Comments on Proposed Regulations: 'Contributions in Exchange for State or Local Tax Credits' (Reg-112176-18)

Abstract

These comments offer three recommendations, of which only the first involves a change in the proposed regulations themselves. First, rather than treating state tax credits as an exception to the general rule that a charitable deduction is not reduced by benefits a donor receives from third parties, the final regulations should set forth a general rule that the amount of a charitable deduction is reduced by benefits a donor receives from any source on account of the donation. Second, the preamble to the final regulations should clearly state that SALT ceiling workarounds (involving purported donations to the states themselves) would not be effective under well-established substance-over-form principles, even in the absence of new regulations. Finally, the analysis in Example 2 (in the Special Analyses, not in the proposed regulations themselves) should be revised to reflect the application of substance-over-form principles to state tax credits for contributions to the states themselves.