The U.S. Treasury published a Notice of Proposed Rulemaking that will change regulations related to charitable contributions associated with tax credits, such as the Montana Endowment Tax Credit. As the Treasury’s Notice describes the regulations, “if a taxpayer makes a payment or transfers property to [a 501(c)3 organization] and receives a state or local tax credit in return for such payment, the tax credit constitutes a return benefit” and reduces the charitable contribution deduction. In other words, the federal deduction would be reduced by the value of the tax credit associated with the donation. If you donate $1000 and receive a 40% ($400) tax credit, your federal deduction would no longer be $1000, but would be $600.
In Montana, many contributions associated with the Montana Endowment Tax Credit are from donors who will not itemize, so this won’t impact them. It will however impact our larger donors. MNA will be submitting public comment and we encourage you to do the same. Comments are being accepted electronically through October 11, as well as requests to speak at a hearing on November 5. If you would share your thoughts with us, we’d appreciate it. Your comments will help shape our response. Here is an explanation of why the IRS is pursuing this measure.