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URGENT – ACTION REQUIRED TODAY for PA EITC & OSTC participants

URGENT – ACTION REQUIRED TODAY for PA EITC & OSTC participants

IRS proposed regulations will likely reduce the benefit of contributions to these programs.
In June we previously blogged regarding the state of state and local tax deductions and the IRS announcement that state & local tax deduction workarounds created in response to the Tax Cuts and Jobs Act (TCJA) would come under scrutiny.  Since then, on August 23rd the IRS issued proposed regulations clarifying their approach to these workarounds. These proposed regulations are not taxpayer friendly and appear to reduce the benefit of contributions to established PA tax credit incentives under the Educational Improvement Tax Credit program and the Opportunity Scholarship Tax Credit program. However, contributions made today, August 27, 2018, will qualify under the old rules.

Proposed regulations reduce the charitable contribution by the amount of the state tax credit benefit
The proposed regulations effectively reduce the charitable contribution associated with these programs to the difference between the amount contributed and the tax credit(s) received.  For example, if a $10,000 contribution yields a $9,000 state credit, the Federal charitable contribution under the proposed regulations would be $1,000.  Prior to the regulations, the Federal charitable contribution would have been $10,000.  There is a de minimis exception if the tax credit does not exceed 15 percent of the payment, however, that would not apply under the PA programs.

IMMEDIATE ACTION MAY BE REQUIRED
The proposed regulations apply to contributions made after Monday, August 27, 2018 leaving a small window to act.  If you were considering a contribution to one of the state specific credit programs but have not pulled the trigger, you have until end of day Monday, August 27, 2018 to make a contribution that qualifies under the old rules described above.

Contact us if you have questions
If you have questions regarding this Tax Alert or the PA Educational Improvement Tax Credit programs please contact Barry Groebel at bdgroebel@herbein.com or 484-525-4648.

We will continue to monitor these proposed regulations and this state and local tax credit issue and will provide future updates when appropriate.