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     $43.  And  yet  federal  tax  law  allows  (and  has  always  allowed)  a  deduction  for  $100,  even   though  the  net  cost  to  the  taxpayer  is  only  $43.  In  effect,  by  virtue  of  the  longstanding  rule   that  tax  savings  do  not  constitute  a  quid  pro  quo  requiring  the  donor  to  reduce  the  amount   of   the   deduction,   the   taxpayer   ends   up   satisfying   $57   of   her   otherwise   nondeductible   federal  income  liability10  by  making  a  deductible  charitable  gift.     State   Tax   Benefits   for   Charitable   Contributions.   Like   the   federal   government,   state   governments   commonly   provide   tax   benefits   for   charitable   gifts.   These   benefits   take   many   forms,   including   both   deductions   and   credits   allowable   in   calculating   the   taxpayer’s   state   income   tax   liability.   Like   the   fair   market   value   of   goods   or   services   received   in   return   for   making   a   gift,   as   well   as   the   federal   charitable   contribution   deduction,   state   tax   benefits   reduce   the   net   cost   of   the   gift   to   the   donor.   The   availability   of   these   benefits   raises   the   question  of  what  effect,  if  any,  these  state  tax  benefits  should  have  on  the  amount  of  the   taxpayer’s   federal   deduction   for   the   gift.   Should   they   be   treated   like   “the   value   of   goods   and   services   the   organization   provides   in   return”   under   the   quid   pro   quo   analysis   referenced  above?  Or  should  they  be  ignored  in  the  same  way  that  federal  tax  benefits  are   ignored?   State  Tax  Benefits  and  the  Federal  Charitable  Contribution  Deduction     Under   current   law,   a   donor   is   not   required   to   reduce

  State  Tax  Benefits  and  the  Federal  Charitable  Contribution  Deduction     Under   current   law,   a   donor   is   not   required   to   reduce   the   amount   of   a   federal   charitable  contribution  deduction  by  the  value  of  state  tax  benefits  generated  by  the  gift.   This  treatment  is  evident  in  the  fact  that  taxpayers  have  never  been  required  to  reduce  the   amount  of  a  federal  charitable  contribution  deduction  by  the  value  of  any  state  deduction   to  which  the  contribution  may  also  entitle  them.  Thus,  for  example,  if  a  taxpayer  makes  a   donation   of   $100   that   entitles   her   to   a   charitable   contribution   deduction   on   both   her   federal   and   state   income   tax   returns,   the   amount   of   the   federal   deduction   is   $100,   undiminished   by   the   reduction   in   tax   liability   flowing   from   either   the   federal   or   state   charitable   contribution   deduction.   This   same   result   obtains   where   the   state   tax   benefit   takes   the   form   of   a   credit   rather   than   a   deduction.   Thus,   if   a   taxpayer   makes   a   $100   donation   to   a   charitable   organization,   including   a   state   or   political   subdivision   thereof,   and   the   donation   entitles   the   taxpayer   to   a   $70   credit   against   her   state   income   tax   liability,   the   amount  of  the  federal  charitable  contribution  deduction  would  be  $100,  undiminished  by   the  value  of  the  tax  credit.  For  ease  of  exposition,  this  legal  rule  will  be  referred  to  below  as   the  “Full  Deduction  Rule.”     The   legal   authority   supporting   the   Full   Deduction   Rule   is   summarized   in   an   IRS   Chief   Counsel  Advisory  memorandum  published  in  early  2011.  The  facts  presented  in  the

Full   Deduction   Rule   is   summarized   in   an   IRS   Chief   Counsel  Advisory  memorandum  published  in  early  2011.  The  facts  presented  in  the  memo   concern   contributions   to   either   a   state   agency   or   other   qualifying   organization   in   a   state                                                                                                                           10  26  U.S.C.  275(a)(1)   4