IRS drops probe of donors to nonprofit groups

By STEPHEN OHLEMACHER | July 7, 2011 | 1:44 PM EDT

WASHINGTON (AP) — The Internal Revenue Service is dropping its investigation of five donors for making contributions to the kind of nonprofit groups that have become popular for spending millions of dollars on political ads in the past few years.

The IRS was trying to determine whether the donors owed federal gift taxes for the donations. However, IRS spokesman Frank Keith said Thursday the law on gift taxes is unclear, so the agency is closing the cases and won't open any new ones until it reviews whether additional guidance or legislation is necessary.

The IRS did not name the donors or the nonprofit groups to which they contributed. But the agency's confirmation of an investigation in May could have had a chilling effect on politically active groups that have become integral to campaigns.