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       The  central  question  the  2011  memo  aims  to  address  is  whether  “a  state  tax  benefit  in   the  form  of  a  state  tax  credit,  or  a  transferable  state  tax  credit,  is  distinguishable  from  the   benefits   of   a   state   tax   deduction”   (emphasis   added).18  This   was   not   an   issue   of   first   impression   for   the   IRS   Chief   Counsel’s   Office.   In   at   least   two   previous   advisory   memos,   the   IRS   faced   this   issue.   In   2002,   the   IRS   Chief   Counsel’s   Office   issued   an   advisory   memo   concerning  the  treatment  of  the  Colorado  Conservation  Easement  Credit,  which  entitles  a   donor  of  a  conservation  easement  to  a  credit  up  to  $260,000  against  Colorado  income  tax   liability.19  In  2004,  the  IRS  Chief  Counsel’s  Office  issued  an  advisory  memo  concerning  the   treatment   of   the   Oregon   Child   Care   Tax   Credit   program,   which   entitles   a   donor   to   the   Oregon  Child  Care  Division  to  a  credit  against  Oregon  income  tax  liability.20  In  both  cases,   the  IRS  took  note  of  the  longstanding  rule  that  a  state  charitable  contribution  deduction  “is   not  viewed  as  a  return  benefit  that  reduces  or  eliminates  a  deduction  under  section  170,  or   vitiates   charitable   intent.”21  However,   both   IRS   memos   declined   to   address   whether   the   same   rule   should   apply   for   state   tax   credits,   instead   concluding   that   this   issue   should   be   addressed  by  the  IRS  National  Office.     The   2011   memo   concludes   that   the   Full   Deduction   Rule   applies   not   only   to   state   charitable  contribution  deductions  but  also  to  state  charitable  contribution  credits,  noting   that  

ction   Rule   applies   not   only   to   state   charitable  contribution  deductions  but  also  to  state  charitable  contribution  credits,  noting   that   “Taxpayers   may   take   a   section   170   deduction   for   the   full   amount   of   their   charitable   contributions  of  cash  and  appreciated  stock,  assuming  the  requirements  of  section  170  are   otherwise  met.”    The  memo  summarizes  the  legal  basis  for  this  conclusion  as  follows:   “Based   on   our   analysis   of   existing   authorities,   we   conclude   that   the   position   reflected  in  McLennan,  Browning,  and  similar  case  law  generally  applies.    There   may   be   unusual   circumstances   in   which   it   would   be   appropriate   to   recharacterize   a   payment   of   cash   or   property   that   was,   in   form,   a   charitable   contribution  as,  in  substance,  a  satisfaction  of  tax  liability.    Generally,  however,   a  state  or  local  tax  benefit  is  treated  for  federal  tax  purposes  as  a  reduction  or   potential  reduction  in  tax  liability.    As  such,  it  is  reflected  in  a  reduced  deduction   for   the   payment   of   state   or   local   tax   under   §   164,   not   as   consideration   that   might  constitute  a  quid  pro  quo,  for  purposes  of  §  170,  or  an  amount  realized   includible  in  income,  for  purposes  of  §§  61  and  1001.”   Beyond   the   McLennan   and   Browning   decisions,   the   2011   IRS   memo   makes   specific   reference   to   two   additional   sources   of   authority   for   the   Full   Deduction   Rule:   (i)   Rev.   Rul.   79-­‐315,   Holding   (3)   and   (ii)   the   6th   Circuit’s   decision   in   Snyder   v.   Commissioner.   Both   of      

Rule:   (i)   Rev.   Rul.   79-­‐315,   Holding   (3)   and   (ii)   the   6th   Circuit’s   decision   in   Snyder   v.   Commissioner.   Both   of                                                                                                                           18  Id.   19  CCA  200238041   20  CCA  200435001   21  CCA  200238041,  pp  5-­‐6;  CCA  200435001,  p.  4  (“the  fact  that  states  typically  provide  for  a  similar   deduction   in   determining   the   taxable   income   base   for   state   tax   purposes   does   not   affect   the   federal  deduction  under  I.R.C.  Sec.  170).   6