A Change in Enforcement Policy or The Specter of an "Enemies' List"?
A letter sent by Republican Senators to the Commissioner of the IRS questions the retroactive enforcement of the gift tax in a highly politicized environment noting that President “Obama and the White House have made it clear they view section 501(c)(4)s with deep hostility and that the (White House) Staff fear their ability to influence an election.” The last comment evidently was in reference to the 2008 election and the Supreme Court decision in the Citizen United v. FEC that ruled corporations may spend unlimited amounts of money supporting or opposing political candidates for office as long a they do so independently of candidate and political parties. This decision encouraged funding of a number of 501(c)(4) advocacy organizations that support specific candidates. Under the IRS Code and Regulations, 501(c)(4) organizations can participate in electoral activity as long as the activity is not the “primary activity” of the organization.
What makes this matter very interesting is Commissioners Shulman’s defense of the IRS and the reason for the current examinations, i.e. “the agency is apolitical and non partisan,” no involvement by any political appointee inside or outside of the agency. This was a direct response to the Congressional letter inquiring whether outside sources had influenced the initiation of the examinations.
The Congressional letter was a not so subtle reference to “President Nixon’s Enemy list” that identified specific individuals and organizations for IRS Audit in 1973, during that election period, that were at odds with the administration’s policy on Vietnam, the cities, the environment and many other social welfare issues. Fortunately, the IRS did not then succumb to those pressures and hopefully as indicated by Commissioner Shulman’s statement that the IRS would not be directed by outside forces to initiate partisan audits.
Background to this Brouhaha
The IRS has attempted to apply the federal gift tax under IRC section 2501(a) to amounts contributed to campaign funds of candidates for certain political offices and to amounts expended directly on their behalf. In only two reported cases decided over 30 years ago, the IRS attempted to assert the gift tax to these donations. See Carson v. Commissioner 71 T.C. 352 (1978) and Stern v. United States, 436 F.2d. 1357 (5thCir. 1971). The Courts there held that the gift tax did not apply to amounts contributed directly on behalf of candidates. In 1982, the IRS issued a public acquiescence to the result reached in these cases. Rev. Rul. 82-216, 1982-2 C.B. 220, held that the IRS would no longer contend that the gift tax applies to contributions made to or on behalf of organizations described in section 527(e)(1). However, the Service also indicated that it continues to maintain that gratuitous transfers to “persons other than organizations described in section 527(e) are subject to the gift tax absent any specific statute to the contrary.”
There are no published IRS positions that it has applied the rationale in this Rev. Rul. 82- 216 to 501(c)(4) organizations or other 501(c) organizations for 29 years since the Rev. Rul. was issued.