57-18 Exhibit - Urging State of New Jersey to Implement Charitable Trust in Lieu of Local Taxes Plan.pdf

FEDERAL  TAX  TREATMENT  OF  STATE  CHARITABLE  TAX  CREDITS     item   of   value   to   the   taxpayer   but   rather   is   merely   exercising   its   sovereign   power   to   “tax   one   taxpayer   at   a   lower   rate   than   another   taxpayer.”   The   tax   credit   is   simply   the   mechanism   by   which   a   state   government   decides   to   impose   a   “lesser   tax   detriment”   on   one   party   by   virtue   of   its   actions   or   attributes.   The   credit   does   not   involve   a   reduction   of   a   past  or  even  existing  liability  but  rather  is  one  of  the  many  variables  that  the  state,  in  its   sovereign  capacity,  has  decided  to  take  into  account  in  determining  the  final  amount  of  the   taxpayer’s  as  yet  undetermined  tax  liability.     The   second   element   of   the   Tempel   holding   relevant   to   the   quid   pro   quo   analysis   is   the   Tax  Court’s  discussion  of  the  taxpayer’s  basis  in  the  tax  credits  granted  to  them  by  virtue  of   the   charitable   gift.   Because   the   taxpayers   eventually   sold   the   credits,   rather   than   using   them   to   reduce   their   own   tax   liability,   it   was   necessary   to   determine   their   basis   in   order   to   calculate  the  amount  of  any  gain  or  loss  on  the  sale.29  Here  again,  the  holding  endorses  the   Full  Deduction  Rule  in  finding  that  the  taxpayer’s  basis  in  the  charitable  tax  credits  was  zero.   Recall  that  the  value  of  the  donated  easement  was  $836,500  and  the  amount  of  the  credits   granted  by  Colorado  was  $260,000.  Under  a  quid  pro  quo  analysis,  that  transaction  would   be  regarded  as  (1)  a  gift  of  property  worth  $576,500,  and  (2)  a  purchase  of  state  tax  credits   for   $260,000.   That   is  

 would   be  regarded  as  (1)  a  gift  of  property  worth  $576,500,  and  (2)  a  purchase  of  state  tax  credits   for   $260,000.   That   is   the   essence   of   the   quid   pro   quo   analysis—i.e.,   a   bifurcation   of   the   transaction   into   its   gift   and   non-­‐gift   components.   Recall   that   when   a   donor   of   $100   to   public  radio  receives  a  tote  bag  worth  $20,  she  is  treated  as  (1)  making  a  gift  of  $80,  and  (2)   purchasing  a  tote  bag  for  $20.  In  this  situation,  the  donor’s  basis  in  the  tote  bag  is  $20.      Consistent  with  the  view  that  the  receipt  of  a  state  charitable  tax  credit  is  not  a  quid   pro   quo   transaction,   the   Tax   Court   in   Tempel   rejected   this   approach,   concluding   instead   that   the   taxpayers   “did   not   acquire   the   State   tax   credits   by   purchase”30  and   therefore   they   “do   not   have   any   basis   in   their   State   tax   credits.”   In   reaching   this   conclusion,   the   Court   emphasized  that  “[i]t  was  the  State’s  unilateral  decision  to  grant  petitioners  the  State  tax   credits  as  a  consequence  of  their  compliance  with  certain  State  statutes.”31  In  other  words,   the  Tax  Court’s  view  is  that  a  state  charitable  tax  credit  is  not  regarded  as  consideration  for   the  gift,  but  rather  flows  from  the  unilateral  decision  by  the  state  government  to  confer  a   lesser   tax   detriment   on   those   who   make   qualifying   gifts   of   conservation   easements.   The   Tax  Court’s  decision  in  Tempel  v.  Commissioner  was  later  affirmed  by  the  Tenth  Circuit.32     Route  231,  LLC  v.  Commissioner.33  In  another  case  involving  state  charitable  tax  credits,   the  Tax  Court  and  the  Fourth  Circuit

32     Route  231,  LLC  v.  Commissioner.33  In  another  case  involving  state  charitable  tax  credits,   the  Tax  Court  and  the  Fourth  Circuit  also  touched  on  the  question  of  whether  such  credits   should   be   regarded   as   a   quid   pro   quo.   Route   231   LLC   v.   Commissioner   involved   a   limited                                                                                                                           29  26  U.S.C.  Sec.  1001(a).   30  136  T.C.  341,  353.   31  Id.  (emphasis  added).   32  744  F.2d  648  (10th  Cir.  2014)  (consolidated  appeal  of  Tempel  v.  Commissioner,  136  T.C.  341  (2011)   and  Esgar  Corporation  v.  Commissioner,  T.C.  Memo  2012-­‐35  (2012)).   33  T.C.  Memo  2014-­‐30;  aff’d  is  810  F.2d  247  (4th  Cir.  2016)   11