IRS Reverses Course on 501(c)(4)'s and Gift Tax

7/19/2011 Articles

In our May 24, 2011 article "Can Donations Be Taxed?", we cautioned that the IRS was investigating individuals' contributions to IRC Section 501(c)(4) organizations—commonly known as social welfare organizations—as subject to gift tax. 

At the time, we questioned the constitutionality of taxing such contributions.

We are pleased to announce that the IRS has issued the following pro-taxpayer statement:

"Recently, questions have arisen regarding the applicability of the gift tax to contributions to 501(c)(4) organizations....While we review the need for additional guidance or legislation, we will not use resources to pursue examinations on this issue.  Any future action we take will be prospective and after notice to the public."

While Congress may eventually pass legislation prohibiting such contributions, the IRS has now made it clear that until such time, individuals may contribute unlimited funds to 501(c)(4)s without fear of being subject to gift tax or running afoul of campaign finance laws (as you may recall, 501(c)(4)s are not subject to the jurisdiction of the Federal Election Commission).

We will keep you abreast of future developments in this area. In the meantime, please do not hesitate to contact us with any questions.