House Passes Gift Tax Exemption for 'Dark Money' Groups

The House of Representatives quietly passed legislation last week that would exempt large donations to "dark money" political groups from gift taxes, a move opponents say could lead to even more undisclosed spending on elections, Politico reports.

Now headed for the Senate, the Fair Treatment for All Gifts Act would make clear that the gift tax does not apply to so-called social welfare groups registered under sections 501(c)(4), (c)(5), or (c)(6) of the tax code — groups including everything from Republican operative Karl Rove's Crossroads GPS, to billionaire activist Tom Steyer's NextGen Climate, to the Koch brothers-backed Freedom Partners. Current law is ambiguous about whether gift taxes can be assessed on donations to such groups, which — unlike party and campaign committees and PACs registered under section 527 — are not required to disclose their donors' names and contributions.

In a letter supporting the bill, a coalition of conservative and liberal nonprofit organizations and their lawyers told House members that the "application of the gift tax to 501(c)(4) donors raises serious constitutional questions, and threatens to hamstring smaller or start-up citizens' groups." The bill, which had strong bipartisan support and passed on a voice vote, was part of a package of measures aimed at clamping down on what some in Congress see as IRS abuses of its regulatory authority. The agency had previously audited 501(c)(4) groups and briefly considered imposing the gift tax on politically active tax-exempt groups. It suspended such audits in 2011, however, choosing to let Congress decide whether donations to such groups were subject to the gift tax.

Some Democrats told Politico the bill, if passed, will facilitate additional political spending by conservative billionaires such as Charles and David Koch and Sheldon Adelson. According to Politico, Democratic presidential candidate Hillary Clinton seems to agree, saying at an event in Iowa that it was time "to fix our dysfunctional political system and get unaccountable money out of it once and for all — even if it takes a constitutional amendment."

Kenneth P. Vogel, Hillary Flynn. "House Quietly Passes Tax Exemption for Megadonors." Politico 04/16/2015.