[EL] "I.R.S. Begins Enforcing Rule on Gifts to Political Nonprofits"

[James Lacy]

Notions that this will slow down spending of large corporations or even some unions are overblown.

For example, a large corporation that gives to a 501(c)(4) that expresses policy views helpful to their business may actually deduct the non-publicly disclosed contribution on their own income tax forms consistent with IRC Section 162 as a "business deduction".  To the extent the c4 engages in candidate advocacy or explicit lobbying under the IRS definition, the contribution/dues are not deductible.  But they are not taxable.

For example, a major national brewer contributed heavily to a nonprofit that advocated in general lower beer taxes, as well as anti-drunk driving advocacy.  The IRS opened an audit to challenge the deductibility, claiming the contributions were self-serving and the organization was not independent.  When the organization proved it was independent, in an unpublished opinion, the IRS allowed the deductions and closed the audit.

The Wisconsin Right to Life decision supports a scenario where a large corporation can channel significant funds into a 501(c)(4) that shares it's business viewpoint and uses general funds to criticize the general policy positions and performance in office of an officeholder, and in this scenario the corporation will not have to publicly disclose the contributions, will not have to pay gift taxes, and will be able to deduct it's contributions from income taxes under Section 162.

Therefore, this recent IRS action only potentially affects INDIVIDUAL gifts to nonprofits, where Section 162 is inapplicable.

All the Koch brothers have to do now is shift their contributions from personal contributions to business contributions, where the organization shares their business outlook and a business deduction expense rational can be articulated.  Then there will be no gift tax.  I think that would be more difficult for Soros, as the business reason to support anti-global warming or save whales seems less credulous to me.

James V. Lacy
Confidentiality applies

Sent from my iPad

On May 12, 2011, at 2:02 PM, Rick Hasen <rhasen at law.uci.edu> wrote:

> "I.R.S. Begins Enforcing Rule on Gifts to Political Nonprofit
> 
> The NY Times offers this important report.
> Posted by Rick Hasen at 02:00 PM
> -- 
> Rick Hasen
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> UC Irvine School of Law
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> 
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