Since the passage of the Tax Cuts and Jobs Act (P.L. 115-97), several states have tried to circumvent the $10,000 cap on state and local tax deductions by enacting legislation to allow individuals to make payments in lieu of taxes to various charitable funds. Under the state programs, taxpayers could then deduct these payments as charitable contributions for federal income tax purposes, while simultaneously satisfying their state and local tax obligations.
On Aug. 23, 2018, the U.S. Department of the Treasury and the Internal Revenue Service issued proposed regulations under Section 170 of the Internal Revenue Code addressing the federal income tax treatment and characterization of newly enacted state legislation. The proposed regulations generally disallow all state attempts to use the federal charitable contribution deduction to work around the TCJA’s state and local tax deduction cap.
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