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The Tax Cuts and Jobs Act (TCJA) placed a $10,000 annual limit on the deductibility of state and local taxes (SALT). In response to and attempting to work around that limitation, several states enacted programs that create charitable entities, contributions to which would entitle the donor to a credit reducing their property tax. This would reduce the amount of SALT paid by a taxpayer and allow the full deduction of the charitable contribution. New York’s legislation allows a credit of 85 percent of the amount donated to the charity; New Jersey’s law provides for a credit of 90 percent of the donated amount. The idea behind these statutes is to permit a taxpayer to deduct the entire amount of the donation and reduce their property tax substantially and, it was hoped, stay within the $10,000 federal SALT limitation.

On Thursday, Aug. 23, 2018, the IRS proposed regulations to substantially eliminate the benefit of such charitable donations. The proposed regulations require the charitable donation to be reduced by the SALT benefit received. For example, if $1,000 is contributed to the charity, and the state provided a 90 percent credit, the charitable donation would be reduced by the $900 credit, and only $100 would be available as a charitable deduction for federal tax purposes.

The proposed regulation provides a de minimis exception where the SALT credit is less than 15 percent of the amount donated. In that circumstance, the full charitable donation will be allowed for federal tax purposes.

The IRS proposed regulation is open for comments that may or may not be adopted by the IRS. Once the regulation is final, it is likely to be challenged in court by the states that enacted the workaround and other states that had similar programs that predated the TCJA such as Arizona that has provided a credit for contributions to certified school tuition organizations since 2013. Taxpayers should watch developments closely and consult with their tax advisors when considering such a contribution.

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Photo of Glenn Newman Glenn Newman

Glenn is a shareholder at the law firm of Greenberg Traurig LLP in New York City where he handles tax planning and controversy matters involving state and local taxes including personal income tax, corporate tax, sales tax and real property transfer taxes as

Glenn is a shareholder at the law firm of Greenberg Traurig LLP in New York City where he handles tax planning and controversy matters involving state and local taxes including personal income tax, corporate tax, sales tax and real property transfer taxes as well as real estate tax and incentive programs.

Glenn’s practice includes handling audits and litigation involving income tax including residency matters, sales and use tax, hotel taxes and real estate transfer taxes in New York and other states.

Prior to re-entering private practice, Glenn was the president of the New York City Tax Commission and the NYC Tax Appeals Tribunal, the agencies that hear and determine disputes of New York City property and business income and excise taxes.

Before his nomination and confirmation to the Tax Commission, Glenn was in private practice. Previously, he was Deputy Commissioner for Audit & Enforcement at the New York City Department of Finance where he was responsible for developing policy and for the audit process. Before moving to the Finance Department, Glenn was chief of the Tax and Bankruptcy Division in the Office of the Corporation Counsel of the City of New York where he drafted legislation and regulations and litigated matters involving both New York City and State taxes in administrative proceedings and in the courts. He also handled scores of cases involving City taxes in federal courts including the U.S. Bankruptcy Courts.

Glenn was chair of the State and Local Tax Committee of the Association of the Bar of the City of New York (1999-2001). He wrote a regular column on New York tax appeals for the New York Law Journal (1996-2002) and is a co-author of the New York Sales Tax Portfolio published by the Bureau of National Affairs. He is active in the State & Local Tax Committee of the American Bar Association as well as the New York State and New York City Bar Associations state and local tax committees; he is also on the Board of the Real Estate Tax Review Bar Association in New York City.

He was honored as a recipient of the “Tax Judge of the Year” in 2007 awarded by the National Conference of State Tax Judges of which he was later the Chair.

Glenn received his J.D degree from Fordham Law School and undergraduate degree from SUNY Albany.

Photo of Bradley R. Marsh Bradley R. Marsh

Bradley R. Marsh is Co-Managing Shareholder of the San Francisco office and focuses his practice on tax controversy matters, including property, sales, payroll, business license, employment, franchise, parcel, district, documentary transfer, transient occupancy, utility user, income, parking, gift and estate taxes. He serves…

Bradley R. Marsh is Co-Managing Shareholder of the San Francisco office and focuses his practice on tax controversy matters, including property, sales, payroll, business license, employment, franchise, parcel, district, documentary transfer, transient occupancy, utility user, income, parking, gift and estate taxes. He serves as a co-chair of the State and Local Tax (SALT) Practice. Brad represents clients in audits, litigation and administrative hearings, as well as analyzing transactions and business models, and developing strategies for legislative resolutions.

Photo of Marvin A. Kirsner Marvin A. Kirsner

Marvin A. Kirsner is a shareholder in the Fort Lauderdale office where his primary areas of practice deal with corporate, transactional and industry specific tax issues. He serves as the Co-Chair of the State and Local Tax (SALT) Practice.