In February 2010, the same month the tea-party targeting started, according to a recent inspector general's report, Freedom's Watch [a prominent conservative 501(c)(4)] was subjected to an IRS audit that focused largely on its political activities, an uncommon but not unprecedented action, election lawyers say. The probe broadened into other areas, including executive compensation.
About a year later, as many as five donors to Freedom's Watch were subjected to IRS audits of their contributions that sought to impose gift taxes on their donations to the group, according to lawyers and former officials of Freedom's Watch.
Believe it or not, the question of whether donations to tax-exempt groups like 501(c)(4)s are subject to the gift tax isn't necessarily settled law. The generally accepted protocol, however, was that if a donation was to a tax-exempt entity the IRS would not allege that gift taxes would apply.
