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IRS Takes Aim At Political Attack Money

IRS Takes Aim At Political Attack Money

The push-back against big money in elections has taken a turn toward the serious.  According to Ben Smith at Politico, the Internal Revenue Service has started to enforce a tax on gifts to non-profit 501(c)(4) organizations.  Named after their governing section of the tax code, 501(c)(4)’s have been responsible for for a significant spike in anonymous (and often misleading) attacks over the last five years.

The scrutiny will impact very large donors to these organizations.  Here’s why.  Current tax law allows anyone to give up to $13,000 annually to whoever they chose.  Any gift over that $13,000 annually gets deducted away from an individual’s lifetime gift tax exemption, which currently stands at $5 million.  This lifetime exemption is likely to drop to $1 million in 2013, which would mean that a donor’s heirs would lose a lot  of money to estate taxes and face the possibility of a “clawback” of money that has already been given away back into the taxable estate.

And these donations are currently not under any other reporting or disclosure requirements which means they can be made anonymously.  It’s the combination these two factors that made Swift Boating both possible and legal.

For years it’s been an open secret that many donors to 501(c)(4)s do not typically pay the gift tax on these contributions, which can be as high as 35% in some instances.  Instead they treat them as gifts to political organizations rather than non-profits.  Gifts to other political organizations are not currently taxed.

The issue of whether or not 501(c)(4) gifts should be taxed or not is arguably an open question of law which means this move is likely to be challenged in court.  That is, if the donor does not mind shedding anonymity to file a lawsuit.  Otherwise donating to your favorite smear campaign just got a lot more expensive since avoiding the gift tax on that donation could land you in jail.

This is a good move regardless of your political affiliation.  Smear campaigns are equal opportunity political destroyers.  The health and sustainability of our democracy depends on a transparent electoral process, and that transparency has been under steady attack for years.  The lethal combination of large anonymous political gifts with no donor disclosure requirements has funneled misinformation, further corrupting our politicians and our political process.  While this move alone wont fix the problem, it does take a strong first step in re-leveling the field.


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photo courtesy of TracyO via Flickr

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9:13AM PDT on May 13, 2011

If they have it right it will be fixed real fast in this congress

1:13AM PDT on May 13, 2011

How much will you allow the IRS to forfeit your hard earned dollars to Corporate Interest, IRS needs an overhaul, because most of them spend their time and our tax dollars going after the little guys who pay the big tax bills Hmmm! what wrong with that picture? Who has stupid written across your foreheads them or us?

11:59PM PDT on May 12, 2011

Who thought we'd ever have a reason to thank and support the IRS?

11:38PM PDT on May 12, 2011

Well the same people that are making these gifts are the ones that are going to force the IRS to interrogate rape victims over whether or not their insurance paid for an abortion or if it really WAS a rape. Could be the IRS has decided to start looking through the rule books to get back at them.

Also, IRS agents are public employees too, who are being hit with the same ax as teachers and firefighters. Not smart, boys, not smart.

11:24PM PDT on May 12, 2011

The IRS got one right, for once.

6:44PM PDT on May 12, 2011

I hope the Koch brothers don't get side by side cells and have to face the prison population like any other criminal does. I won't hold my breath that the IRS will take the time to go after them or any other rich donor.

12:46PM PDT on May 12, 2011

Movement to Amend (Take Back Our Elections and Democracy) -

11:33AM PDT on May 12, 2011

Great start!!!! Lets keep the ball rolling and stop the misinformation birgate!!! :O)

11:04AM PDT on May 12, 2011

Now that is a good use of the IRS

8:41AM PDT on May 12, 2011

I'm glad about this. Lobbying leads to too much corporate interest

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