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     Thus,  Winn  confirms  two  essential  insights  regarding  the  fundamental  nature  of  state   charitable  tax  credits:  (1)  when  the  government  grants  charitable  tax  credits  to  a  donor,  it   is  not  transferring  money,  property,  or  anything  of  value  to  the  donor,  and  (2)  a  voluntary   donation   of   the   donor’s   resources   to   a   state-­‐designated   organization   does   not   constitute   the  “satisfaction  of  tax  liability”  even  where  the  donation  results  in  a  dollar-­‐for-­‐dollar  state   tax  credit.45  While  Winn  is  not  itself  a  tax  case,  it  should  be  clear  that  these  two  insights  are   in  full  accord  with  all  of  the  other  judicial  and  administrative  pronouncements  supporting   the  Full  Deduction  Rule.   State  Tax  Credits  as  a  “Lesser  Tax  Detriment”     Beyond  the  several  cases  discussed  above,  there  are  of  course  many  other  instances   where  a  taxpayer  is  entitled  to  a  state  tax  credit  for  one  reason  or  another.    In  all  of  these   instances,  it  is  necessary  to  determine  the  federal  income  tax  consequences  of  a  taxpayer’s   receipt   of   the   state   tax   credit.   Because   the   situations   are   so   numerous   and   varied,   it   is   not   possible   to   describe   them   here.   It   bears   noting,   however,   that   in   each   of   these   instances   the  IRS  has  relied  upon  the  exact  same  principle  underpinning  the  Full  Deduction  Rule—i.e.,   the   principle   that   nonrefundable   tax   credits   should   be   regarded   merely   as   conferring   a   “lesser  tax  detriment”  rather  than  as  a  payment  from  the  state.     For  example,  the  IRS  concluded  that  the  nonrefundable  portion  of  a

 tax  detriment”  rather  than  as  a  payment  from  the  state.     For  example,  the  IRS  concluded  that  the  nonrefundable  portion  of  a  Minnesota  state   income   tax   credit   granted   to   any   resident   that   is   or   was   in   active   military   service   should   be   treated  as  a  reduction  in  state  tax  liability  rather  than  a  payment  from  the  state.46  Similarly,   the   IRS   concluded   that   the   nonrefundable   portion   of   a   Massachusetts   state   income   tax   credit  granted  to  certain  low-­‐income  taxpayers  who  paid  real  estate  taxes  or  rent  should   be   treated   as   a   reduction   in   state   tax   liability   rather   than   as   a   payment   from   the   state                                                                                                                                                                                                                                                                                                                                                                                 Company  v.  United  States,  449  F.2d  413,  422  (Ct.  Cl.  1971).    The  tax  credits  in  Winn,  and  other  such   cases,   were   only   given   to   organizations   that   satisfied   extensive   state   criteria,   as   the   Court   clearly   understood.   Winn,   563   U.S.   130-­‐31.   If   a   credit   for   donations   to   a   state-­‐established   fund   is   a   problem  (and  it  is  not),  then  why  should  a  credit  for  donations  to  a  state-­‐blessed  fund  not  also  be  a   problem?  In  both  cases,  the

m  (and  it  is  not),  then  why  should  a  credit  for  donations  to  a  state-­‐blessed  fund  not  also  be  a   problem?  In  both  cases,  the  donated  resources  are  directed  to  services  and  activities  determined   by  the  state.  Thus,  any  claim  that  state  charitable  tax  credits  constitute  a  quid  pro  quo  only  in  the   case   of   gifts   to   public   entities   is   not   consistent   with   current   law,   and   any   claim   that   such   credits   should   be   uniquely   disfavored   does   not   rest   on   a   solid   analytic   distinction.   Finally,   and   most   crucially,   as   explained   above,   federal   tax   law   has   addressed   this   specific   issue   and   has   never   regarded  any  tax  benefits,  either  federal  or  state,  and  whether  in  the  form  of  deductions  or  credits,   as   a   quid   pro   quo   benefit   requiring   a   reduction   in   the   taxpayer’s   federal   charitable   contribution   deduction.     45  As   explained   further   below,   we   have   some   doubts   as   to   whether   that   second   point   is   a   reasonable  conclusion.  Nevertheless,  the  Supreme  Court’s  views  on  this  issue  are  certainly  relevant   in  determining  the  circumstances  when  a  voluntary  gift  generating  state  credits  should  be  regarded   as,  in  substance,  the  payment  of  a  tax.   46  IRS  Chief  Counsel  Advisory  200708003.   17