Archive for the ‘Exempt Organizations’ category

IRS Tests Imposition of Gift Taxes on Contributions to 501(c)(4) Social Welfare Organizations

May 20, 2011

 By Rose Drupiewski

Nonprofit social welfare organizations may be exempt from federal income taxes under Code section 501(c)(4).  Unlike contributions to public charities, contributions to social welfare organizations are not entitled to income tax charitable deductions under the Code. While it is clear that charitable deductions are not allowed for contributions to social welfare organizations, it is not clear whether such contributions will be subject to gift taxes.

The Code contains no specific gift tax exemptions for contributions to 501(c)(4) organizations as it does for contributions to certain other tax exempt entities such as 501(c)(3) public charities. While the law may allow the imposition of gift taxes on such transfers, the real question is whether or not the IRS will attempt to impose gift taxes. Many organizations, including the ABA’s Exempt Organizations Committee, have urged the IRS not to impose gift taxes on such contributions.

Recently, the IRS issued letters to certain contributors claiming that their donations to 501(c)(4) organizations were subject to gift taxes. The actions have prompted a swift response from Republican members of the Senate Finance Committee, who issued a letter to the IRS Commissioner on May 18 requesting additional information about the IRS’s intent to enforce gift taxes in these situations.

For those considering contributions to social welfare organizations, the IRS’s recent actions may stall future contributions. For everyday taxpayers, this may serve as a reminder that gift taxes can arise outside the family context.