The Congressional Research Service has issued a report analyzing whether the federal gift tax applies to contributions made to 501(c)(4) organizations. Many years ago, the IRS took the position in rulings that the gift tax applied. However, the IRS had not enforced the tax for over 20 years until 2011, when the IRS audited five donors as to whether their contributions to 501(c)(4)s could be subject to gift tax. The IRS ultimately dropped these audits following accusations that they were politically motivated (accusations the IRS has denied).
As we reported in an e-alert in July, the IRS announced that there will be no more such audits until the matter has been studied by the IRS and that any future enforcement of the gift tax will be prospective only after notice to the public.
The CRS report concludes that in the absence of a statutory exception for donations to 501(c)(4) organizations (unlike for contributions to 527 organizations, which are statutorily exempt), the gift tax should apply, and that there is insufficient evidence in the legislative history to suggest that Congress intended a different result. The report also concludes that First Amendment arguments would not change the outcome since the gift tax is generally applicable and content neutral.
It is unclear whether the CRS report will have any impact on the issue, especially in the near future. But it reflects the interest of some in Congress and will certainly be cited in the debate ahead.
The CRS report is available here (courtesy of the Election Law Blog).