House Bill Would Provide Certainty on Gift Tax Exemptions for Donations to Non-Profit Organizations

There are still many questions to be answered from the Internal Revenue Service (IRS) e-mail scandals from 2010 and 2013.  But, as the investigation continues, there are other remedies being put in place to stop political targeting at the IRS.  On February 26, 2015, Rep. Peter Roskam (R-Il.) did his part to curb IRS abuses by introducing H.R. 1104, the Fair Treatment for All Donations Act.  This legislation will help stop the targeting of nonprofits by the IRS in the future by clarifying IRS law that any gift over $14,000 to a non profit classified as a 501 (c) (4), 501 (c) (5), or 501 (c) (6) would not be subject to the gift tax.

Currently, any gift that is more than $14,000 is subject to the gift tax, except donations to nonprofit organizations. These types of donations have been classified as tax-free but in recent years the IRS has threatened to change that classification so that gifts to non-profits would be subject to the gift tax.  Roskam’s legislation would provide clarity and certainty so that the donations remained gift-tax free.  According to Stephen Dinan with The Washington Times :

Rep. Peter Roskam, Illinois Republican and chairman of the Ways and Means oversight subcommittee, said the bill will make sure that when someone gives large donations to nonprofit organizations, nobody will have to pay a gift tax on the transaction, ensuring that all of the money goes to the work of the organization.

The IRS several years ago, at the height of its targeting of tea party organizations for special scrutiny, sent letters to five high-dollar donors telling them their contributions could be taxed under an agency interpretation of the law that gifts above a certain dollar amount are subject to the tax.

H.R. 1104, the Fair Treatment for All Donations Act is important for multiple reasons. First, the legislation would prevent the IRS from once again going after nonprofits in a selective way.  That would be a major step forward to fixing a broken agency. Second, there is a real risk to the charitable work that all nonprofits do (regardless of their political affiliation) should their donors be subject to the gift tax rules.

The use of the gift tax could be another way for any administration to stifle contributions made to organizations. Rep. Roskam is looking to curtail some of the unlawful activity that the IRS has engaged in, but he is also seeking a way to make sure that every American can participate in the process by ensuring that nonprofits and those who help them exist will be able to operate without fear of bring targeted for selective scrutiny.  According to a press release by Rep. Roskam:

“Americans who donate to tax-exempt organizations should always be treated fairly and equally by the IRS—an agency with an infamous track record of targeting individuals for their religious and political beliefs. Although the IRS claims it is no longer seeking to curb giving to social welfare organizations, we need assurances that this practice will never happen in the future.”

There are groups from all sides of the ideological spectrum who would be harmed should the IRS move to use the gift tax against them. Any and all groups that care about their ability to continue their mission and protect the privacy and financial well being of their members should support H.R. 1104. The bill has a long way to go but as it moves through Congress and hopefully to the President’s desk, TPA will be watching.