal Revenue Service has received information that you donated cash to (redacted), an IRC Section 501(c)(4) organization. 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).”
Under the law, the burden for paying the gift tax does not fall on the organizations, but with the donors themselves. ...Washington Post
Republican money-raisers and troublemakers at Americans for Prosperity (the tea party's funders) and Crossroads (Karl Rove's bankers) are subject to a provision in the tax code which is now about to be applied by the IRS to their donations.
This will affect both major parties' fat-cat supporters. Big contributors depended on avoiding an onerous gift taxes. Now the IRS is cracking down, applying a provision which has been "overlooked" in the past. Already some donors are feeling the pain.
Big donors like David H. Koch and George Soros could owe taxes on their millions of dollars in contributions to nonprofit advocacy groups that are playing an increasing role in American politics.
Invoking a provision that had rarely, if ever, been enforced, the Internal Revenue Service said it had sent letters to five donors, who were not identified, informing them that their contributions may be subject to gift taxes depending on whether the donations exceeded limits under the tax laws.
These advocacy groups have been drawing more scrutiny, from President Obama as well as others, as they have proliferated and funneled vast sums of money in support of campaigns and causes, without having to publicly disclose their donors.
During the midterm cycle, for example, groups like Crossroads GPS, which has ties to the Republican strategist Karl Rove, and Americans for Prosperity, backed by Mr. Koch and his brother Charles, were heavily involved in politicking, spurring campaign finance watchdogs to complain that they were flouting election and nonprofit laws. ...NYT
According to the Times report, this action was began as a political tool but "initiated by agency employees, not White House or other Obama administration officials, 'as part of their increased efforts in the area of nonfiling of gift and estate tax returns.'" The expected immediate result will be a slow-down in big contributions from donors who don't want to be taxed for their gifts. Both sides of the political equation will feel the pain in the run-up to the 2012 elections.
The tea party owes much of the power it achieved in 2010 to big money. It will be interesting to follow the effect of the IRS's crackdown on that. And one has to wonder whether veteran Republicans -- now hog-tied politically by the tea partyers in the House -- won't look kindly on the IRS's move.
In the meantime, Marcus S. Owens, a lawyer who represents nonprofits and who formerly headed the I.R.S. division that oversees tax-exempt organizations, predicted that the tax agency’s moves would be watched warily by contributors. “The lack of clarity and the potential for not-insignificant taxation on these gifts will cause many of the biggest donors to think twice,” he warned.
