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IRS Abandons Plan to Audit Major Political Donors

August 17th

tax auditThe Internal Revenue Service has abandoned its plans of auditing all major political donors just in time for the 2012 election season to begin in earnest, chiefly as a result of significant public backlash.

In May,  large-scale political donors were scrutinized through a tax audit. They sent letters to five major political donors informing them that their donations to nonprofit groups registered under section 501(c)(4) of the tax code were subject to gift taxes, and could be owed retroactively. These letters were aimed specifically at conservative political action groups which, for the first time since 1994, managed to outspend liberal groups.

Though the backtracking has been good news for many large-scale political donors, the IRS has not promised that they won’t pursue similar action in the future. The mailings have also resulted in many donors having since paid gift taxes on their contributions to ensure they were in line with the law. There is no clear word on whether or not these individuals can expect refunds.

Democrats Push to Control Independent Political Donations

Since the Supreme Court’s 2010 decision in Citizens United restored the right of businesses and unions to donate to independent political groups, Democrats have been desperate to find a means of containing all the biased speech entering the political arena. This most recent movement by the IRS is only the latest in a continued campaign against biased political speech.

Democrats tried to pass the Disclosure Act to impose new disclosure requirements on political donors as well as encouraged the Federal Communications Commission to demand disclosure from those that run the political ads.

It was in this same tradition that Senator Max Baucus pushed the IRS to crack down on political donors. However, the IRS has maintained that the decision to pursue audits of large-scale political donors was made by “career civil servants” and had no connection at all to the administration or any other kind of outside influence.

Whatever the cause, the investigation was designed to make an example of large-scale donors and discourage biased political speech. Despite the abandonment of the current plan, by leaving the possibility open of a future audit, the IRS has managed to leave the threat and uncertainty lingering over the heads of all political donors.


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