30 THE QUEENS COURIER • AUGUST 23, 2018 FOR BREAKING NEWS VISIT WWW.QNS.COM
IRS to Clarify Rules on Payments
in Lieu of State and Local Taxes
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Co-Author of the
best selling book
“Breaking the Tax Code”
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Salvatore P. Candela, EA, ATA, ABA
Enrolled Agent - Tax Advisor
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BY JOHN SAVIGNANO, CPA
The Service warns that a substance
over-form recharacterization
may ensue.
The IRS announced that it
plans to issue regulations in
response to state legislation
intended to help taxpayers
avoid the $10,000 limitation
on the deduction for state and
local taxes, known as the Tax
Cuts and Jobs Act. That limitation
applies to individual taxpayers
for tax years beginning
after December 31, 2017 and
ending before January 1, 2026.
This new or proposed legislation
by states would purportedly
allow taxpayers to make
transfers to funds controlled by
state and local governments, or
other specified transferees, in
exchange for credits against
state or local taxes that the taxpayer
is required to pay. These
transfers are intended to allow
taxpayers to treat these payments
as deductible charitable
contributions for federal
income tax purposes.
In New York, for example,
local governments and school
districts can create charitable
funds and offer donors a property
tax credit. New York has
also created a state charitable
gifts trust fund, which permits
taxpayers to make contributions
for health care or
education in return for a state
tax credit (donors would also,
presumably, attempt to take a
federal charitable contribution
deduction). In New Jersey, taxpayers
can make donations to
municipal or school charitable
funds and receive property
tax credits.
Many states have implemented
similar charitable fund
arrangements in past years,
and the IRS has previously
allowed such arrangements.
The IRS warned taxpayers
that despite these attempts
through state legislation to circumvent
the new limitations
on deductions of state and
local taxes, the proper treatment
and deductibility of these
payments will be governed by
federal tax law. It noted that
it will apply a substance-overform
analysis in determining
how these payments will be
treated for federal income tax
purposes, suggesting that they
will not be treated as charitable
contributions.
John Savignano is a partner
with Savignano Accountants
& Advisors located at 47-46
Vernon Blvd., Second Floor, in
Long Island City. If you have
any questions or require additional
information, please call
John at 718-707-0955.
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