A few months ago, there was a flurry of writing about the fact that the IRS had opened audits of gift tax returns (also see my diary here for more wonky background). Specifically, the IRS was looking into gifts to 501(c)(4) social welfare organizations, the so-called "super-PACs" whose distinguishing feature is the ability to accept unlimited anonymous contributions and spend on political activity and lobbying. There was, of course, outrage from the expected quarters, including a not-so-subtle insinuation by Rep. Camp - the Chairperson of the Ways and Means Committee - that this may be payback by the Obama administration). Well, if you've donated hundreds of thousands to super-PACs in the last few years, you can rest easy. The IRS is dropping its audits.
The IRS released the following statement today:
Recently, questions have arisen regarding the applicability of the gift tax to contributions to 501(c)(4) organizations. 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 thirty 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.
This is a little disappointing, but not entirely unexpected and not, I think,
entirely unreasonable. The fact of the matter is that the IRS should've been on top of this from day one. Given the lack of enforcement in the past, donors would have a quasi-
laches due process argument available to them: they'd argue that chronic non-enforcement deprived them of fair warning of enforcement (I'm punching above my weight on this constitutional angle, so feel free to correct in comments).
At any rate, still disappointing. Hopefully the IRS will act soon to issue further guidance noting that contributions to 501(c)(4)s are taxable gifts.