Share with your friends

State and local tax credits and charitable contributions, proposed regulations

State and local tax credits, charitable contributions

The U.S. Treasury Department and the IRS on August 23, 2018, released for publication in the Federal Register proposed regulations (REG-112176-18) providing rules on the availability of charitable contribution deductions when the taxpayer receives or expects to receive in return a state or local tax credit.


Related content

Read the proposed regulations [PDF 261 KB]


Prior to these proposed regulations, Treasury and the IRS had never addressed whether a taxpayer’s expectation or receipt of a state or local tax credit might reduce the taxpayer charitable contribution deduction in published guidance. However, in a 2010 Chief Counsel Advice memoranda (CCA), the IRS Office of Chief Counsel advised that taxpayers may take a deduction under section 170 for the full amount of a contribution made in return for a state tax credit, without subtracting the value of the credit received in return. However, the CCA also noted that certain circumstances might yield a different result where a charitable contribution, in form, was a satisfaction of a tax liability, in substance.

Tax reform introduced new section 164(b)(6), which imposes a $10,000 limit on the deductibility of state and local taxes. In response and relying, in part, on the rationale of the CCA, certain states created tax credit programs to provide taxpayers with federal charitable contribution deductions while simultaneously providing a tax credit against state income taxes.

The proposed regulations, if finalized, would render such efforts on the part of state legislatures ineffective.

Proposed regulations

The proposed regulations, which would apply to charitable contributions made after August 27, 2018, generally require a taxpayer to reduce its charitable contribution deduction by the amount of a state or local tax credit received or expected to be received as a result of the contribution. This rule would apply to individual and corporate taxpayers under section 170 and to trusts and estates under section 642(c).

However, the proposed regulations contain two exceptions to this general rule:

  • De minimis: If the state tax credit received or expected to be received by the taxpayer does not exceed 15% of the payment or of the fair market value, the taxpayer does not reduce the value of its deduction. 
  • Deductions: If the taxpayer receives or expects to receive a state or local tax deduction in exchange for the contribution, the taxpayer reduces the value of the federal income tax deduction only if the state or local tax deduction exceeds the fair market value of the contribution. Treasury and the IRS requested comments on how to determine the amount of the reduction in such cases.


For more information, contact a tax professional with KPMG’s Washington National Tax practice:

Preston Quesenberry | +1 202 533 3985 |

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal