Thursday, September 13, 2018
A number of state have enacted legislation that seeks to allow taxpayers to take an income tax charitable deduction for contributions to certain charitable organizations while permitting a credit against state or local income, real estate or other taxes for the contributions. This allows individuals to avoid the $10,000 annual limitation on the deductibility of state and local tax (SALT) payments under Section 164(b)(6) of the Tax Cuts and Jobs Act, in essence casting SALT payments as charitable contributions.
Proposed regulations issued by the Treasury Department and the Internal Revenue Service warns citizens that this method will not accomplish its intended goal and those that attempt the endeavor could find themselves in hot water with penalties and fees. The IRS indicated that the regulations are intended for contributions to newly created state or local controlled charities formed in response to the SALT cap, as opposed to contributions in connection with those preexisting tax credit programs that benefit a number of charitable organizations.
The regulations may still be seen as overly broad as they new not differentiate between a contribution to a newly formed state-controlled entity and a contribution to an independent public charity, such as a community organization or private school.
See Richard L. Fox & Jonathon G. Blattmachr, New IRS Proposed Regs Nullify SALT Limitation Workaround Attempts, Wealth Management, September 5, 2018.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.