Is the IRS Targeting Campaign Contributors?

From: The Wall Street Journal

We're starting to see a pattern here. Since the Supreme Court restored the First Amendment rights of businesses and unions in last year's Citizens United ruling, Democrats have been searching for a way to claw back control over political speech. The latest bureau to get the memo is the Internal Revenue Service, which may retroactively tax top donors to political advocacy groups.

In the crossroads, er, cross-hairs, are nonprofit groups that register under section 501(c)(4) of the tax code and spent millions on political advertising in the last election cycle. Big donations to those groups, the agency now says, should have been subject to gift taxes and may be owed retroactively. In a letter to one donor, the IRS noted that it "had received information that you donated cash to . . . an IRC Section 501(c)(4) organization . . . and your contribution should have been reported on your 2008 federal gift tax return."

The letters are especially odd since the purpose of the gift tax has traditionally been used in coordination with the estate tax, to prevent people from avoiding the tax by divesting their wealth before they die. Contributions to 501(c)(4)s aren't a routine death tax avoidance mechanism, and the contributions now under scrutiny are a pittance compared to overall gift tax revenues. So, hmmm, what could be the reason to start asserting the provision now, and only against a handful of high-profile political donors?

 

IRS spokesman Michelle Eldridge said in a statement last week that the letters are the idea of career IRS employees, not the White House, and that they are part of a larger investigation of gift tax compliance. Count us skeptical that a new targeted enforcement plan, likely coordinated between at least two of the highly compartmentalized divisions of the IRS, was just cooked up by some career guys.

But even if the Obama Administration doesn't deserve primary credit for this idea to chill political activity, it will still serve the Democrats' purpose in time for 2012 fundraising. A tax probe of donations given by a specific class of political donors is a boldfaced attempt to punish and discourage political speech.

The IRS also says the investigations into a few deep-pocketed donors isn't the prelude to a broader offensive against the groups. Nah, that would mean they were taking their cues from liberal campaign finance groups like Democracy 21, which has been flogging this idea as a way to impose greater disclosure requirements.

Last September, Montana Democrat Max Baucus wrote a letter to IRS Commissioner Doug Shulman to suggest he start investigating the political groups.

We wish we were shocked, but the plan is merely the latest play by Democrats to crack down on donors who support their opponents. In 2010 they tried and failed to pass the Disclose Act, which would have forced disclosure on business donations but left unions alone.

This year they've turned to harassment by regulation, first asking the Federal Communications Commission to require groups that run political ads to disclose their high-dollar donors. The Obama Administration is also working up an executive order to require anyone bidding for a federal contract to disclose if the company or its executives donated more then $5,000 to independent groups.

Now comes the 501(c)(4) net, which may catch the likes of liberal uber-donor George Soros, though we'd bet he's happy to lend his name to the project to create an appearance of nonpartisanship. The real targets of the disclosure project are conservative groups like Crossroads GPS and Americans for Prosperity, which have seen their fundraising and influence grow in recent years.

All this is done in the name of "transparency," which is a nice way of saying, we know where you live. The real goal is to intimidate business and big donors from giving money to Republicans. The draft executive order aiming to wrest disclosure from federal contractors appears to make no such demands on federal labor unions, which had their free speech rights restored alongside business in Citizens United.

Our support for donor disclosure over the years has always been contingent on ending all restrictions on campaign donations. But the campaign finance scolds who are allied with Democrats, such as Democracy 21 and Norm Ornstein of the American Enterprise Institute, are trying to use disclosure as a political weapon now that the Supreme Court has declared their other ideas illegal. Unleashing the IRS is an especially nasty turn.