Democrat Lawmaker Pushes to Rein in Super PACs

(Wall Street Journal) - WASHINGTON -- Super PACs have become dominant forces in the GOP presidential nominating process, sponsoring millions of dollars of TV ads in places like Florida. Now a Democratic lawmaker is taking the first steps toward reining them in, at least indirectly, via the tax system.

A little-known provision of the tax law appears to impose a gift tax on large contributions to 501(c)(4) social-welfare organizations, which often serve as conduits for donations to super PACs. But the IRS has been slow to enforce the gift-tax provision to 501(c)(4)s, in part because of ambiguity in the law and years of inaction by lawmakers and bureaucrats alike.

Sen. Maria Cantwell (D-Wash.) was expected to file an amendment to a transportation tax measure this week that would do two things. It would clear up the ambiguity, saying that "under present law, gift tax applies to transfers to ... 501(c)(4) organizations." It also would require organizations receiving large contributions to notify donors of their potential gift tax liability. Organizations that fail to provide the notice would be liable for a penalty of 50 percent of each reportable transfer.

The Cantwell provision does not appear likely to pass anytime soon. But it is likely the opening shot in a much bigger conflict over campaign finance.

Applying the gift tax to such donations might not stop them, but it could would slow them down. The tax applies to gifts exceeding $13,000 a year, and the law currently provides a lifetime exemption of $5 million. So a few big donations to a 501(c)(4) could consume a taxpayer's entire lifetime exemption, exposing family wealth to more tax.

The IRS last May confirmed it was examining five taxpayers who made large donations to advocacy groups without filing gift tax returns. The IRS adamantly denied that the five cases were part of any broader examination of 501(c)(4) organizations.

But Republican lawmakers wrote letters to the IRS demanding to know how the probes got started, suggesting they resulted from political pressure. The IRS quickly dropped the matter.

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