IRS: Collect Taxes on Donations

Politico reports

An Internal Revenue Service effort to collect gift taxes on large individual donations to social advocacy groups, which eventually could include the new political organizations that cropped up in the 2010 midterms, is already drawing threats of lawsuits.

According to one attorney familiar with the backroom discussions, the groups could challenge the IRS on two fronts: that the gift tax was not intended to apply to such donations, and that the IRS failed to give notice that it intended to begin enforcing the tax, after two decades of nearly no action.

The conversations were prompted this week after tax lawyers spread the news that five individual donors to such groups had received IRS notices that a 2008 gift tax was due. That news, which was first reported in POLITICO, did not include the names of the donors or the organizations.

In the years since 2008, more groups came onto the scene. In the 2010 midterms, two GOP giants were founded with the help of former Bush adviser Karl Rove: American Crossroads, which discloses donors, and Crossroads GPS, which doesn’t. The majority, $43 million, of the $70 million Crossroads officials said they collected flowed through the non-disclosing organization.

Democrats close to the White House are now planning to duplicate that arrangement with two organizations: Priorities USA and Priorities USA Action. The Democrats said they hope to raise $100 million to spend on the 2012 re-election of President Barack Obama.

The IRS’ stepped-up enforcement could also take in a wide range of established issue-advocacy groups, ranging from environmental to anti-tax organizations.

However, tax lawyers and campaign finance attorneys didn’t need to read tea leaves to learn that the IRS had acquired a heightened sense of interest in the new political groups.

The agency essentially announced that it would step up its scrutiny of them in a 2011 “work plan” that was released late last year.

In that document, officials in the agency’s Exempt Organizations Division said they are expanding a decade-old program that monitored political activity by religious organizations to include trade groups (registered as 501(c)6s), labor unions (registered as 501(c)5s), and the new groups (registered as 501(c)4s) that were founded by party strategists and financed with large individual, corporate and labor union checks.

Beginning in 2011, officials said, “we will look at issues including political activity, inurement and the extent of compliance with the requirements for tax exemption by organizations that self-identified themselves as a section 501 (c) (4), (5), or (6) organization.”