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.

Latest Insights

December 2, 2018
Tis the season for charitable giving! When receiving donations of cash or property, it’s important to keep good records, provide proper documentation and understand the definition of “qualified appraisals.”
September 18, 2018
Get ahead of tax season with the Eide Bailly Tax Planning Guide. A supplemental strategy guide to help guide year-end and make the tax laws work for you.
August 29, 2018
If your organization is participating in alternative investments, or is considering them, you may be impacted by the following tax liability and compliance issues.
August 24, 2018
The IRS released Proposed Regulations on Charitable Contributions in Exchange for State and Local Tax Credits on August 23.
April 12, 2018
The Bipartisan Budget Act of 2015 (BBA) introduced new partnership audit and adjustment procedures for tax years beginning after December 31, 2017, that represent a dramatic change and could result in prior year tax adjustments altering current…
February 1, 2018
The 2017-2018 Pocket Tax Guide provides a quick view of tax updates, current rates and new tax law summaries for business, estate, general and individuals. It has been designed to be compact and folded into a pocket sized pamphlet.
January 11, 2018
Tax reform is now reality. Last month, President Trump signed the largest tax reform legislation in more than 30 years. While many of the provisions that were initially proposed specific to exempt organizations did not make it into the final…
December 27, 2017
Information returns (we're talking 1099, W2, etc.) are an important piece of your year end planning. Aside from remembering all the important deadlines for these returns, there's also the issue of what happens when they are not filed correctly.…
December 27, 2017
If you have employees who travel, it's time to pay attention as the standard mileage rates have changed for 2018. The IRS recently announced that business standard mileage rates for 2018 have increased to 54.5 cents per mile.
Find A Location