IRS: No back tax on some gifts

July 8, 2011 at 11:15 AM
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WASHINGTON, July 8 (UPI) -- The U.S. Internal Revenue Service says it won't seek back taxes from donors who gave to certain political groups.

The announcement is welcome news to the five people who failed to file gift tax forms for donations they made to "social welfare" groups, the Los Angeles Times reported.

The IRS said it has closed its investigation into the five people it claimed failed to file the proper documents under Section 501(c)4 of the tax code -- a classification that allows the groups to keep their donor names secret.

"This is a difficult area with significant legal, administrative and policy implications with respect to which we have little enforcement history," Steven T. Miller, deputy commissioner for services and enforcement, wrote in a memo posted to the IRS Web site Thursday.

"Until further notice, examination resources should not be expended on this issue. It is anticipated that any future examination activity would be … prospective only after notice to the public," Miller's memo said.

Large donations to social welfare groups are technically subject to a 35 percent gift tax although until recently enforcement was lax.

"I'm fairly comfortable telling people that they can expect this holding pattern to remain in effect throughout the entire 2012 election cycle," said Ofer Lion, an attorney at Mitchell Silberberg & Knupp LLP. "Because it takes the IRS in the order of years, not months, to do this type of analysis and come up with what their position will be."

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