I don’t get your point about the VCF - perhaps I’m missing something.
Under current tax law, charitable contributions are tax deductible, but state taxes are equally tax deductible. So it makes no difference whether the payments to VCF are treated as charitable contributions or whether they’re treated as state income taxes, because either way they’re identically deductible. The distinction only becomes relevant under the new law, where state and local taxes are capped at $10K and charitable contributions are not, so there’s a push to reclassify one as the other. But I don’t think you can establish from the fact that VCF contributions are currently deductible that such a scheme works, since the entire issue seems to be moot under current law.
You’ll have to clarify why you think it’s moot. The example of the VCF shows that amounts designated to the states general fund can be considered deductible contributions at the federal level. That’s the key - how an individual state treats taxable events is not at issue - it can provide for a credit, a deduction, neither, or something else.
Suppose the IRS takes the stance that this type of thing is a fictitious charitable donation. Then what it is is a tax, being structured to mimic a charitable donation. Under the current law, even if it’s a tax, it’s still deductible anyway. So there’s nothing for the IRS to do about it.
So the fact that the IRS is allowing all thse VCF deductions is not an indication that the IRS accepts these as charitable donations. The IRS might consider them effective taxes, but not crack down on them because there’s nothing to crack down on - even under the IRS interpretation they’re still deductible.
Ok, I see the point you’re making but I don’t think it’s a very strong one. It rests on the idea that if a deduction is mischaracterized between tax and charitable contribution that the IRS wouldn’t care under the old rules since both have the same treatment. I think this is weak because one, the IRS does care about proper categorization, generally, and without evidence to the contrary the default position must be that the IRS cares about the characterization of the items reported that they conform to the instructions for each type of item. Two, under the old law charitable contributions and state/local taxes aren’t treated the same way - charitable contributions have their own limits based on AGI that were not consistent with the treatment of SALT deductions.
I’m skeptical of this claim, especially for a relatively uncommon item.
It sounds like you’re saying that treating it as a charitable contribution produces lower deductions and more federal tax revenue than treating it as a state tax. Correcting for this too is probably pretty low on the list of IRS priorities (especially since intelligent accountants would probably make sure it rarely becomes a factor to begin with).
Wait, Houston has bad roads? I’ll take your word on that, but what on Earth is their excuse? With no salt and almost no freeze-thaw cycles, their roads should be lasting a hundred years even without maintenance.
The VCF example is not to be taken as conclusive evidence that the de Leon scheme would be acceptable. It’s to show that it is plausible given the existing fact pattern.
Sure, the IRS could have previously acted based on the motivations you’ve described. Do you have any evidence that this is true?
It just occurred to me that the argument of “the IRS will see through this and audit all Californians!” is missing an important step. The IRS doesn’t get to make up tax laws at its whim. There are statutes that define what a charitable organization is. If the Excellence Fund meets those criteria, then the IRS isn’t going to have much of a case of/when this ends up in court.
After all, conservatives freaked out when there were accusation that Tea Party groups may have been treated unfairly by the IRS. If a Tea Party organization was properly constituted as a tax-exempt organization, the IRS shouldn’t make up rules that say, “Yeah, but we don’t like them, so we will ignore the law.” The same standard of review should be given to the Excellence Fund.
That being said, I don’t know whether the Excellence Fund would qualify under the proper statutes as being a nonprofit charity. But if they are, then the law should be followed… even if this is a pretty crappy end run by California.
But for my part, I’m not saying that there’s no way the IRS could justify letting that scheme work. I’m just saying that if the IRS is motivated to rule against it, that the VCF precedent would not stand in their way at all, since there’s a clear distinction to be made. And I imagine the IRS will be motivated to rule against it, since it’s a patently obvious attempt to make an end-run around a law, and regulators in general tend to frown on such things, and try to make regulations which uphold the spirit of the law.
This is essentially the crux of the argument I’m making. It’s furthered in that to become a qualified organization, the CA Excellence fund would have to file and apply for that status with the IRS. If the IRS were to grant the 501(c)(X) status, then in my mind that’s all she wrote. If the IRS denies the request, then donations to the fund wouldn’t be deductible at the federal level anyways.
California rates #42 in road quality, with 68% of roads in need of repair and 28% of bridges structurally deficient. It’s a big state, so this isn’t uniform, but even when I cross interstate borders the difference is stark and immediate. And that’s comparing to a state without income tax and a state without sales tax.
I don’t know about Houston but I don’t think California is the worst by any means. Pennsylvania residents are contractually obligated to mention crappy roads within 20 minutes of meeting a stranger. You just don’t see much bang for the buck.
I can’t speak to their condition now, as I was there on a job for only a couple of months 25 years ago. But I think it has to do with the city being almost completely flat and vulnerable to flooding. During that time, there was a big rainstorm (nowhere near the force of Harvey or Irma) that flooded the main north-south drag and had traffic stuck for hours.
However, at that time, potholes abounded nearly everywhere but in the heart of downtown and on the Loop (the major freeway then).
I don’t see that. The IRS could rule that any charitable contribution made in exchange for a receipt of that same amount from another source is not a genuine contribution, no matter how valid the charity.
IOW, the issue is not the nature of the charity itself, it’s about the nature of the contribution.
In the above, did you mean to write “receipt”? No one’s receiving anything - they would be getting tax credit though.
On what grounds would the IRS base such a ruling? The IRS can only work with the statues as they exist. And given there are analogous tax credit/donation setups in many other states, any such change in position would need to overcome the hurdle of the status quo.
So, provide some law to back up that opinion. You’re asserting that the IRS can just wake up one day and say, “Ya know, I just don’t feel like this particular 501(c)(whatever) is legit. Sure, the paperwork is in order, but it would be better if we treated them how we felt. Line up the documents, lawyers!” I don’t buy it.
Do you think the boogeyman stories about Lois Lerner is an example of how the IRS ought to be run?
No. Though I do oppose the tax bill on this and many other grounds, what was done was a poor policy decision, not an end run.
Let me ask you a question: do you want major government functions to be taken over by non-profit organizations? In other words, do you think Libertopia is a good idea?
Hmm…Democrats not even consulted on the content of the bill, the vast majority of states that are impacted negatively being blue, the rush to vote before proper analyses can be completed? Sure as hell sounds like an end run to me.
NPO’s that are effectively run by the government? I don’t see much of a distinction.
If the California Excellence fund is run by the government, then you are right - there is no distinction, and this is an attempt to collect state taxes, not charitable donations.