Attorney Ofer Lion of Mitchell Silberberg & Knupp in Los Angeles has for months been working to notify his clients of the potential tax implications created by 501(c)(4) contributions, which can mean a gift tax as high as 35 percent on any donation of more than $13,000 made to a single group in a given year. “I thought it’s time to send up the warning flags so people don’t end up getting these massive gift taxes unbeknownst to them,” Lion said. “We don’t know if there’s an enforcement program underway, if this is an initial trickle that may turn into a flood of gift-tax assessments.”
In one February letter reviewed by Roll Call, an IRS examiner told a donor “your contribution [to a 501(c)(4) organization] in 2008 should have been reported on your 2008 Federal Gift Tax Return.”
Some attorneys say a compelling argument can be made that the gift tax, which was meant as a backstop to prevent taxpayers from circumventing estate taxes by giving away money early, was never meant to be applied to any sort of tax-exempt organization. But if Congress does not draft another gift-tax exclusion, as it did with 527 organizations, the only recourse for a donor facing an audit would be taking the matter to court.
“One of the things that is most interesting is that if the donors choose to contest it then they’ll no longer be anonymous, which is interesting considering that the whole benefit to giving these organizations is that you’ll remain anonymous,” Gilbert said.
Terri Henderson, 6, center, whose mother is El Salvador, attends a rally with members of Congress at Union Station's Columbus Circle to announce the Restore Opportunity, Strengthen, and Improve the Economy (ROSIE) Act on July 29, 2014. The legislation provides incentives for government contractors to pay a living wage and other benefits that would help low-income workers.