IRS Considered Tax on 'Social Welfare' Groups, Report Finds

According to a report issued by the , officials in 2011 considered imposing the gift tax on large donations to politically active tax-exempt organizations.

Based on a review of more than 1.3 million pages of documents and fifty-two transcribed interviews with IRS, , and department employees, the report, (226 pages, PDF), cites e-mails sent in 2011 by Lois Lerner, then-director of the agency's Exempt Organizations Unit, and other IRS officials about "the issue of asserting gift tax on donors to 501(c)(4) organizations." According to the report, on July 1, 2011, IRS associate chief counsel Curt Wilson issued a memorandum to chief counsel William Wilkins which concluded that "[b]ecause there is no specific exemption from the gift tax for a contribution to an organization exempt from income tax under § 501(c)(4), a contribution to such an organization is subject to gift tax under § 2501." The report notes that Lerner supported that conclusion, writing: "[T]o be clearer, the courts have said specifically that contributions to 527 political organizations are not subject to the gift tax — nothing that I am aware of about contributions to organizations that are not political organizations."

The agency, while taking the position that the gift tax applies to 501(c)(4) donations, had not sought to enforce it in at least twenty years, the reports. In the wake of significant concern among House Republicans, IRS deputy commissioner Steve Miller eventually quashed the possibility of imposing the gift tax on 501(c)(4) organizations. The top gift tax rate was 35 percent in 2011 and has since risen to 40 percent.

The report also finds that "IRS employees scheme[d] to deny applicant[s] for tax exempt status they find distasteful." It goes on to name eight senior IRS leaders who "could have and should have done more to prevent the [agency's] targeting of conservative tax-exempt applicants."

"Conservative organizations were not just singled out because of their political beliefs — they were targeted by IRS officials and employees who expressed a general loathing toward them even while begrudgingly admitting that those organizations were in compliance with the only thing the IRS should care about: the federal tax code," committee chair Darrell Issa (R-CA) wrote in the report's conclusion. "Documents and interviews show IRS officials failed to limit their professional judgments to enforcing the tax code and instead inserted their own beliefs and judgments into federal matters to influence outcomes and decisions."

Democrats on the committee told the Journal that Republicans had shut them out of the probe. By releasing the report last week without sharing its findings with Democrats, "Republicans," said ranking member Elijah Cummings (D-MD), "are intentionally bypassing the normal congressional vetting process designed to distinguish fact from fiction."

"." House Oversight and Government Reform Committee Press Release 12/23/2014. John D. Mckinnon. "." Wall Street Journal 12/22/2014.