The IRS recently issued final regulations affecting taxpayers that make donations to charitable organizations and receive state or local tax credits or other third-party benefits in exchange. Specifically, the regulations give taxpayers further guidance on the issue of taxpayers’ attempts to avoid the $10,000 cap on state and local tax deductions by making charitable contributions.
The regulations finalize proposed regulations that were issued in December 2019 and also incorporate the guidance included in Rev. Proc. 2019-12 and Notice 2019-12. The final regulations adopt the proposed regulations, with some clarifications.
The final regulations:
Provide safe harbors with respect to the treatment of payments made by business entities to charitable organizations for purposes of qualifying as trade or business expenses;
Provide a safe harbor with respect to the treatment of payments made by individuals to charitable organizations for purposes of taking an itemized deduction or receiving a state or local tax credit;
Reflect past guidance and case law regarding the application of the quid pro quo principle to a donor who receives benefits from a third party in exchange for a charitable contribution.