Oh, That Uncle Sam … What a Character! IRS Targets State Tax Tactic

Well, the title of the article on the front page of the May 24, 2018 Business Section of the LA Times was “IRS targets state tax tactic.” Here is a link to the article: http://www.latimes.com/politics/la-lb-767-44213-la-fi-treasury-state-local-tax-deduction-20180523-htmlstory.html. So, what is it that is stuck in Uncle Sam’s “craw” this time? Well, seems some states, including our beloved California, did not take too kindly to the new tax laws limiting the deductibility of state and local taxes on taxpayers’ federal tax returns. So, several states have received proposals from their state legislators for ways to ameliorate (i. e., to lessen) the impact of these new tax laws. Several states are reviewing proposals that in one form or another seek to “convert” (my word) state taxes into charitable contributions that would therefore become deductible charitable contributions. Very clever! It appears these states would set up charities to receive contributions of what otherwise would have been state taxes which charities would then (I presume) direct the use of the funds for the same purposes as they would be had these amounts been paid as state taxes. I am sure it is a little more complicated than this, but you get the drift. The IRS sees these proposals as efforts “to circumvent the new statutory limitation on state and local tax deductions.” The IRS is rattling sabers of its own saying that taxpayers that participate in such programs may find that the IRS takes the position that such “charitable contributions” are not deductible as such, but (depending on various factors) are non-deductible state taxes. What a mess. As if our internal revenue laws are not complicated enough.