Failed Charity: Taking State Tax Benefits into Account for Purposes of the Charitable Deduction

28 Pages Posted: 7 May 2018 Last revised: 20 Jul 2018

Roger Colinvaux

Catholic University of America (CUA) - Columbus School of Law

Date Written: April 30, 2018


The Tax Cuts and Jobs Act (TCJA) substantially limited the ability of individuals to deduct state and local taxes (SALT) on their federal income tax returns. Some states are advancing schemes to allow taxpayers a state tax credit for contributions to a charity controlled by the state. The issue is whether state tax benefits are deductible as a charitable contribution for purposes of the federal income tax. Under a general rule of prior law – the full deduction rule – state tax benefits were ignored for purposes of the charitable deduction. If the full deduction rule is applied to the state workaround schemes, then the SALT limitation can successfully be avoided. This article explains that after the TCJA, the legal basis for the full deduction rule is undermined. The IRS articulated the full deduction rule given the longstanding baseline of deductible state tax payments. Thus, to allow a charitable deduction for state tax benefits under prior law was just to allow a deduction for an otherwise deductible expense. After the TCJA, this symmetry with the SALT deduction is gone and the full deduction rule is of questionable applicability. If the Treasury Department allows a deduction for state tax benefits, taxpayers would be able to deduct amounts not spent and could even profit from charitable transfers. The charitable deduction is intended to encourage giving, not tax avoidance. Thus, in writing regulations, the Treasury Department should provide that a contribution is reduced by the value of state tax benefits, whether the benefits take the form of a credit or a deduction. The reasoning applies equally to state workaround credits (and deductions) as to existing state tax benefits that previously have been deducted as charity. Further, denying a charitable deduction for previously deductible expenses is in fact consistent with the status quo prior to the TCJA, in that, given the loss of a SALT deduction, the charitable deduction was an offset that did not provide a meaningful benefit to taxpayers.

Keywords: salt, charitable deduction, full deduction rule, state and local tax deduction, contribution, substantial return benefit, donative intent, workaround credits

JEL Classification: H1, H20, H24, H26, H27, H50, H70, H71, K34

Suggested Citation

Colinvaux, Roger, Failed Charity: Taking State Tax Benefits into Account for Purposes of the Charitable Deduction (April 30, 2018). Buffalo Law Review, Forthcoming. Available at SSRN:

Roger Colinvaux (Contact Author)

Catholic University of America (CUA) - Columbus School of Law ( email )

3600 John McCormack Rd., NE
Washington, DC 20064
United States

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