IRS Safe Harbor for Denied Federal Charitable Tax Deduction Based Upon State-Level Workarounds, June 20, 2019

June 20, 2019

Concurrently with the final regulations governing SALT cap workarounds, the IRS released safe harbor guidance providing that taxpayers are permitted to treat the portion of a payment for which a charitable contribution deduction was denied because of the regulations as a payment of state or local taxes for Section 164 purposes. If the state or local government permits taxpayers to carry forward excess credit amounts to later tax years, the taxpayer can then treat the carryforward amount as a state or local payment for the taxable year or years to which the credit is applied to offset state or local tax liability. The safe harbor rule will not be treated as a transfer of property, and the IRS intends to issue proposed regulations amending Treasury Regulation Section 1.164-3 to include this safe harbor rule.