IRS Gift Rule Turned on Politics as Crisis Prompts Reform

The last time the Internal Revenue Service waded into a fight on politically active nonprofit groups, the agency capitulated quickly and let people make undisclosed, untaxed payments to groups financing campaign ads.

In 2011, under pressure from Republicans, the IRS shut down an attempt to impose gift taxes on donations to so-called social welfare organizations. The move led to a “free-for-all” by donors while clearing up decades of ambiguity on how it would enforce the law, said Ofer Lion, an attorney at Hunton & Williams LLP in Los Angeles.