POLITICS - Misuse of 501-Nonprofits

"I.R.S. Moves to Tax Gifts to Groups Active in Politics" by STEPHANIE STROM, New York Times 5/12/2011

Excerpt

Big donors like David H. Koch and George Soros could owe taxes on their millions of dollars in contributions to nonprofit advocacy groups that are playing an increasing role in American politics.

Invoking a provision that had rarely, if ever, been enforced, the Internal Revenue Service said it had sent letters to five donors, who were not identified, informing them that their contributions may be subject to gift taxes depending on whether the donations exceeded limits under the tax laws.

These advocacy groups have been drawing more scrutiny, from President Obama as well as others, as they have proliferated and funneled vast sums of money in support of campaigns and causes, without having to publicly disclose their donors.

During the midterm cycle, for example, groups like Crossroads GPS, which has ties to the Republican strategist Karl Rove, and Americans for Prosperity, backed by Mr. Koch and his brother Charles, were heavily involved in politicking, spurring campaign finance watchdogs to complain that they were flouting election and nonprofit laws.

Spokesmen for the Koch brothers and for Mr. Soros would not comment as to whether they had paid gift taxes on these types of donations, or whether they had received letters from the I.R.S.

These organizations were established as nonprofit corporations under a section of the tax law, 501(c)(4), and the rules governing them say their primary purpose cannot be political.

The timing of the agency’s moves, as the 2012 election cycle gets under way, is prompting some tax law and campaign finance experts to question whether the I.R.S. could be sending a signal in an effort to curtail big donations.

“There are a whole heck of a lot of people misusing (c)(4) groups as a means of getting around campaign finance regulations, and we lack a coherent system of laws to deal with that,” said Donald B. Tobin, a legal expert on campaign finance and tax laws at the Moritz College of Law at Ohio State University. “Now here’s a stick, frankly, that says there are consequences for doing that.”

AH! The Al Capone trap.