Posted on 01/05/2018 6:55:15 AM PST by MNDude
A California Senate leader introduced legislation Thursday aimed at circumventing a central plank in the new Republican tax law, introducing a model that — if successful — could be replicated across the country.
California Senate President Pro Tempore Kevin de León (D) introduced a bill that would allow taxpayers to make a charitable donation to the California Excellence Fund instead of paying certain state taxes. They could then deduct that contribution from their federal taxable income.
(Excerpt) Read more at washingtonpost.com ...
Any donation to any nonprofit 501 corporation is deductible.
I paid $1..... a contribution that was all my state taxes.
Not enough? says who? When you stipulate the amount you are levying a tax
Expanding this type of benefit to state income taxes might raise legal questions if the charitable contribution is viewed as being made expressly for the purpose of reducing one's tax bill, according to Max Behlke, director of budget and tax at the National Conference of State Legislatures.
The basic issue is that the original example they use is a "conservation" donation, as opposed to a levied amount due being paid by a "charitable" donation for the express purpose of lowering the federal tax bill. To this layman's eyes, there is no way for such a scheme to be legal - the contribution in question is not made for a charitable purpose at all, simply to reduce the amount of federal taxes owed.
Charity hinges on serving a non-fiduciary purpose (at least marginally).
Oregon is burdened with retirees from southern Ca. They have messed up the agrarian politics of the state.
TYVM.
There are some other major glitches in the proposed approach. In order for those 6 million to redirect their taxes to the “charity,” it would have to be carried on the Kalifornia return as a tax credit (likely non-refundable so the riff raff can’t claim it too.) That huge drop in revenue (46% for the cited average impactee) would have to be shouldered by the charity.
I cannot see the pols reducing state spending via transfer of functions to the charity so the shortfall will be felt. And they would have to be extremely careful in choosing lest they lose Federal contributions that help offset current costs. i.e. if Food Stamps receive Federal $ and that is a target to now come out of the eggscelence fund, would Uncle Sam redirect the subsidy to the fund?
Also, would the state workers currently supporting the programs to be transferred want to lose their state benefits by transferring to the “charity?” Imagine the overhead the new entity will have to absorb.
The effort to properly set this up as revenue neutral would far outstrip the effort to actually reduce state spending.
And missing in all this is the fact that home equity loan interest IS NO LONGER DEDUCTIBLE. How many Kalifornians have harvested their equity gains as their property values increased? That’s gonna leave a mark.
“California would likely have a problem getting a 501c3 charitable tax exemption certificate from the IRS.”
That wouldn’t help them anyway.
The contribution wouldn’t be tax deductible because the contributor gets a benefit in exchange for the contribution.
This is from the instructions for Form 1040 Schedule A, where itemized deductions are claimed:
“If you made a gift and received a benefit in return, such as food, entertainment, or merchandise, you can generally only deduct the amount that is more than the value of the benefit.”
A dollar-for-dollar reduction in state tax, in exchange for the contribution, is CLEARLY a benefit. The whole contribution is nondeductible.
Publication 526 has more details, but the rule is clear.
https://www.irs.gov/pub/irs-pdf/i1040sca.pdf
https://www.irs.gov/pub/irs-pdf/p526.pdf
Is there such a thing as The California Excellence Fund? Is it a 501c(3) organization recognized by the IRS? Would the IRS grant tax exempt status to any such organization? I think not.
Hey Washington Post.....NOT!
All he needs to do is instruct the Treasury to issue a temporary regulation interpreting the new statute. Charitable donations which benefit the donor by giving rise to a tax credit must be reduced by the amount of the tax credit.
simple as pie.
One could not take a deduction to a church if the chuck paid your utility bill in an equal amount.
>>California does not have reasonable courts ...<<
It will be Federal Tax Court. Worst case i ends up at SCOTUS.
I am pretty sanguine about either of those venues.
“If you received a benefit from a contribution, it is not deductible. Well established tax law.........”
Don’t you currently receive a tax benefit from donations?
Maybe they can join Puerto Rico.
And then the USA makes the continental USA a “no fly zone.”
This is totally DOA.
Doesn’t the federal government and the IRS, and not the state, get to define what constitutes a federal charitable contribution?
CA can pass all the laws it wants, all the IRS needs to do is issue a simple note stating that for federal tax purpose contributions to the “California Excellence fund” constitutes tax evasion and is thus disallowed as charity.
“Charitable donations are not deductible unless you itemize, which with the higher standard deduction is expected to shrink from 30% of filers today to as low as 10% under the new law.”
It’s that 10% that pays most of the income tax in CA.
This is meant to protect all the millionaires and billionaires in silicon Valley and Hollywood not the farm workers in Fresno. CA doesn’t want them exiting the state and moving to low or no state tax states.
It’s for the rich!
Better yet: George Costanza’s “The Human Fund”.
This is so cool. Democrats passing a bill clearly designed to help the rich avoid lots of taxes. Let me explain.
Using the tax calculator at http://taxplancalculator.com/calc and assuming a couple with no kids, $1 million in income, and $10k in both mortgage interest and property taxes:
Old Law: Federal Tax = $303,169
New Law: Federal Tax = $300,499 (Hmmm, a DROP of $2,670 so what’s the issue here, anyway?)
New Law w/ CA Proposal: This requires adding the $93,772 in state and local taxes to the Other Deductions and then reading the total for federal tax.
With CA Proposal: Federal Tax = $267,283 (Yippee, another $33,000 savings!)
So what’s going on that makes this happen? Essentially, the GOP cut tax rates by enough to make up for the loss in state and local tax deductions (in this case anyway) but the geniuses in CA don’t realize that. Maybe it’s just TDS, I don’t know.
I would love to see them try to get around the mandatory argument by stipulating that you can do either one, pay the charitable fund, or pay your taxes directly. Once they put that into law, someone could probably say, well, if it’s optional, I’m going to give all of my “charitable contribution” to the Salvation Army and skip the state altogether.
That would put their undies in a wad in Sacramento.
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