IRS Denies Outside Influence Sparked Gift Tax Investigations
The Internal Revenue Service says the agency wasn’t pressured into investigating whether a levy on gifts should be applied to some contributions to political advocacy groups.
The IRS said in a statement that it is examining contributions from five taxpayers to determine whether they should pay the gift tax on donations to the groups, which are organized as 501(c)(4) organizations. The IRS didn’t identify the donors it is investigating or the groups.
“The examinations were started by employees of the Estate and Gift Tax Unit at the IRS as part of their increased efforts in the area of non-filing of gift and estate tax returns,” IRS spokeswoman Michelle Eldridge said in the statement. “All of the decisions involving these cases were made by career civil servants without any influence from anyone outside the IRS.”
The 501(c)(4) entities are known as social-welfare organizations, and have been used by political advocacy groups in recent election cycles. Eldridge said the examinations aren’t aimed at all of these groups.
“These examinations are not part of a broader effort looking at donations to 501(c)(4)s,” she said.
Gift Tax Investigations
Marcus Owens, a partner at Caplin & Drysdale in Washington and the former director of the exempt organizations division at the IRS, said the agency hadn’t investigated many contributions to 501(c)(4)s in recent years. That changed, he said, in part because of the January 2010 U.S. Supreme Court ruling, Citizens United v. Federal Elections Commission, which lifted restrictions on campaign spending.
“It’s only with the advent of Citizens United that you had an upsurge in large gifts to 501(c)(4)s,” he said.
Owens noted that a provision of the tax code would allow the IRS to investigate the political groups as well as their donors.
“Once the tax year in which the gift was made has closed and no return has been filed, the IRS can go after the recipient of the gift,” he said.
The top gift tax rate during 2010 was 35 percent.
In 2009, when the top rate was 45 percent, 234,714 gifts worth a combined $40.2 billion were reported to the IRS, according to data collected by the agency. After exclusions and deductions, 10,718 of those gifts were taxed, resulting in $2.7 billion in revenue.
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