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December 16, 2019

Guidance Issued on Payments to Charitable Organizations


Journal of Accountancy
By Sally P. Schreiber, J.D.

Proposed regulations issued by the IRS on Friday provide guidance on the treatment of payments made to charitable organizations in return for consideration, including in return for state and local tax credits (REG-107431-19). The regulations incorporate two earlier pieces of IRS guidance, Rev. Proc. 2019-12 and Notice 2019-12, as well as addressing other issues. The proposed regulations provide further guidance on the issue of states' and taxpayers' attempts to avoid the $10,000 cap on state and local tax deductions by making charitable contributions instead (see T.D. 9864). The IRS says it received over 7,700 comments on the topic after issuing proposed regulations (REG-112176-18) in August 2018.

The new proposed regulations make updates to the current Sec. 162 regulations to reflect statutory changes regarding how Sec. 162 applies when taxpayers make a payment to a Sec. 170(c) charitable organization for business purposes. They also provide safe harbors under Sec. 162 for payments made by businesses to Sec. 170(c) organizations and under Sec. 164 for payments made to a Sec. 170(c) organization by individual taxpayers who itemize and receive (or expect to receive) a state or local tax credit in return for the payment. Finally, they update the regulations to reflect past guidance and case law on the application of the quid pro quo principle under Sec. 170 to benefits received (or expected to be received) by a donor from a third party. Read more.

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