NY Charitable Donation Fund

[Patrick Michael]

According to Kiplinger:

"A new report by the N.Y. Dept. of Taxation and Finance outlines a series of tax-related proposals. They include giving New Yorkers the option to donate to a state-operated charitable fund in exchange for a credit to be used against their N.Y. individual income tax liability"

If this goes through how is it going to deductible on Schedule A?  Wouldn't the credit against the income tax liability be a benefit received, negating the ability to deduct?

[Yardley CPA]

Patrick...that's a good question.  I heard there are several states considering this option.  I'd like to think the states did their due-diligence and obtained guidance to ensure the "donations" made to the state-operated charity are tax deductible.  But who knows at this point.  I guess we'll need to wait and see how this all plays out. 

[BulldogTom]

3 hours ago, Patrick Michael EA said:

According to Kiplinger:

"A new report by the N.Y. Dept. of Taxation and Finance outlines a series of tax-related proposals. They include giving New Yorkers the option to donate to a state-operated charitable fund in exchange for a credit to be used against their N.Y. individual income tax liability"

If this goes through how is it going to deductible on Schedule A?  Wouldn't the credit against the income tax liability be a benefit received, negating the ability to deduct?

This will end up in court...IMHO.  

Think about all the charitable giving that happens.  Some of (or most of) it is given with no anticipation of a benefit in return (I choose to believe most Americans give from the heart and not their tax return).   However, every single one of us know that we get a tax benefit from those gifts, even though a great majority of us would still give even without the deduction.   What NY is doing is saying that they have a charity, and if the US govt can determine a deduction or credit for that giving, then they can too, and they can set the limit of the credit or deduction as suits them.    That is a very powerful argument and one that may stand judicial scrutiny.

I would expect that the IRS/Treasury will look at it as a tax scam and attempt to deny the deduction.   Their argument is the charity is not a real charity, as the government cannot be a charitable organization, and an attempt to circumvent the tax laws of the US government.   They will probably also argue that if all charitable donations are not eligible for a 100% credit, then this is not a legitimate law for the state to pass and only furthers tax evasion.   Again, this is a very powerful argument that may withstand judicial scrutiny. 

The IRS could be directed by the treasury secretary (a political appointee) to attack the motive of the giver, by auditing every one of the returns claiming the deduction, disallow for motive, and then make the taxpayer challenge in tax court.

Another strategy of the Treasury could be to deny non-profit status to the new charity.   This would bring back shades of the Lois Lerner controversy that would get a bunch of people fired up politically.

Bottom line is this is shaping up as a political fight that I feel will go to the courts to decide.   Coin toss as to which way it goes.

Tom
Modesto, CA