The Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget (OMB) announced that they are in the process of reviewing final regulations for the state and local tax workarounds and a separate notice related to §§170(c) and 164.
OIRA has been reviewing all IRS regulations, both proposed and final, since last year. However, this is the first time that OIRA has announced a review of a notice. This is also interesting since the IRS also recently issued a policy statement indicating a reduced use of subregulatory guidance, which has some questioning what this particular review might mean, if anything, about the new IRS policy.
These regulations would be the final version of those released in proposed form in August of 2018 that dealt with state tax credits given for contributions (REG-112176-18; 83 F.R. 43563-43571). Those regulations took the position that if there is a tax credit offered in excess of 15% of the donation, the federal income tax deduction has to be reduced by the amount of this quid pro quo benefit being granted. The proposed regulations had asked for specific comments in three areas:
How to compute a reduction in the charitable contribution deduction on the federal return when a taxpayer is granted a state income tax deduction in excess of the fair value of what is contributed;
The proposed de minmis rule that ignores state tax credit benefits when the amount of the credit is no more than 15% of the contribution; and
A possible rule that would allow taxpayers to forego a state tax credit in exchange for retaining a full federal tax deduction.
OIRA has taken varying amounts of time to complete their review of tax regulations over the past year. Since these regulations and the notice do not appear to be “fast tracked” for the special 10 day review, it is likely they will not be issued before the April 15 due date. Whether changes in the final regulations could impact (or electively impact) 2018 returns will likely be an unknown as we approach the date to extend such returns.