We recently wrote on the new proposed regulations addressing the availability of charitable deductions when taxpayers receive or expect to receive corresponding state or local tax credits for contributions. The proposed regulations require a taxpayer who makes a contribution to a charitable organization to reduce his charitable deduction by any state or local tax credit that he receives or expects to receive. Readers may find more about the proposed regulations here. After the proposed regulations were issued, the IRS published a clarification for business taxpayers. The IRS clarified that business taxpayers who make business-related payments to charities or government entities for which the taxpayers receive state or local tax credits may still generally deduct the payments as business expenses. This general deductibility rule is not affected by the proposed regulations dealing with charitable deductions for donations to state or local tax credit programs.
For more up-to-date coverage from Tax Controversy and Financial Crimes Report, please subscribe by clicking here.