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Facing South: Will IRS crack down on secret political donors who aren't paying taxes?

May 12, 2011- Making anonymous donations to fund political attack ads -- a strategy which gained popularity in 2010, fueled by the Supreme Court's Citizens United decision -- may have just gotten a little harder.

In 2010, independent political groups -- those outside the direct control of either the Democratic or Republican parties -- shoveled nearly $200 million into attack ads for Congressional races.

That was on top of millions in state-level spending in places like North Carolina, where such groups spent more than $2.6 million to influence a handful of legislative races; 75 percent of that was linked to Republican donor Art Pope.

In many cases, the source of the attack money remains a secret because it was funneled through so-called 501(c)(4) nonprofit organizations that aren't required to disclose their donors.

But change may be in the air. According to Ben Smith at Politico, the IRS -- at the urging of good government groups -- may be cracking down on donations to nonprofit 501(c)(4) groups, making them a less attractive vehicle for funneling political money.

At issue is a federal gift tax which donors are supposed to pay every time they contribute to a 501(c)(4) nonprofit. But as Smith reports:

[L]awyers informally say many donors do not typically pay the gift tax -- which may run as high as 35%, mirroring income tax rates -- for contributions to 501(c)4s.

Given the skyrocketing amount of political attack money passing through these nonprofits -- not to mention the federal budget debate -- one can see why the IRS is interested. For example, in 2010 Karl Rove's Crossroads Grassroots Policy Strategies alone spent $15.6 million on behalf of Congressional Republicans. Assuming that's close to the total amount they raised, a 35 percent tax would amount to $4.7 million for the U.S. treasury.



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