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Exempt Organizations

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Can Donations Be Taxed?

5/24/2011 Articles

You may have recently heard news reports that the IRS will begin subjecting individuals' contributions to IRC Section 501(c)(4) organizations - commonly known as social welfare organizations -- to gift tax (currently set at 35%).  For example, the NY Times recently reported that five individuals are being investigated by the IRS for contributions to such nonprofit advocacy groups.

While the Constitutionality of taxing such contributions is far from clear, we wanted to alert you to the new interest the IRS is showing in this area and alert you that donors should consult tax counsel prior to making any such contributions in this climate of IRS heightened scrutiny of IRC 501(c)(4)'s and its donors.

For those of you unfamiliar with IRC 501(c)(4) organizations, they are operated for the "promotion of social welfare" and are exempt from income taxation if no part of their earnings inures to the benefit of any individual. Such organizations may engage in political campaign activities and an unlimited amount of legislative lobbying.  But, unlike mainstream political organizations (e.g. PACs and Parties, IRC 527's), there is no requirement that IRC 501(c)(4) organizations publicly reveal the names of their donors. Thus, IRC 501(c)(4) organizations had been an attractive vehicle for political involvement for those who wanted to remain out of the spotlight.

To further discuss this matter, please contact your Farella Exempt Organizations attorney.

Firm Highlights

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