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Contributions in lieu of Taxes


Edsel

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...this came from another forum.

Appears some California politician has concluded legislation which allows California and their political subdivisions to accept contributions in lieu of taxes.

For tax liabilities in excess of $10,000, the taxpayer may make a general donation (not earmarked) to the taxing authority, and the taxing authority will consider taxes paid.  From the sound of it, it appears to be perfectly legal, as contributions have no such ceiling.  (they actually do as a % of AGI but that would be extremely remote).

I don't know why this wouldn't work, so long as the taxing authority accepts and doesn't pursue further collection.  If there were no earmarking of funds by the taxpayer, I don't see why it wouldn't work.

IRS may be digging in their bag of tricks to find a regulation which could disallow this, but I'm not aware of any.

 

 

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They have improved the idea.   What is now being proposed is a California Tax Credit for 100% of your contribution to a new state "Charity".   The State will set up the "charity", accept your "Donation" of the amount of your state and local taxes, and give you a 100% credit (refundable) on your CA tax return, along with a donation receipt for you to use on your Federal Tax Return.

It is definitely creative.  I really want to go political on this thread but I don't want to get kicked off the board, I need you guys too much.

Tom
Modesto, CA

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This is one enormous reality show, the first I have ever seen (I'd rather be watching  the Golden Girls).  There is going to be plenty of gesturing and maneuvering going forward as some states believe they have been unfairly  targeted and its taxpayers are victims.  I agree with Bulldog, can't go political, but really folks, is this surreal or what? 

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This will be a piece of cake for the IRS.

In order for donations to be deductible, you have to NOT receive anything of value in return.  So the IRS will easily remove all the donations on Sch A (From CA) until people can prove they have documentation. When the documentation arrives to the IRS, they will see that letter from the "non-profit" organization. At that point the IRS will take tax payers to court and the courts will ask taxpayers if they received or were forgiven something of value by donating and you understand what will happen.

ALSO, the non-profit organization will receive a letter from the IRS stating that their non-profit status has been revoked.

Unless they can convince a judge that the new tax law or portions of it... is unconstitutional, CA and their "new non-profit organization" don't have a leg to stand on. I don't want to be political too, but it is not hard to find judges that will state that the law is unconstitutional, especially in CA.

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This is going to be interesting!  What about the "contemporaneous receipt"?  And the "voluntary" nature (I think it can be arranged that it will be "voluntary" at least on the surface) and especially that the taxpayer received nothing of value in return?

The overwhelming activity between the Feds and States is to "tag team" against the taxpayer, and not to work against each other.  This could get ugly.  Fed finds a way to disallow the deduction, and CA quits corroborating taxable pensions from the state, etc...

Bordering on the political, so I won't go further. 

 

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For years, California has been allowing dollar-for-dollar credits for certain charitable organizations, such as California Sea Otter Fund,  Fireighter's Memorial, Special olympics, etc. They number over 40.  Page 4 of the form 540 is dedicated to it.  https://www.ftb.ca.gov/forms/2017/17_540.pdf?WT.mc_id=HP_File_540form

If another charity, properly structured, were added to the list, maybe some sort of General Education Fund, it might have a chance to survive the IRS and court challenges.  Just MHO.

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I don't see how the constitutional argument will fly, and I am not even a lawyer.  The 16th Amendment gives Congress the authority to levy an income tax, period.  Section 61 of US Code 16 tells us that income is taxable "from whatever source derived."   Any income not taxed is an exception granted by the "grace of Congress."  The Constitution does not anywhere state that SALT taxes can be deducted from gross income.  The only reason they have been deductible is that Congress has graced us with the privilege, an action that has now been partially rescinded.  Although some will argue that taxing income given over to SALT is double taxation, I don't see that either.  I make $100k a year and hand over $20k to the IRS.  My state taxes me on my gross $100k too.  How come no one complained that the state was double taxing me on my IRS payment?

It will be interesting to see how various tax rules will be enforced now that there are no more exemptions.  Will there be no more qualifying child/relative?  How then do you qualify for HOH, or take a "dependent's" education expenses for AOC, or take dependent care expenses?  Congress better give IRS a whole pile of money to hire attorneys and staff to rewrite almost every single form, instructions and pub (and people to explain it to us).  This could take years....

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11 hours ago, SaraEA said:

 Congress better give IRS a whole pile of money to hire attorneys and staff to rewrite almost every single form, instructions and pub (and people to explain it to us).  This could take years....

Congress will likely not give IRS any increase in staff.  They will claim they have "simplified" the law, thus IRS does not need any additional staff.

Their view of "simplification" is really inane.  One of the things they blatantly tout being "simpler" is to reduce tax brackets from 9 to 5.  Yeah Boy, that one is really going to spare the IRS thousands of employees, right?

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