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     SWF  Real  Estate,  LLC  v.  Commissioner.34  In  a  separate  but  virtually  identical  case,  the   Tax   Court   in   SWF   Real   Estate,   LLC   v.   Commissioner   addressed   the   same   issues   raised   in   Route  231,  LLC.  As  with  Route  231,  the  taxpayer  purchased  real  estate  in  Albemarle  County,   Virginia   (Sherwood   Farm).   Relying   on   the   same   Virginia   statute   (i.e.,   the   Virginia   Land   Preservation   Tax   Credit   Program),   on   December   29,   2005   SWF   executed   a   deed   of   conservation   easement   conveying   the   easement   to   the   Albermarle   County   Public   Recreational   Facilities   Authority,   a   governmental   body   of   Albermarle   County   and   political   subdivision  of  the  Commonwealth  of  Virginia.  According  to  an  appraisal  undertaken  in  early   December  2005,  the  easement  had  a  value  of  $7,398,333,  meaning  that  its  donation  to  the   government  would  generate  state  tax  credits  in  the  amount  of  $3,699,167.  On  its  federal   income   tax   return   for   2005,   the   taxpayer   reported   a   noncash   charitable   contribution   of   $7,398,333   —   i.e.,   the   full   amount   of   the   gift,   undiminished   by   the   state   tax   credits   generated  by  the  gift.     As   with   Route   231,   LLC,   the   primary   question   in   SWF   Real   Estate,   LLC   concerned   whether  an  allocation  of  the  tax  credits  to  a  new  partner  (in  fact,  the  same  entity  –  Virginia   Conservation)   should   be   treated   as   a   “disguised   sale”   under   section   707.   And   as   in   that   prior   case,   the   court   determined   that   there   was   in   fact   a   disguised   sale   of   the   state   tax   credits  to  Virginia  Conservation.  For

case,   the   court   determined   that   there   was   in   fact   a   disguised   sale   of   the   state   tax   credits  to  Virginia  Conservation.  For  present  purposes,  however,  the  more  relevant  holding   of   SWF   Real   Estate,   LLC   concerns   the   amount   of   the   charitable   contribution   allowed   for   2005.   While   the   taxpayer   had   claimed   a   noncash   contribution   of   $7,398,333,   the   Tax   Court   considered   alternative   appraisals   and   determined   that   the   appropriate   amount   of   the   charitable  contribution  deduction  was  $7,350,000.  While  this  allowed  deduction  is  slightly   lower   than   the   claimed   amount,   it   is   noteworthy   that   the   amount   of   the   charitable   contribution  deduction  was  not  reduced  by  the  state  tax  credits.  Thus,  like  the  prior  cases   of  Tempel  and  Route  231,  LLC,  the  Tax  Court’s  holding  in  SWF  Real  Estate,  LLC  once  again   applied   the   Full   Deduction   Rule   in   determining   the   amount   of   the   allowable   charitable   contribution  deduction.   Maines   v.   Commissioner.35  One   final   post-­‐CCA   201105010   judicial   opinion   deserves   mention.  Although  it  does  not  involve  charitable  contributions,  the  Tax  Court’s  decision  in   Maines   v.   Commissioner   is   significant   because   of   its   discussion   of   the   federal   income   tax   treatment  of  state  tax  credits.  The  taxpayers  in  Maines  owned  interests  in  an  S  Corporation   and  a  partnership,  both  of  which  had  made  certain  investments  in  New  York  entitling  them   to   three   state   tax   credits:   the   EZ   Investment   Credit,   the   EZ   Wage   Credit,   and   the   QEZE   Credit   for   Real   Property   Taxes.   Eligibility   for   these   credits   required   investment   in   certain   impoverished  

  Credit,   and   the   QEZE   Credit   for   Real   Property   Taxes.   Eligibility   for   these   credits   required   investment   in   certain   impoverished   areas   designated   by   the   state.   While   eligibility   depended   on   the   entity   meeting  the  investment  requirements,  the  credits  passed  through  to  the  taxpayers  on  their   individual   returns.   The   EZ   Investment   Credit,   equal   to   eight   percent   of   certain   qualifying                                                                                                                           34  T.C.  Memo  2015-­‐63.     35  144  T.C.  123  (2015).   13