How The IRS Views Donations To Political Campaigns

With the 2012 election cycle in its early days, it is only a matter of time before your phone starts to ring with candidates and political organizations soliciting monetary contributions. For many years, questions have been raised as to whether contributions to political organizations are reportable for gift tax purposes.

In an internal memorandum released to the public, the IRS has announced that, until it issues further guidance, examiners will not pursue gift tax issues for people making contributions to civic leagues, social welfare organizations and associations of employees – organizations that claim their tax exemption under Section 501(c)(4) of the Internal Revenue Code.

These nonprofits must be operated exclusively for the promotion of social welfare. In other words, the organization must operate primarily to further, in some way, the common good and general welfare of the people of the community, such as by bringing out civic betterment and social improvements. These organizations are permitted to lobby for legislation, and unlike public charities, they may also participate in political campaigns and elections, as long as campaigning is not the organization's primary purpose.

Contributions to Section 501(c)(4) organizations are not deductible as charitable contributions. Also, these organizations are not required to publicly disclose the names of their donors. This latter aspect of the law has led to extensive use of this tax law provision by organizations that are actively involved in lobbying. In 2010, a bill was passed by the U.S. House of Representatives that addressed identification of donors to organizations involved in political advocacy, but the bill failed to pass in the Senate.

The question of whether the gift tax applies to contributors remains an open question. However, the memo indicates that the IRS has ceased pursuing the gift tax issue until it issues further guidance – unless Congress takes action first through new legislation.

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