Paul L. Caron

Thursday, July 5, 2018

Caveat IRS: Problems With Abandoning The Full Charitable Deduction Rule To Prevent State Circumvention Of The New $10k S&L Tax Cap

Joseph Bankman (Stanford), David Gamage (Indiana), Jacob Goldin (Stanford), Daniel Hemel (Chicago), Darien Shanske (UC-Davis), Kirk Stark (UCLA), Dennis Ventry (UC-Davis) & Manoj Viswanathan (UC-Hastings), Caveat IRS: Problems with Abandoning the Full Deduction Rule, 88 State Tax Notes 547 (May 7, 2018):

Several states have passed — and many more are considering — new tax credits that would reduce tax liability based on donations made by a taxpayer in support of various state, local or non-profit programs. In general, taxpayer contributions to qualifying organizations — including public charities and private foundations, as well as federal, state, local, and tribal governments — are eligible for the federal charitable contribution deduction under section 170. In a previous article, we explained how current law supports the view that qualifying charitable contributions are deductible under section 170, even when the donor derives some federal or state tax benefit by making the donation. We referred to this treatment as the “full deduction rule.”

Some commentators have suggested that Treasury and the IRS could change existing law, whether through new regulations or by issuing a new interpretation of existing regulations, to limit the deductibility of taxpayer contributions when they trigger a state or local tax benefit to the donor. Many legal and administrative concerns are associated with those actions. In this report, we argue that even if the IRS has the legal authority to implement the changes absent new legislation, it should decline to do so.

Scholarship, Tax | Permalink


Swing and a miss.

Posted by: Dale Spradling | Jul 6, 2018 9:53:25 AM

Earlier state tax credits were set up to help the likes of rural hospitals and other charitable needs, typically in poor states where there was no federal tax advantage. On the other hand, the intent and substance of state credits set up in response to recent federal tax legislation are the evasion of federal taxes, circumventing the law’s intent to stop subsidies by taxpayers in all states for high taxes in a few states, and politics. The IRS has a duty to enforce federal tax legislation and should treat these new state credits as if they are abusive tax shelters.

Posted by: Woody | Jul 6, 2018 6:05:31 AM