Author Topic: Thoughts on California's potential end-run around new SALT deduction cap  (Read 1475 times)

FINate

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Summary from http://sanfrancisco.cbslocal.com/2018/01/03/california-looks-for-ways-around-federal-tax-changes/:

If De Leon’s bill passes, taxpayers affected by the $10,000 cap would be allowed to make a charitable contribution to the state.

In return, they would get a dollar-for-dollar discount on their state taxes. In theory, their overall contribution to the state would remain the same but because it’s classified as charity rather than taxes, they’d be allowed to deduct the entire amount from their federal taxes.


I'm not interested in comments about how tax reform is evil/great, or pro/against Trump, or how taxation is theft, or any other political stuff. Please start your own thread if you want to discuss such things.

I'm only interested in getting people's thoughts on a) will this be successful and b) why or why not?

I should note that, since I'm FIRE (hence lower income) I will not likely be affected by the cap on SALT deductions right away, but could potentially in the future.

My suspicion is that this idea will not hold up with the IRS or in the courts because 1) the charitable entity people would donate to is for all intents and purposes the state (it will have no autonomy...all money will flow through to the state), and 2) the equal value state tax credit (from the same entity receiving the donation) for "giving" the donation would cause it to be classified as a quid pro quo contribution rather than a true charitable contribution.

Alternatively, I can see the IRS clarifying that, because the recipient of the donation and grantor of the tax credit are essentially the same entity (the state), that therefore taxpayers can only claim the tax benefit once (either against State or Federal taxes, not both).

Any other thoughts or information?


 
« Last Edit: January 04, 2018, 01:53:47 PM by FINate »

seattlecyclone

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #1 on: January 04, 2018, 03:49:30 PM »
Yeah, this is a creative idea but I don't think it will fly with the IRS. You may not deduct donations to a charity to the extent that the charity gave you something of monetary value in return. It doesn't seem hard to argue that this would apply to a state government giving you a tax credit equivalent to your donation to that government, unless the tax code carves out a specific exemption for this situation.
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taxedatty

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #2 on: January 04, 2018, 04:05:17 PM »
I don't see this as a huge issue, although admittedly I haven't spent much time thinking about it.   Also, this is not my practice area, but I do like to ponder.  I would think off hand that it will come down to how the program is written exactly.

To your first point that the charity is essentially the government, would that matter?  The charity is not defined by the work that it does or its affiliations (necessarily) but by whether the organization is a 501(c)(3) or otherwise qualifies under the statute.   Case in point, I think there is guidance on donations to libraries (and other similar government institutions) indicating that federal charitable deductions are permitted so long as the donations are used by the governmental organization for a public purpose (which, wouldn't that describe nearly ALL things tax money is spent on?)  So I don't think affiliation with the government is necessarily a deal breaker.  And I'm not sure that a governmental unit would be prohibited from starting a 501(c)(3) organization for this purpose.

In another vein, can we assume that the organization receiving the money is "essentially" the government?  I would assume it would depend entirely on how the credit program is structured.  For example, Pennsylvania offers a state tax credit for businesses that give money to certain educational organizations (schools, daycares, etc.).  Then in exchange, they receive a 90% or so credit against their PA state taxes for money given to the charitable organizations. If I'm not mistaken, those businesses are still be entitled to whatever federal contribution deduction they would otherwise be entitled to for federal purposes since they are giving to an organization that is a charity.  So it's possible California's program could be written in a way to allow people to support institutions (not necessarily governmental) that would otherwise be funded by the government anyway and eligible for a state tax credit.

The quid pro quo idea is one that I hadn't pondered before.  But would that come into play if the tax credit is being given by a different entity than is receiving the credit (assuming they are different divisions of the government or like the PA scenario a separate organization altogether)?  In addition, suppose I make a donation and then don't have any (or enough) taxable income on which to receive the dollar for dollar credit and I lose it.  Arguably, I wouldn't know at the time I'm are making the contribution whether I would actually be able to receive the anticipated benefit -- so then is it really quid pro quo?  It's not definite and the value is not immediately ascertainable.

I look forward to seeing other people's thoughts on this, and seeing how it pans out in the end.

Undecided

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #3 on: January 04, 2018, 04:24:34 PM »
Yeah, this is a creative idea but I don't think it will fly with the IRS. You may not deduct donations to a charity to the extent that the charity gave you something of monetary value in return. It doesn't seem hard to argue that this would apply to a state government giving you a tax credit equivalent to your donation to that government, unless the tax code carves out a specific exemption for this situation.

It doesn't seem impossible to work around this. Oregon has long had a program where the state grants state tax credits (a very limited amount of which are 1:1 against the contribution, some of which are a fixed percentage of the contribution, and some of which are the result of an auction process) for contributions not to the state, but to charitable programs that are important to the state's interests (e.g., economic development programs, cultural heritage, energy development programs and similar things). The available credits are capped.

FINate

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #4 on: January 04, 2018, 04:25:19 PM »
I don't see this as a huge issue, although admittedly I haven't spent much time thinking about it.   Also, this is not my practice area, but I do like to ponder.  I would think off hand that it will come down to how the program is written exactly.

To your first point that the charity is essentially the government, would that matter?  The charity is not defined by the work that it does or its affiliations (necessarily) but by whether the organization is a 501(c)(3) or otherwise qualifies under the statute.   Case in point, I think there is guidance on donations to libraries (and other similar government institutions) indicating that federal charitable deductions are permitted so long as the donations are used by the governmental organization for a public purpose (which, wouldn't that describe nearly ALL things tax money is spent on?)  So I don't think affiliation with the government is necessarily a deal breaker.  And I'm not sure that a governmental unit would be prohibited from starting a 501(c)(3) organization for this purpose.

In another vein, can we assume that the organization receiving the money is "essentially" the government?  I would assume it would depend entirely on how the credit program is structured.  For example, Pennsylvania offers a state tax credit for businesses that give money to certain educational organizations (schools, daycares, etc.).  Then in exchange, they receive a 90% or so credit against their PA state taxes for money given to the charitable organizations. If I'm not mistaken, those businesses are still be entitled to whatever federal contribution deduction they would otherwise be entitled to for federal purposes since they are giving to an organization that is a charity.  So it's possible California's program could be written in a way to allow people to support institutions (not necessarily governmental) that would otherwise be funded by the government anyway and eligible for a state tax credit.

The quid pro quo idea is one that I hadn't pondered before.  But would that come into play if the tax credit is being given by a different entity than is receiving the credit (assuming they are different divisions of the government or like the PA scenario a separate organization altogether)?  In addition, suppose I make a donation and then don't have any (or enough) taxable income on which to receive the dollar for dollar credit and I lose it.  Arguably, I wouldn't know at the time I'm are making the contribution whether I would actually be able to receive the anticipated benefit -- so then is it really quid pro quo?  It's not definite and the value is not immediately ascertainable.

I look forward to seeing other people's thoughts on this, and seeing how it pans out in the end.

Not so much that government is charity, but rather than it's essentially all the same entity. For example, let's assume two 501(c)(3)s, A and B. They have an agreement that donations to B will flow through to A, and then A agrees to issue a gift card of equal value to the donor. A nifty scheme to generate tax deductions, but highly doubt it would pass muster with the IRS. I'm not a tax professional, but understand that the IRS frowns on structures that exist only for tax avoidance purpose. IMO this contrived example and the charitable donations workaround are essentially isomorphic.

I agree it's confusing, or a grey area, with the options to donate to educational vouchers or other things deemed a public benefit. Will be interesting to see how this all sorts out.

FINate

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #5 on: January 04, 2018, 05:35:20 PM »
Further rampant speculation: Could the IRS determine that all 1:1 discount on state taxes in exchange for contributions to public benefit are also subject to the SALT cap? The reason being is that such contributions, buy nature of the 1:1 discount, behave as taxes. Not even sure if the IRS can make that determination, or if it would require legislative action.

The latest from CA: https://www.mercurynews.com/2018/01/04/californias-proposed-federal-tax-cap-work-around-unveiled/ - mostly the same info, except the charitable fund is given a name, California Excellence Fund (can't resist referencing The Montgomery Burns Award for Outstanding Achievement in the Field of Excellence

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #6 on: January 05, 2018, 07:58:48 PM »
Pretty sure that this is precisely what the Step Transaction Doctrine is intended to address.  This sounds like the kind of thing that will get everyone in California, a free IRS proctological exam tax audit.

Undecided

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #7 on: January 05, 2018, 10:39:17 PM »
Pretty sure that this is precisely what the Step Transaction Doctrine is intended to address.  This sounds like the kind of thing that will get everyone in California, a free IRS proctological exam tax audit.

If the compassionate conservatives who have been railing about states’ rights for three decades try to eliminate the states’ ability to grant credits for donations to tax-qualified public charities, I will be forced to doubt the sincerity of their expressions of principle.

FINate

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #8 on: January 06, 2018, 12:23:43 AM »
Pretty sure that this is precisely what the Step Transaction Doctrine is intended to address.  This sounds like the kind of thing that will get everyone in California, a free IRS proctological exam tax audit.

If the compassionate conservatives who have been railing about states’ rights for three decades try to eliminate the states’ ability to grant credits for donations to tax-qualified public charities, I will be forced to doubt the sincerity of their expressions of principle.

I suppose that same critical eye should also be directed at progressives who have a history of demanding that the rich pay their fair share, since California's workaround to the SALT cap would very disproportionately favor the wealthy of the state ;-)

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #9 on: January 06, 2018, 05:29:07 AM »
Pretty sure that this is precisely what the Step Transaction Doctrine is intended to address.  This sounds like the kind of thing that will get everyone in California, a free IRS proctological exam tax audit.

If the compassionate conservatives who have been railing about states’ rights for three decades try to eliminate the states’ ability to grant credits for donations to tax-qualified public charities, I will be forced to doubt the sincerity of their expressions of principle.
eliminate? It wouldn’t take a law, this is already clearly impermissible. What ever legislator thinks that this is a work around is probably not a lawyer. If said legislator is a lawyer, they’re bad at it.

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #10 on: January 06, 2018, 09:45:48 AM »
Pretty sure that this is precisely what the Step Transaction Doctrine is intended to address.  This sounds like the kind of thing that will get everyone in California, a free IRS proctological exam tax audit.

If the compassionate conservatives who have been railing about states’ rights for three decades try to eliminate the states’ ability to grant credits for donations to tax-qualified public charities, I will be forced to doubt the sincerity of their expressions of principle.
eliminate? It wouldn’t take a law, this is already clearly impermissible. What ever legislator thinks that this is a work around is probably not a lawyer. If said legislator is a lawyer, they’re bad at it.

It's not obvious to me that it's a step transaction problem (although I'm not saying a court wouldn't rule that it is)---a charitable contribution is distinct (not only as a matter of form, but also as a matter of substance) from a state or local tax. How the states choose to handle their own internal treatment of a taxpayer's charitable contributions is not an issue that the federal government would seem to have any say in.

At least one state has been doing this for years (it was attractive to AMT payers), without any challenge so far as I know.

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #11 on: January 06, 2018, 09:55:46 AM »
Pretty sure that this is precisely what the Step Transaction Doctrine is intended to address.  This sounds like the kind of thing that will get everyone in California, a free IRS proctological exam tax audit.

If the compassionate conservatives who have been railing about states’ rights for three decades try to eliminate the states’ ability to grant credits for donations to tax-qualified public charities, I will be forced to doubt the sincerity of their expressions of principle.

I suppose that same critical eye should also be directed at progressives who have a history of demanding that the rich pay their fair share, since California's workaround to the SALT cap would very disproportionately favor the wealthy of the state ;-)

Maybe, but from CA's perspective, I don't think it would. And I bet as ultimately structured (if ever adopted, which I think is somewhat unlikely), it would be effectively more progressive. If it was a 1:1 credit for contributions that CA deemed to be of sufficient interest to the state, well, it wouldn't be saving the taxpayer any California money (taxes and targeted contributions). More likely, I think, they'd make it a fractional credit, so the taxpayer would end up paying more California money.
« Last Edit: January 06, 2018, 09:58:27 AM by Undecided »

seattlecyclone

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #12 on: January 06, 2018, 10:07:03 AM »
Pretty sure that this is precisely what the Step Transaction Doctrine is intended to address.  This sounds like the kind of thing that will get everyone in California, a free IRS proctological exam tax audit.

If the compassionate conservatives who have been railing about states’ rights for three decades try to eliminate the states’ ability to grant credits for donations to tax-qualified public charities, I will be forced to doubt the sincerity of their expressions of principle.

A credit against state taxes for charitable contributions in general is one thing, a credit for a "voluntary" contribution to the exact government you would have owed taxes to anyway is quite another.
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Dicey

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #13 on: January 06, 2018, 10:28:58 AM »
B-b-but wait! Aren't charitable contributions worthless unless one exceeds the new $24k Standard Deduction? Isn't that why I created an eleventh hour DAF last week? Help this poor, confused taxpayer out here!

FWIW, our taxes on our primary home exceed $10k, #thankyouverymuch. OTOH, our house has increased in value (on paper) more than we've earned in the same time frame, so there's that, I suppose.
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Gin1984

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #14 on: January 06, 2018, 10:46:51 AM »
B-b-but wait! Aren't charitable contributions worthless unless one exceeds the new $24k Standard Deduction? Isn't that why I created an eleventh hour DAF last week? Help this poor, confused taxpayer out here!

FWIW, our taxes on our primary home exceed $10k, #thankyouverymuch. OTOH, our house has increased in value (on paper) more than we've earned in the same time frame, so there's that, I suppose.
Yes, but they don't have to exceed it alone.  One of the parts of the itemized list is state and local taxes, which were capped at $10K. So say you pay 1.5 million house and pay $15,000 in taxes.  You can only deduct $10,000 as part of itemizing. 

Undecided

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #15 on: January 06, 2018, 11:38:31 AM »
Pretty sure that this is precisely what the Step Transaction Doctrine is intended to address.  This sounds like the kind of thing that will get everyone in California, a free IRS proctological exam tax audit.

If the compassionate conservatives who have been railing about states’ rights for three decades try to eliminate the states’ ability to grant credits for donations to tax-qualified public charities, I will be forced to doubt the sincerity of their expressions of principle.

A credit against state taxes for charitable contributions in general is one thing, a credit for a "voluntary" contribution to the exact government you would have owed taxes to anyway is quite another.

As I said above, I assume it will be a qualifying public charity, not that state itself. I know you didn’t address that, although others did, and I know the prior Service analyses aren’t binding, but have you considered this OCC memo in reaching your opinions that this is clear? https://www.irs.gov/pub/irs-wd/1105010.pdf

Dicey

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #16 on: January 06, 2018, 12:27:20 PM »
B-b-but wait! Aren't charitable contributions worthless unless one exceeds the new $24k Standard Deduction? Isn't that why I created an eleventh hour DAF last week? Help this poor, confused taxpayer out here!

FWIW, our taxes on our primary home exceed $10k, #thankyouverymuch. OTOH, our house has increased in value (on paper) more than we've earned in the same time frame, so there's that, I suppose.
Yes, but they don't have to exceed it alone.  One of the parts of the itemized list is state and local taxes, which were capped at $10K. So say you pay 1.5 million house and pay $15,000 in taxes.  You can only deduct $10,000 as part of itemizing.
Uh, if your taxes are 10K, what else are you going use to get to 24k? Then, you only get "credit" for the amount of deductions over 24k. I don't think your answer matches my question. If it somehow does, then I am still in the dark, but thank you for trying.
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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #17 on: January 06, 2018, 12:59:43 PM »
B-b-but wait! Aren't charitable contributions worthless unless one exceeds the new $24k Standard Deduction? Isn't that why I created an eleventh hour DAF last week? Help this poor, confused taxpayer out here!

FWIW, our taxes on our primary home exceed $10k, #thankyouverymuch. OTOH, our house has increased in value (on paper) more than we've earned in the same time frame, so there's that, I suppose.
Yes, but they don't have to exceed it alone.  One of the parts of the itemized list is state and local taxes, which were capped at $10K. So say you pay 1.5 million house and pay $15,000 in taxes.  You can only deduct $10,000 as part of itemizing.
Uh, if your taxes are 10K, what else are you going use to get to 24k? Then, you only get "credit" for the amount of deductions over 24k. I don't think your answer matches my question. If it somehow does, then I am still in the dark, but thank you for trying.

The idea in the CA proposal is to replace non-deductible expenses with deductible ones.

Say your CA income tax obligation is $20k and CA offers you a credit for donations to specific charities. You’d make a $20k donation, and then your itemised drductions would be $20k from that contribution, $10k from your property tax, and any qualifying mortgage interest and other itemized deductions. You’d itemise for federal, decreasing your federal tax, and apply the contribution credit on your state return (likely adding back the contributions as CA income).

seattlecyclone

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #18 on: January 06, 2018, 01:59:57 PM »
B-b-but wait! Aren't charitable contributions worthless unless one exceeds the new $24k Standard Deduction? Isn't that why I created an eleventh hour DAF last week? Help this poor, confused taxpayer out here!

FWIW, our taxes on our primary home exceed $10k, #thankyouverymuch. OTOH, our house has increased in value (on paper) more than we've earned in the same time frame, so there's that, I suppose.
Yes, but they don't have to exceed it alone.  One of the parts of the itemized list is state and local taxes, which were capped at $10K. So say you pay 1.5 million house and pay $15,000 in taxes.  You can only deduct $10,000 as part of itemizing.
Uh, if your taxes are 10K, what else are you going use to get to 24k? Then, you only get "credit" for the amount of deductions over 24k. I don't think your answer matches my question. If it somehow does, then I am still in the dark, but thank you for trying.

Mortgage interest is a big one. A $500k 4% mortgage is hardly unusual in a number of cities, and is a $20k itemized deduction all on its own.
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FINate

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #19 on: January 06, 2018, 02:42:23 PM »
Here's a more in-depth analysis from the Tax Foundation. Like everyone they have a bias (center-right?) so take it with a grain of salt:

https://taxfoundation.org/state-strategies-preserve-state-and-local-tax-deduction/

Interesting, per my comment up thread about contributions perhaps being treated as de facto taxes:

Quote
Payments which function as taxes may be classified as taxes even if states choose to call them something else.

Undecided

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #20 on: January 07, 2018, 08:56:46 AM »
Here's a more in-depth analysis from the Tax Foundation. Like everyone they have a bias (center-right?) so take it with a grain of salt:

https://taxfoundation.org/state-strategies-preserve-state-and-local-tax-deduction/

Interesting, per my comment up thread about contributions perhaps being treated as de facto taxes:

Quote
Payments which function as taxes may be classified as taxes even if states choose to call them something else.

This is outside my practice area, but I recognise an advocacy piece parading as an analysis when I see one. That the Service hasn’t previously brought these claims despite having at least twice considered the issue, and that at least one of those analyses concedes some plausibility, suggests this is precisely an area where good lawyering should be expected to try to exploit the opportunity. Regulatory changes invite responses.

Gin1984

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #21 on: January 07, 2018, 11:03:24 AM »
Here's a more in-depth analysis from the Tax Foundation. Like everyone they have a bias (center-right?) so take it with a grain of salt:

https://taxfoundation.org/state-strategies-preserve-state-and-local-tax-deduction/

Interesting, per my comment up thread about contributions perhaps being treated as de facto taxes:

Quote
Payments which function as taxes may be classified as taxes even if states choose to call them something else.
taxfoundation.org is not center right, it is right wing by a LARGE margin.

bacchi

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #22 on: January 07, 2018, 11:30:05 AM »
Pretty sure that this is precisely what the Step Transaction Doctrine is intended to address.  This sounds like the kind of thing that will get everyone in California, a free IRS proctological exam tax audit.

If the compassionate conservatives who have been railing about states’ rights for three decades try to eliminate the states’ ability to grant credits for donations to tax-qualified public charities, I will be forced to doubt the sincerity of their expressions of principle.

I suppose that same critical eye should also be directed at progressives who have a history of demanding that the rich pay their fair share, since California's workaround to the SALT cap would very disproportionately favor the wealthy of the state ;-)

Maybe, but from CA's perspective, I don't think it would. And I bet as ultimately structured (if ever adopted, which I think is somewhat unlikely), it would be effectively more progressive. If it was a 1:1 credit for contributions that CA deemed to be of sufficient interest to the state, well, it wouldn't be saving the taxpayer any California money (taxes and targeted contributions). More likely, I think, they'd make it a fractional credit, so the taxpayer would end up paying more California money.

Further, since CA is a federal tax giver, any money not given to the feds is kept in state, which helps the CA economy.

Dicey

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #23 on: January 07, 2018, 01:14:56 PM »
Pretty sure that this is precisely what the Step Transaction Doctrine is intended to address.  This sounds like the kind of thing that will get everyone in California, a free IRS proctological exam tax audit.

If the compassionate conservatives who have been railing about states’ rights for three decades try to eliminate the states’ ability to grant credits for donations to tax-qualified public charities, I will be forced to doubt the sincerity of their expressions of principle.

I suppose that same critical eye should also be directed at progressives who have a history of demanding that the rich pay their fair share, since California's workaround to the SALT cap would very disproportionately favor the wealthy of the state ;-)

Maybe, but from CA's perspective, I don't think it would. And I bet as ultimately structured (if ever adopted, which I think is somewhat unlikely), it would be effectively more progressive. If it was a 1:1 credit for contributions that CA deemed to be of sufficient interest to the state, well, it wouldn't be saving the taxpayer any California money (taxes and targeted contributions). More likely, I think, they'd make it a fractional credit, so the taxpayer would end up paying more California money.

Further, since CA is a federal tax giver, any money not given to the feds is kept in state, which helps the CA economy.

Now that's an interesting twist.
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FINate

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #24 on: January 07, 2018, 02:54:53 PM »
Here's a more in-depth analysis from the Tax Foundation. Like everyone they have a bias (center-right?) so take it with a grain of salt:

https://taxfoundation.org/state-strategies-preserve-state-and-local-tax-deduction/

Interesting, per my comment up thread about contributions perhaps being treated as de facto taxes:

Quote
Payments which function as taxes may be classified as taxes even if states choose to call them something else.
taxfoundation.org is not center right, it is right wing by a LARGE margin.

I'm not familiar with the org, was just the most in-depth treatment I could find at the moment. The mainstream press seems to just go along with "other states have done something similar" even though I don't think it's very similar at all. The interesting take away for me is that, by capping SALT, the feds unintentionally/indirectly created a benefit elsewhere that didn't previously exist (e.g. charitable deductions are now more desirable).

FINate

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #25 on: January 07, 2018, 03:03:17 PM »
Pretty sure that this is precisely what the Step Transaction Doctrine is intended to address.  This sounds like the kind of thing that will get everyone in California, a free IRS proctological exam tax audit.

If the compassionate conservatives who have been railing about states’ rights for three decades try to eliminate the states’ ability to grant credits for donations to tax-qualified public charities, I will be forced to doubt the sincerity of their expressions of principle.

I suppose that same critical eye should also be directed at progressives who have a history of demanding that the rich pay their fair share, since California's workaround to the SALT cap would very disproportionately favor the wealthy of the state ;-)

Maybe, but from CA's perspective, I don't think it would. And I bet as ultimately structured (if ever adopted, which I think is somewhat unlikely), it would be effectively more progressive. If it was a 1:1 credit for contributions that CA deemed to be of sufficient interest to the state, well, it wouldn't be saving the taxpayer any California money (taxes and targeted contributions). More likely, I think, they'd make it a fractional credit, so the taxpayer would end up paying more California money.

Further, since CA is a federal tax giver, any money not given to the feds is kept in state, which helps the CA economy.

Now that's an interesting twist.

Yes, interesting. But isn't it regressive to keep money from an affluent state from going to the federal level which would help less affluent states?


bacchi

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #27 on: January 07, 2018, 07:19:41 PM »
Further, since CA is a federal tax giver, any money not given to the feds is kept in state, which helps the CA economy.[/b]
Now that's an interesting twist.

Yes, interesting. But isn't it regressive to keep money from an affluent state from going to the federal level which would help less affluent states?

Yep but some people/politicians/parties/states need a little tit-for-tat to understand.

NorCal

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #28 on: January 07, 2018, 08:20:57 PM »
Think about it this way.  Why doesn't the car dealership down the street form a charity and say we'll give you a $10K discount on your car if you donate $10K to our charity?

Both of these ideas have roughly the same probability of surviving IRS/court scrutiny.

bacchi

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #29 on: January 07, 2018, 08:42:28 PM »
Think about it this way.  Why doesn't the car dealership down the street form a charity and say we'll give you a $10K discount on your car if you donate $10K to our charity?

Both of these ideas have roughly the same probability of surviving IRS/court scrutiny.

Donations to states, and local governments, are already tax deductible, per 26 USC 170.

A car dealership's charitable organization could do what you proposed as long as the car dealership didn't benefit.

dang1

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #30 on: January 07, 2018, 10:29:26 PM »
so, I wonder if a significant number of Californians will be greatly bothered by this limit. I'm below the threshold, likewise some others in my circle in this state. I gather that those who are affected, are pretty comfortable financially, they're just shrugging it off, so far. They figure- it just comes with living in the state that corresponds with their values.

People I grew up with in that don't hold these values have already left the state. My neighbors are more and more techies, and immigrants.

Undecided

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #31 on: January 07, 2018, 10:47:55 PM »
so, I wonder if a significant number of Californians will be greatly bothered by this limit. I'm below the threshold, likewise some others in my circle in this state. I gather that those who are affected, are pretty comfortable financially, they're just shrugging it off, so far. They figure- it just comes with living in the state that corresponds with their values.

People I grew up with in that don't hold these values have already left the state. My neighbors are more and more techies, and immigrants.

I think many can be happy (enough) paying high CA taxes, because they support (or don’t oppose) CA’s agenda, but also not want to pay more than necessary to support the current Federal government’s seemingly very different agenda.

FINate

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #32 on: January 08, 2018, 09:23:34 AM »
From George Skelton, LAT: http://beta.latimes.com/politics/la-pol-sac-skelton-kevin-de-leon-trump-tax-plan-20180108-story.html

Quote
In all, 21 states have programs that offer tax credits for donations to specific causes. Popular in some Southern red states are generous credits for funding private school vouchers.

In California, there's a program — created by a De León bill in 2014 — that offers a 50% tax credit for donations to the Cal Grant college scholarship fund. There's also a program that allows a private property owner to grant an easement to a land conservancy and receive a 55% tax credit. Several states offer that.

All that's OK with the IRS. But concocting a scheme so millions of Californians can deduct untold additional thousands of dollars on their federal returns would undoubtedly rattle the IRS and Trump.

But the president would need to use a scalpel targeted at California and other blue states trying to evade federal taxes, rather than taking a meat cleaver to every tax credit in the country. Trump presumably wouldn't want to anger loyal red states that use tax credits to fund pet conservative causes.

Interesting. Maybe one of the desires is ensuring credits don't go unchallenged in red states...though this would potentially also end up hurting Cal Grant and land conservancy in CA.

Heywood57

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #33 on: January 08, 2018, 09:53:22 AM »
Is Kevin de Leon saying,
Rather than allowing the Federal government have that money give it to the state instead ?

Undecided

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #34 on: January 08, 2018, 10:16:02 AM »
Is Kevin de Leon saying,
Rather than allowing the Federal government have that money give it to the state instead ?

No. He's saying rather than giving the state money (taxes) that cannot counted as an itemized federal deduction, give that money to a charity that supports state priorities, and get a credit against state taxes and an itemized federal deduction.

Heywood57

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #35 on: January 09, 2018, 08:39:40 AM »
Is Kevin de Leon saying,
Rather than allowing the Federal government have that money give it to the state instead ?

No. He's saying rather than giving the state money (taxes) that cannot counted as an itemized federal deduction, give that money to a charity that supports state priorities, and get a credit against state taxes and an itemized federal deduction.

Anyone have actual examples of how much this "buy a tax deduction" benefits the taxpayer ?


Undecided

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Re: Thoughts on California's potential end-run around new SALT deduction cap
« Reply #36 on: January 09, 2018, 09:44:08 AM »
Is Kevin de Leon saying,
Rather than allowing the Federal government have that money give it to the state instead ?

No. He's saying rather than giving the state money (taxes) that cannot counted as an itemized federal deduction, give that money to a charity that supports state priorities, and get a credit against state taxes and an itemized federal deduction.

Anyone have actual examples of how much this "buy a tax deduction" benefits the taxpayer ?

It depends on the credit ratio and the taxpayer’s state and federal marginal tax rates.

Here’s a discussion of one of Oregon’s bidded tax credit programs.

http://pacificcapitalworks.com/articles/2017/6/15/oregon-production-investment-fund-tax-credit-auction-july-10th

Oregon also has fixed-rate credit programs at around 60%-70%. No idea what CA would do.