IRS suspends gift-tax investigations

The two top Republican tax-writers in Congress — Rep. Dave Camp of Michigan and Sen. Orrin Hatch of Utah — applauded the IRS move, after having previously asked the agency for more information after the gift-tax investigation was announced. 

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But the lawmakers still questioned why the agency had started up the examination in the first place. 

“Did politics play a role in that decision?” Hatch, the ranking member on the Senate Finance Committee, asked in a statement.

For his part, Camp, the chairman of the House Ways and Means Committee, said he would also continue to look into the issue, due to what he called a “lack of transparency.”

The agency “has yet to adequately address why taxpayers were given no warning prior to the launching of these investigations,” Camp said in a statement. “Furthermore, the IRS has failed to clarify that the gift tax will not apply to future political donations. Especially troubling is that the directive explicitly leaves open the possibility of future audits.”

The IRS previously had announced it had told five taxpayers that donations to 501(c)(4) groups could be subject to the gift tax. The agency did not name the five taxpayers, and stressed that its investigation was not part of a wider examination of those groups. 

“All of the decisions involving these cases were made by career civil servants without any influence from anyone outside the IRS,” she added,” Michelle Eldridge, an agency spokeswoman, said in a May statement. 

Though most of their work cannot be political, 501(c)(4)s, named for a tax code section, have raked in millions of dollars and played a large role in the 2010 midterms — at least in part because they don’t have to identify their donors. 

Democrats have called for increased disclosure from those groups, with some conservative activists having used 501(c)(4)s to some effect last year. But some Democratic activists are also starting to organize similar outfits.