![]() If contributions of property in exchange for tax credits are not charitable donations, then they must be characterized as something else and the most logical characterization is “other disposition of property” under IRC section 1001. While it is true that charitable donations of appreciated property generally do not constitute a realization event, the clear upshot of RIN 1545-BO89 is that the portion of contributions reimbursed with state and local tax credits are no longer considered charitable donations for federal income tax purposes because of the application of quid quo pro principles. Since that equivalent approach would obviously trigger a tax on any capital gains arising from the sale, the contribution should also do so (absent any statutory directive to the contrary, which there is not). In other words, some accountants in South Carolina are likely advising their clients that “donating” appreciated property under the state’s tax credit program is in their financial best interest-an outcome that flies in the face of any commonsense understanding of charitable giving.Ĭontributing appreciated property in return for a 100 percent state tax credit is the functional equivalent of selling the property for its fair market value and using the proceeds to pay the state tax. The latter requires recognition of capital gains income but the former, absent further guidance from the IRS, arguably may not. The example illustrates how taxpayers can find it more advantageous to contribute their stock under the program than to sell it to an interested buyer. The table below provides an example calculation involving a tax credit in South Carolina equal to 100 percent of the market value of securities contributed to a fund, specified in state law, that pays certain students’ tuition at private K-12 schools. Some taxpayers are treating tax-credit-reimbursed contributions as being charitable gifts for purposes of avoiding realization of capital gains income, even though those contributions are not considered charitable gifts under IRC section 170. This lack of guidance has led to both uncertainty and inconsistency in the administration of the tax law. The IRS has not yet issued guidance, however, on how contributions of property are affected by this rule. a credit exceeding 15 percent of the amount contributed) shall be considered a quid pro quo that reduces the amount of allowable charitable deduction. ![]() When the contribution is made in exchange for a tax credit worth less than 100 percent of the amount donated, the transaction should be treated as part gift and part sale.Īs background, RIN 1545-BO89 specified that a significant state tax credit received in return for a contribution to a charitable organization (i.e. Specifically, we are suggesting that the IRS issue a regulation clarifying the following:Ī contribution of property in exchange for a 100 percent tax credit should be treated as equivalent to a sale at market value (“other disposition of property” under IRC section 1001) and the taxpayer should either owe tax on the portion of that sale that represents a gain, or recognize a loss if appropriate. We are writing to respectfully urge that the IRS return to the work it left unfinished in 2019 when it issued final regulations on “Contributions in Exchange for State or Local Tax Credits” (RIN: 1545-BO89). Re: Recommendation for Inclusion of Section 1001 Regulation in 2023-2024 Priority Guidance Plan
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |