The Tax Cuts and Jobs Act (TCJA) limits the amount of state and local tax deductions that taxpayers can claim to $10,000, provoking howls of protest from lawmakers in some higher tax states. Several states have tried to find workarounds such as setting up state-run funds where taxpayers can pay their taxes and claim them as charitable deductions, but the Treasury Department has indicated it will not allow that strategy to pass muster, at least for individual taxpayers. However, it has been more open to some charitable deduction workarounds for business taxpayers.
On December 28, 2018, the IRS released Revenue Procedure 2019-12, which provides safe harbors under section 162 of the tax code for certain payments made by a C corporation or a specified pass-through entity to, or for the use of, a charitable organization if the C corporation or specified pass-through entity receives, or expects to receive, a state or local tax credit in return for such a payment. The Revenue Procedure indicates that any such payment made by a C corporation will be treated as an ordinary and necessary business expense to the extent of the credit received or expected to be received. The Revenue Procedure provides a similar safe harbor for pass-through entities, but limits its application to state and local taxes other than a state and local income tax.
To view the entire language of Revenue Procedure 2019-12, click here.
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