Applauds IRS Initiative to Enforce Gift Tax of Fraudulent Non-Profits

Announcement Comes Months After Campaign Accountability Watch Sends Letter on Issue to AG Holder

WASHINGTON, May 16, 2011 /PRNewswire/ — Campaign Accountability Watch (CAW), a watchdog at the forefront in the battle against secret campaign contributions, today applauded the IRS for announcing it will seek payment of a gift tax of 35% for donations made to non-profit organizations involved in electoral campaigns. CAW called it a good "first step" to reigning in these organizations.

CAW sent a letter on October 25, 2010 to Attorney General Holder seeking a special prosecutor for the misuse of non-profit organizations to hide the source of electoral donations.

The letter specifically highlighted the provision in the law that the IRS is now addressing:
…press reports indicate that these same 501c(4) organizations are not advising their donors that their donations are taxable as a 'federal gift tax' at a rate of 35%, thereby both misleading the donors and depriving the federal government of potentially hundreds of millions in tax revenue. 

"We are thrilled that the IRS is now addressing the concerns we raised by enforcing the gift tax against donors to these fraudulent non-profits," said Kevin Zeese who signed the letter to Attorney General Holder last October and is spokesperson for Campaign Accountability Watch.

"The IRS needs to continue to take action against these organizations by denying their non-profit tax status. They are misusing the tax laws to avoid disclosure required by federal campaign laws. The IRS should put a halt to this practice. These non-profits should be required to disclose the identities of all their donor."

The organizations themselves may find they are liable for this gift tax. Tax lawyers advise: "Individual contributors and 501(c)(4)s may wish to consider carefully the possible gift tax implications of contributions, and to seek the advice of counsel … both contributors and 501(c)(4)s need to be cognizant of the issues. 501(c)(4)s may face secondary liability for unpaid gift taxes owed by their contributors."

"Federal agencies regulating tax and election laws should be taking action against the illegal use of non-profits to avoid disclosure of donors and donations," Zeese said. "To de-politicize further action, we urge the Department of Justice to appoint a special prosecutor that will subpoena people such as Karl Rove of American Crossroads GP and Tom Donohue of the Chamber of Commerce as well as their donors. 

The administration needs to take an aggressive approach in ensuring these groups stay within the law, specifically, the FBI should escalate an ongoing investigation of these organizations which began last November; the IRS should deny their tax status; and the FEC needs to act on complaints filed against these groups for violation of the Federal Election Campaign Act. The time to act is now, before the fundraising for 2012 shifts into high gear," said Zeese.

Earlier this month CAW sent letters to 40 U.S. Attorneys along urging prosecution of organizations including Karl Rove's Crossroads/Crossroads GPS, the Chamber of Commerce and American Future Fund for illegally using non-profit front groups to violate the Federal Election Campaign Act (FECA) during the 2010 elections. None have been prosecuted for their violations to date.

The organization also urged President Obama to sign an executive order, in the face of dogged opposition, requiring disclosure of donations by those who seek contracts with the federal government.




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