On Aug. 27, 2018, the IRS issued notice of proposed rulemaking and a notification of public hearing on proposed amendments to regulations under section 170 of the Internal Revenue Code. The proposed amendments provide rules governing the availability of charitable contribution deductions under section 170 when a taxpayer receives or expects to receive a corresponding state or local tax credit. This document also proposes amendments to the regulations under section 642(c) to apply similar rules to payments made by a trust or decedent's estate.  

The IRS sections noted specifically address itemized deductions for contributions or gifts for the prevention of cruelty to children among other charitable deductions. In 1986, the Supreme Court interpreted the phrase “charitable contribution” in section 170 and simply states a charitable contribution is without the expectation of a quid pro quo.  

More recently, it has increasingly become common for states and some localities to provide tax credits for such contributions. As the use of these tax credits became more common, the IRS chief counsel considered whether the receipt of state tax credits were quid pro quo benefits that could affect the amount of taxpayers' charitable contribution deductions under section 170(a).  

Generally, the proposed regulations provide that if a taxpayer makes a charitable contribution to an entity listed in section 170(c), and the taxpayer receives or intends to receive a state or local tax credit in return for such a contribution, the tax credit therefore is a quid pro quo, to the taxpayer and reduces the charitable contribution deduction.  

In certain states, this may impact a number of Alliance for Strong Families and Communities members.

Written and electronic comments must be received by Oct. 11, 2018. Alliance member organizations are encouraged to review the Office of the Federal Register posting and submit comments. Those who submit comments through the rulemaking portal or by email should also forward the comments to the Alliance Public Policy Office, so that we may follow your concerns.

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