Featured Articles

Treasury Monitoring State Proposals on Charitable Donations and State Taxes

Posted on January 26, 2018 by Fred Stokeld

Treasury officials harbor reservations about a new tactic some states are considering to avoid high property taxes — allowing tax-deductible donations to state-affiliated charities — but are not outright rejecting it.

Treasury Tax Legislative Counsel Thomas West said January 25 that his department is monitoring proposals in several high-tax states to effectively waive a taxpayer’s state tax obligations if they donate to state-operated charities in exchange for state credits and the federal charitable deduction. He expressed skepticism about the appropriateness of such efforts, variations of which have been cropping up recently in different states.

“Personally, I think as you get closer to a one-to-one benefit for a contribution, that becomes something” other than a charitable donation, West said during a District of Columbia Bar Community of Taxation event hosted by Jones Day in Washington. He added, however, that this is not the Treasury’s official position and that the department would continue “to monitor developments as they happen across states.”

“This is something that is concerning, but we’re looking at it,” Elinor Ramey, an attorney-adviser in the Treasury Office of Tax Legislative Counsel, said later when asked about the proposals. Echoing West, she said Treasury is concerned about protecting the fisc and ensuring that the tax code is properly administered. She declined to say whether Treasury intends to issue a notice on the charitable donation workaround.

In addition to the state and local tax deduction cap, panelists discussed other provisions of the Tax Cuts and Jobs Act affecting tax-exempt organizations and charitable giving.

One provision they addressed prohibits an exempt organization from using one unrelated trade or business activity to offset income from another, explained Gordon Clay of the Joint Committee on Taxation staff. Ramey said Treasury intends to publish guidance on the provision and asked for comments “sooner rather than later.”

Another provision that was mentioned eliminates the charitable deduction for donations to colleges and universities that allow the donor to buy tickets to sporting events, regardless of the value of the seating rights or the donation amount. Treasury welcomes opinions on whether guidance is needed on the provision, Ramey said.

Some proposals that did not make it into the final tax bill could reappear in future legislation because they are popular in Congress, Clay said. They include repealing the estate and generation-skipping taxes, simplifying the tax on the net investment income of private foundations, providing an exception to the private foundation excess business holdings tax to independently operated philanthropic business holdings, and including inflation in calculating the charitable mileage rate, he said.