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     question   for   the   Court   was   whether   the   petitioners’   damages   should   be   reduced   by   the   value  of  the  tax  benefits  they  received  from  their  investment.39   By  an  8-­‐1  vote,  the  Court  found  in  favor  of  the  petitioners.  According  to  the  Court,  “§   12(2)’s   offset   for   ‘income   received’   on   the   security   does   not   encompass   the   tax   benefits   received  by  defrauded  investors  by  virtue  of  their  ownership  of  the  security,  because  such   benefits   cannot,   under   any   reasonable   definition,   be   termed   ‘income.’”40  The   Court   went   on  to  say:   “[T]he  ‘receipt’  of  tax  deductions  or  credits  is  not  itself  a  taxable  event,  for  the   investor  has  received  no  money  or  other  ‘income’  within  the  meaning  of  the   Internal  Revenue  Code.  See  26  U.S.C.  §  61.  Thus,  we  would  require  compelling   evidence   before   imputing   to   Congress   an   intent   to   describe   the   tax   benefits   an   investor   derives   from   tax   deductions   or   credits   attributable   to   ownership   of  a  security  as  ‘income  received  thereon.’”41   Randall’s  holding  is  about  a  provision  of  securities  law  and  thus  this  passage  about  the   income   tax   treatment   of   credits   is   dicta.     Furthermore,   Randall   does   not   address   the   central  question  of  whether  a  tax  credit  should  be  treated  as  a  quid  pro  quo  return  benefit   for   purposes   of  

not   address   the   central  question  of  whether  a  tax  credit  should  be  treated  as  a  quid  pro  quo  return  benefit   for   purposes   of   section   170.   Nevertheless,   Randall   clearly   addresses—and   clearly   dismisses—the   possibility   that   the   amount   of   a   credit   should   be   includible   in   income   for   purposes  of  section  61.  In  this  respect,  the  case  provides  solid  support  for  the  conclusion   common   to   Rev.   Rul.   79-­‐315,   Snyder,   Tempel,   Maines,   and   the   2011   IRS   memo   that   tax   credits  are  not  an  item  of  income.  Put  another  way,  the  Court’s  statement  that  tax  benefits   “cannot,  under  any  reasonable  definition,  be  termed  ‘income’,”  though  dicta,  would  loom   large  over  any  effort  by  the  IRS  to  argue  otherwise.    As  we  explain  below,  there  are  good   reasons  for  so  many  authorities  to  reach  the  same  conclusion.    Arizona  Christian  School  Tuition  Organization  v.  Winn.42  One  additional  U.S.  Supreme   Court   decision   deserves   mention   because   of   its   extended   discussion   of   state   charitable   tax   credits.  Winn  involved  an  Establishment  Clause  challenge  to  Arizona’s  system  of  providing   100%  charitable  tax  credits  for  donations  to  School  Tuition  Organizations  (STOs)  that  fund   tuition   scholarships   to   private   schools,   including   religious   schools.   A   group   of   Arizona   taxpayers   challenged   the   constitutionality   of   this   program,   but   the   Supreme   Court   dismissed   their   challenge   on   the   basis   that   the   taxpayers   lacked   the   required   “standing”   under   Article   III   of   the   Constitution.   The   court’s   analysis   of   the   standing   issue   involved   considering  an  earlier  standing  case,  Flast  v.  Cohen.43  In  making

  Constitution.   The   court’s   analysis   of   the   standing   issue   involved   considering  an  earlier  standing  case,  Flast  v.  Cohen.43  In  making  their  argument  that  they                                                                                                                           39  Randall,  478  U.S.  at  649-­‐55.   40  Id.  at  656.   41  Id.   42  563  U.S.  125  (2011).   43  392  U.S.  83  (1968).   15