Donors to nonprofits engaged in politics at risk of closer IRS scrutiny

Non-profit groups pouring millions of dollars into federal election campaigns have the IRS looking more closely at taxing donors making gifts to 501(c)(4) organizations. A move, which IRS tax attorneys say could dramatically affect nonprofits, taxes and politics.

Typically, donors to these nonprofits are anonymous and gifts are ordinarily not taxable. However, tax lawyers warn the IRS is looking much closer at beginning to tax these donors. According to Ben Smith of Politico, “gifts to other political organizations are not taxable under federal law, and lawyers informally say many donors don’t typically pay the gift tax — which may run as high as 35 percent, mirroring income tax rates – for contributions to 501(c)(4)’s.”

Following the U.S. Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission, the IRS and private tax attorneys across the country noted a spike in spending by these groups to fund political messages, using corporate money, at any time during the election cycle. Tax lawyers explain that earlier 501(c)(4) regulations prevented nonprofits from using corporate money for advertisements mentioning federal candidates within 30 days of a primary election, or within 60 days of a general election.

Closer IRS scrutiny may very well be warranted, according to several tax attorneys, because of findings like those of the Center for Responsive Politics, which suggest political spending by nonprofits which did not disclose donors rose from one percent (1%) of political spending by all outside groups to forty seven percent (47%) in just four (4) years, between the 2006 and 2010 elections.

The heightened scrutiny will likely have a chilling effect on donations made to 501(c)(4)s which disclose donor information. IRS tax attorneys say that under agency requirements, donors to political groups registered under section 527, like political action committees (P.A.C.s), do not have to pay taxes on their contributions, but must disclose the donor’s name and contribution amount if the donor gives more than two hundred dollars ($200).

Because of new IRS enforcement, donors to groups registered as 501(c)(4)s would have to pay a tax on their gift to remain anonymous. Tax lawyers suggest that contributors trying to decide between gifts to these two different types of groups may now have to choose between disclosure and paying taxes on the gift.

If you are thinking about making a gift to a nonprofit that engages in political activities, you would be wise to seek advice from a tax attorney or other tax profession to get answers which may help you comply with existing tax laws.


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