August 24, 2018
By Sally P. Schreiber, J.D.
Under proposed regulations issued by the IRS on Thursday, transfers to a state agency or charitable organization in lieu of paying state and local taxes would be deductible as a charitable contribution only to the extent that the taxpayer making the donation did not receive a quid pro quo (REG-112176-18). Contributions that result in a state or local tax credit in return for the contribution would not be deductible for federal tax purposes to the extent of the credit; however, contributions that result in a state or local tax deduction may be deductible for federal tax purposes.
A number of states have enacted or are considering enacting programs that allow residents to make contributions to state agencies or charitable organizations in exchange for state and local tax credits. These programs are designed to allow individual taxpayers to claim charitable contribution deductions that are not subject to…