How does the Treasury Regulations Impact Donations to School Tuition Organizations?

In August of 2018, the United States Department of Treasury and the Internal Revenue Service issued IR-2018-172 and proposed regulations titled “Contributions in Exchange for State or Local Tax Credits.” The final regulations, which were issued on June 11, 2019, and apply to donations made after August 27, 2018, are effective August 12, 2019. The regulations are designed to clarify the relationship between state and local tax credits and the federal tax rules for charitable contributions. Under the regulations, a taxpayer who makes payments or transfers property to an entity eligible to receive tax deductible contributions must reduce their charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive. The regulations may affect taxpayers claiming the nonrefundable income tax credit for donations to Louisiana’s school tuition organizations. While the regulations do not affect the amount of the nonrefundable income tax credit, the regulations limit the amount of the federal deduction for charitable contributions by the amount of the nonrefundable income tax credit received or expected to be received by claiming the credit on a Louisiana income tax return. For individual income taxpayers, the limitation on the federal deduction for charitable contributions may decrease the Louisiana deduction for the excess federal itemized personal deductions and increase the Louisiana deduction for federal income tax liability. For corporations and fiduciary income taxpayers, the limitation on the federal deduction for charitable contributions may increase the Louisiana deduction for federal income tax paid. Notwithstanding any other guidance contained in this bulletin, taxpayers shall adhere to limitations and other provisions contained in the regulations when calculating the nonrefundable income tax credit as authorized by LA R.S. 47:6301 for donations to school tuition organizations made on or after August 28, 2018. For donations to school tuition organizations made from January 1, 2018, to August 27, 2018, the currently do not apply. However, the regulations, including the applicability date, may be changed at a later date.