I.R.S. Investigates Large Donations to Nonprofit Political Groups

The I.R.S. has sent letters to five individuals who made large contributions to nonprofit political groups. The letters state that the I.R.S is investigating why the individual did not file a gift tax form for their donations. The letters also request records of all 2008 donations and inform the individuals that if their donations exceeded the gift exemption amount, then they may be subject to gift taxes.

Many of these nonprofit political groups were established under Section 501(c)(4) even though the law specifically states that the primary purpose for (c)(4) groups cannot be political. The I.R.S. claims it is investigating donations to (c)(4) groups in an effort to curtail the nonfiling of gift and estate tax returns.

Typically, an individual may gift no more than $13,000 a year ($26,000 for couples) before incurring gift taxes. Additionally, an individual may gift $5 million during his or her lifetime before incurring gift taxes (though it will reduce to $1 million in 2013).

Some individual donations to these nonprofit political groups have far exceeded the $13,000 annual and $5 million lifetime limits. George Soros, a billionaire investor, donated over $12 million to these groups in 2009 and 2010.

With so much uncertainty surrounding donations to (c)(4) groups, many predict potential donors will closely watch the I.R.S. investigation and may second guess donating to (c)(4) groups in the future.

Stephanie Storm, I.R.S. Moves to Tax Gifts to Groups Active in Politics, May 12, 2011.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this to my attention.