Tuesday, August 9, 2011
Writing on behalf of four anonymous clients, Marc Owens of Caplin & Drysdale sent a letter to the IRS requesting immediate guidance on whether or not the gift tax applies to contributions by individual donors to section 501(c)(4) organizations. The basis for the request is that the IRS decision to abandon already in-process gift tax audits of some such donors while leaving in place precedential guidance stating the gift tax applies to such donors leaves both donors and their legal advisers confused regarding the IRS position on this issue. The letter also states the unnamed clients are concerned that "[t]he clear implication" left by the IRS decision to abandon the pending gift tax audits "is that IRS enforcement activity can be curtailed by intervention from a handful of members of Congress, whatever their party affiliation, when political contributions are at risk." The letter also states that the clients "are particularly concerned . . . over indications that the decision to terminate the audits and suspend further enforcement action was motivated by concerns regarding the political implications of the decision, rather than by an allegiance to nonpartisan application of the tax laws."
Owens also made more pointed comments to the press regarding the IRS's decision. For example, in a NY Times story about the letter he is quoted as calling the decision to abandon the pending audits "a tumor on the integrity of the I.R.S. because it appears they just caved to political threats. This ought to be a subject for the Treasury inspector general. I cannot recall anything like it happening, at least not after Watergate." Similarly, in a Huffington Post article about the request, he is quoted as saying "Best as I can tell, the agency sort of made a snap decision under pressure from Republican members of Congress to just freeze everything in place. The problem is they reacted to political pressure and they shut down audits without any apparent justification other than it was irritating members of one political party. And that has a corrosive effect on tax law." (Disclosure: I am quoted in the Huffington Post article agreeing with Owens' concerns; I should also note that contrary to what one of my quotes in that article suggests, I do not completely agree with the IRS position on the gift tax and 501(c)(4) donors, although I do believe their position is a reasonable one and therefore, having been carefully adopted and long-held by them, they should not have abandoned it so readily in the face of political pressure.)
Additional coverage: Chronicle of Philanthropy.