Will IRS crack down on secret political donors who aren't paying taxes?
In 2010, independent political groups -- those outside the direct control of either the Democratic or Republican parties -- shoveled nearly $200 million into attack ads for Congressional races.
That was on top of millions in state-level spending in places like North Carolina, where such groups spent more than $2.6 million to influence a handful of legislative races; 75 percent of that was linked to Republican donor Art Pope.
In many cases, the source of the attack money remains a secret because it was funneled through so-called 501(c)(4) nonprofit organizations that aren't required to disclose their donors.
But change may be in the air. According to Ben Smith at Politico, the IRS -- at the urging of good government groups -- may be cracking down on donations to nonprofit 501(c)(4) groups, making them a less attractive vehicle for funneling political money.
At issue is a federal gift tax which donors are supposed to pay every time they contribute to a 501(c)(4) nonprofit. But as Smith reports:
[L]awyers informally say many donors do not typically pay the gift tax -- which may run as high as 35%, mirroring income tax rates -- for contributions to 501(c)4s.
Given the skyrocketing amount of political attack money passing through these nonprofits -- not to mention the federal budget debate -- one can see why the IRS is interested. For example, in 2010 Karl Rove's Crossroads Grassroots Policy Strategies alone spent $15.6 million on behalf of Congressional Republicans. Assuming that's close to the total amount they raised, a 35 percent tax would amount to $4.7 million for the U.S. treasury.
As Smith reports, the 2011 workplan for the IRS Exempt Organizations Divisions says they will be "increasing ... focus" on 501(c)(4) groups. And they're not just interested in the 2012 elections: A letter [pdf] sent to one political contributors showed they are looking back to earlier gifts, as seen in this passage:
The Internal Revenue Service has received information that you donated cash to [REDACTED], an IRC Section 501(c)(4) organization," the agent wrote to a donor. "Donations to 501(c)(4) organizations are taxable gifts and your contribution in 2008 should have been reported on your confirmed on Thursday that it had sent letters to five donors, who were not identified, informing them that their contributions may be subject to gift taxes.
PHOTO: Republican strategist and presidential advisor Karl Rove ran the largest 501(c)(4) group in the 2010 elections, Crossroads Grassroots Political Strategies, which funneled more than $15 million in anonymous money to Congressional races. (WikiMedia)
Sign up for our free newsletter for the latest news, trends & analysis.