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Bad Gifts From the IRS

Rep. Peter Roskam is trying to rein in the agency’s use of the gift tax to intimidate political donors.

Rep. Peter Roskam, R-Ill., questions ousted IRS Chief Steve Miller and J. Russell George, Treasury Inspector General for Tax Administration, as they testify during a hearing at the House Ways and Means Committee on the Internal Revenue Service (IRS) practice of targeting applicants for tax-exempt status based on political leanings on Capitol Hill, in Washington, Friday, May 17, 2013. (AP Photo/Charles Dharapak)


by Peter Roff     •     U.S. News

Even as Internal Revenue Service Chairman John Koskinen has repeatedly traveled to Capitol Hill for the purpose of justifying the continued existence of his agency, Republicans in the House of Representatives were moving to checks its authority, bit by bit but in important ways.

Last week, the Committee on Ways and Means gave its unanimous approval to legislation clarifying the IRS’s authority to levy a “gift tax” on donations made to certain types of not-for-profit groups under the federal tax code.

The bill, H.R. 1104, the Fair Treatment for All Donations Act, offered by Illinois Republican Rep. Peter Roskam, clears up an apparent ambiguity in the tax code, making it clear that contributions to 501(c)(4), (c)(5), and (c)(6) social welfare organizations, labor unions, agricultural organizations and business leagues are not subject to the federal gift tax as some inside the agency seem, by their behavior, to believe might be the case.

The need for Roskam’s bill became evident after it was learned the IRS had sent letters to at least five high-dollar donors to conservative and tea party causes warning that, under an internal agency reading of the relevant section of the tax code, gifts to those kinds of groups could be subject to the federal gift tax if they exceeded $14,000 dollars.

It is true that certain kinds of financial gifts above that amount are subject to taxes under current law, but that law has never been applied and was never meant to be applied, Roskam said, to gifts made to non-profit organizations. Nonetheless the letters, probably as intended, at least had a momentary chilling effect on giving.

Congressional hearings have uncovered numerous examples of how the IRS targeted conservative political groups and used the tax-exempt application review process as a weapon in the fight to re-elect President Barack Obama. The questions now and have been for some time who authorized it, who knew about it and who thought it up in the first place, not whether it happened at all, as some continue to contend.

The point of the letters Roskam’s bill addresses, the sheer genius of them, is that the desired objective could be achieved just by sending them with no follow up action required. No audits. No paper trails. No emails that might have to go missing at some point. All that was necessary was a commonsense reaction by donors who interpreted the letters as a good reason to rethink or curtail their charitable giving in order to lessen their potential tax exposure.

Those who continue to downplay the importance of the scandal or who deny that anything untoward happened at all are ignoring the evidence. Their acceptance of the idea that the agency was simply doing due diligence and letting taxpayers know how the law might be interpreted – to their benefit they add – simply doesn’t hold water, since the IRS started to back off from its position once news of what they were doing started to leak out.

It is certainly possible that liberal mega-donors received similar letters but not probable – and none apparently have been reported. The IRS has proven it cannot be trusted and its discretion is not reliable. Some people may prefer the tax code have some uncertainty within in it, but that is only to increase the odds they can beat the system if they have to.

The IRS is still working on a new system of regulations governing the behavior of the groups that are chartered under section 501(c) of the tax code. What they are really trying to do is seize control of political speech in order, one presumes, to have the ability to suppress it. It’s not like presidents have not used the agency before against their political enemies. In the past though, when those abuses were exposed, sanctions were issued and rules were changed. The Obama administration doesn’t seem in any hurry to set things right; in fact, it’s appointees are pushing these oppressive speech codes at the IRS, the Federal Election Commission, the Federal Communications Commission and other agencies. Roskam is right that the IRS has abused its authority in this area and should, therefore, be denied it. And the reforms should not stop there.