Insights: Article

Business Taxpayer’s Deduction Clarified by IRS

By Kim Hunwardsen

September 07, 2018

On September 5, the Internal Revenue Service issued IR-2018-178 to clarify their position related to business taxpayers implementing recently released proposed regulations for dealing with charitable contributions made in anticipation of receiving, or having already received, a state or local tax credit.

According to the IRS, IR-2018-178 clarifies that the general deductibility of a charitable deduction is unaffected by the recently released proposed regulations on reduced deductibility of charitable contributions when tied to state or local tax credits. “The business expense deduction is available to any business taxpayer, regardless of whether it is doing business as a sole proprietor, partnership or corporation, as long as the payment qualifies as an ordinary and necessary business expense.”

Who Should Consider Commenting
While this clarification by the IRS is good news for businesses and exempt organizations that can provide state or local tax credits in exchange for state or local tax credits, the higher percentage of contributors will most likely be individuals, not businesses. As a result, exempt organizations that have the ability to provide state or local tax credits in exchange for charitable contributions—particularly those that had that ability under state or local laws existing prior to the passage of the recent tax reform Tax Cuts and Jobs Act legislation—should consider whether it would be appropriate for them to make comment to the IRS related to the potential loss of contributions that could be suffered for being captured in the proposed contribution regulations, which were primarily designed to offset recent actions by states to dampen the effect of state and local tax limitations imposed in the tax reform legislation. Our recent insight outlines why some may want to accelerate contributions immediately.

Included in the proposed regulations on charitable contributions tied to state or local tax credits is information for making comment on the proposed regulations and on a hearing to be held November 5, 2018, to discuss the reason for the new proposed regulations and the comments that were received connected to those regulations. However, if your organization needs more information related to the proposed regulations, making a comment related to the proposed regulations or for attending the hearing to be held in Washington, D.C, please contact Kim Hunwardsen, with the Eide Bailly National Tax Office Exempt Organization group to learn more.

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