Gift taxes; 501(c)(4) organizations

AP had an interesting story about dropping an investigation of whether donations to 501(c)(4) organizations were subject to gift taxes. You cannot read an AP story on line except by going through the Web site of a member newspaper, but search for "IRS drops probe of donors to nonprofit groups".

The unnamed 501(c)(4) organizations whose contributors were being probed were set up to make political expenditures in 2010 congressional races and did not disclose their contributors under McCain-Feingold and related legislation requiring disclosure from groups not subject to other campaign disclosure law. The undisclosed contributions in question were six and seven figures.

Is anyone familiar with IRS's theory? Are they possibly subject to gift tax because IRS has taken the position that political expenditures aren't the exempt function of a 501(c)(4) and that this isn't exempt function income? Or is it based on exceeding the gift tax threshold, regardless of what position IRS takes on the 501(c)(4) organization's exempt function?

I hope it's not the latter.

Reply to
Adam H. Kerman
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I would expect that the IRS is relying on the definition of a gift as being any transfer where full value isn't received in return. Since these transfers were (presumably) in excess of the annual exclusion, a gift tax return was required. These transfers don't meet one of the three categories of excludible transactions. Even charitable contributions must be reported on a gift tax return if a return is required for other transactions.

Ira Smilovitz

Reply to
ira smilovitz

The article says "which had invoked a rarely used, 30-year-old ruling". I'm trying to find what this 30 year rule ruling is. No details anywhere!

If it's the former, couldn't the IRS go after the 501(c)(4) itself?

Oh wait. I found

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has a link to the revenue ruling
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Both are good articles. I gather that PACs are 527(e) organizations and donations to them are unlimited provided they follow the disclosure rules, but donations to 501(c)(4) are not subject to disclosure.

Reply to
removeps-groups

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