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Act Immediately – Once In a Lifetime Tax Opportunity?

08.28.18 | SALT Chat

Is it too good to be true? Can I really get the best of both worlds? Should I bend over backwards to do this? Maybe I shouldn’t look a gift horse in the mouth. Did the Governor of New York hit the nail on the head in his Sunday Press Release[1] entitled “Governor Cuomo Alerts New Yorkers To Tomorrow Deadline To Make Charitable Donations Before Politically Motivated IRS Regulations Take Effect?”

I am going to cut right to the chase and go out on a limb in telling the Governor, once in a lifetime opportunities that look too good to be true, usually are. Moreover, this was the case here.

The IRS released Proposed Regulations addressing the various state attempts to recharacterize the now limited state and local tax deduction to a charitable contribution. As expected, the IRS came down hard on the attempt and effectively eliminated doubt from anyone’s mind as to the ability to make the conversion.

Interestingly enough, the thirty plus page preamble to the proposed changes states “The amendments to these regulations are proposed to apply to contributions after August 27, 2018.” As a result, some tax practitioners, financial planners and even the Governor took this to mean taxpayers had one day to convert their state tax payments to charitable contributions.

Yes, the emails were coming in Sunday night. Late night conversations amongst the Berdon team were necessary so we can tell our clients what to do Monday morning. What did we conclude? Same as it ever was.

We believe payments to these funds are likely nondeductible under current law and that the proposed regulations are a clarification of that position notwithstanding the effective date. The proposed regulations in addition to clarifying existing law (not allowing the conversion for the most part) seem to be “giving” taxpayers one additional benefit. Where the state charitable fund only offers a deduction and not a tax credit, the IRS will permit the charitable contribution. I cannot think of any situation where it would make economic sense to contribute if only a deduction is offered on the state tax return, but arguably, this is where the effective date could apply.

My Dad taught me and I am sure Governor Mario Cuomo instilled in Governor Andrew Cuomo the lesson regarding too good to be true. Let us attribute any differences in opinion to the heated political climate surrounding the issue. If this issue raises questions, contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.

Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.

[1] https://www.governor.ny.gov/news/governor-cuomo-alerts-new-yorkers-tomorrows-deadline-make-charitable-donations-politically