Following is a statement by Carl Davis, research director at the Institute on Taxation and Economic Policy, regarding Department of Treasury regulations released today to address state policies that allow taxpayers to receive overly generous tax credits for charitable deductions.
“This regulation rightly addresses a long-standing tax loophole that gave high-income taxpayers one more way to exploit the tax code for their own personal interests. It’s an even-handed rule that will end some of the worst abuses of the federal charitable deduction. The IRS wisely rejected calls that it turn a blind eye to some groups’ use of this tax avoidance scheme, and the regulation will shut down both an infamous tax dodge used by donors to private K-12 school voucher funds as well as copycat proposals more recently adopted for donations to support public services. As the IRS notes, however, there are still lingering issues that this regulation leaves unaddressed. Of particular concern is that additional guidance will be needed to stop investors from using state tax credits to avoid capital gains tax. While the regulation is a great step forward, work remains to be done.”