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The Gift Tax and Contributions to Section 501(c)(4) Organizations

July 11, 2011

On July 7, 2011, the IRS announced the suspension of enforcement activity focused on the gift tax implications of gifts to section 501(c)(4) organizations. The July 7 announcement comes in the wake of disclosure of five audits in progress of donors to such organizations. More information on the five audits can be found in a June 14, 2011, Caplin & Drysdale client alert. The alert noted that although the IRS had disclaimed any specific focus on such contributions, the audits demonstrated that the IRS might apply the gift tax to such contributions as they came up in its general enforcement work, in accordance with the position set forth in Revenue Ruling 82-216 that gifts to organizations other than charities described in section 501(c)(3) and political organizations described in section 527 are subject to the gift tax. It also noted that there were arguments that might be successfully employed to defend against the IRS if it attempted to collect gift tax on such contributions. 

The IRS audit activity quickly drew criticism from Republican members of the Senate Finance Committee and the House Ways and Means Committee and on July 7, 2011, the IRS released a memorandum from the Deputy Commissioner for Services and Enforcement summarily closing the five ongoing audits and suspending any further enforcement activity involving the application of the gift tax to gifts to section 501(c)(4) organizations. The Deputy Commissioner further indicated that any future enforcement activity would occur only after IRS Chief Counsel's Office evaluated whether there is a need for further guidance in the area and after notice to the public. No timetable was enunciated for the review by IRS Counsel. While the memorandum does not suggest what the ultimate position of the IRS will be on the gift tax issue, it does make clear that the position will be prospective in application. In an accompanying statement on its website, the IRS noted that it "has little history to draw from in this area and the limited guidance we previously issued on this matter is almost thirty years old," and invited Congress to consider legislation on the applicability of the gift tax to contributions to section 501(c)(4) organizations. 

In light of the IRS memorandum, we recommend that those taxpayers who have paid gift tax on gifts to section 501(c)(4) organizations consult with their tax advisors about the possibility of filing claims for refund of the gift tax paid.

For more information, please contact:

Exempt Organizations 

Douglas N. Varley, dvarley@capdale.com, 202.862.7818

Gift Tax 

Beth Shapiro Kaufman, bkaufman@capdale.com, 202.862.5062

Political Law 

Trevor Potter, tpotter@capdale.com, 202.862.5092
Matthew T. Sanderson, msanderson@capdale.com, 202.862.5046

Caplin & Drysdale   

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© 2011 Caplin & Drysdale, Chartered

All Rights Reserved.

Caplin & Drysdale provides a full range of tax and legal services to companies, organizations, and individuals throughout the United States and around the world. The firm also offers private client counseling, exempt organizations counseling, employee benefits counseling, corporate law counseling, political activity law counseling, white collar defense, and complex civil litigation services.

This announcement does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome. 

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Having celebrated our 50th Anniversary in 2014, Caplin & Drysdale continues to be a leading provider of tax, tax controversy, and litigation legal services to corporations, individuals, and nonprofits throughout the United States and around the world. We are also privileged to serve as legal advisors to accounting firms, financial institutions, law firms, and other professional services organizations.

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For more information, please visit us at www.caplindrysdale.com.

Washington, DC Office:
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Washington, DC 20005
202.862.5000
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Disclaimer
This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

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