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IRS Shocker

Clearly, citizens of South Dakota who don’t like Senate Minority Leader Tom Daschle (D) are entirely within their rights to mount a $1 million media campaign to “destroy” his credibility and “end his public career” in 2004. But should contributors to the campaign get a tax deduction to do so?

Today, they can’t. But they eventually could under a disturbing Internal Revenue Service ruling that restored the charitable status of two groups whose political activity became the subject of a House ethics investigation of then-Speaker Newt Gingrich (R-Ga.).

Under the ruling, political organizations formed under Sections 527 or 501(c)4 of the tax laws could re-establish themselves as a 501(c)3 and become entitled to tax-deductible charity status. This includes not only the Rushmore Policy Council, which is spearheading the “Daschle Accountability Project,” a 501(c)3, but any group out to promote political causes.

Ironically, it would amount to partial public financing of political campaigns. It might also spell the undoing of the McCain-Feingold campaign finance law.

In December 1998, based largely on the findings of the House ethics probe of Gingrich’s political organization, GOPAC, the IRS revoked the tax-exempt status of the Abraham Lincoln Opportunity Foundation. Evidence showed that ALOF, a tax-exempt charity, had been used by GOPAC to train Republican activists with a series of television programs and national workshops.

The ethics probe revealed that GOPAC controlled ALOF, using it to raise funds and pay costs for a cable television show featuring Gingrich. The two groups effectively merged, sharing the same office, staff and resources. GOPAC offered its members the chance to pay their $10,000 dues by contributing to ALOF — and taking a charitable tax deduction.

The IRS decision to revoke ALOF’s 501(c)3 status was upheld by the U.S. Tax Court and the 11th U.S. Circuit Court of Appeals, which dismissed pleas to have the revocation reviewed. But former Rep. Bo Callaway (R-Ga.), whose personal foundation also lost its tax exemption because of contributions to ALOF, recently won the IRS reversal through an independent review process enacted in 2001 as part of the GOP Congress’ effort to make the IRS more responsive to taxpayer complaints.

Tax law experts told Roll Call that the IRS action makes it attractive for political groups to operate through charitable fronts, contributing anonymously and getting a tax break to boot. “If this is a precedent for other actors in the political field, it could very easily become a notorious abuse,” said Gregory Colvin, a San Francisco tax attorney who advises nonprofits. “There will be an escalation of that sort of weaponry on both sides. If that happens, none of us will be very happy, either left or right.”

Congress should step in to help the IRS see the light on this bizarre ruling.

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