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Payments Under State or Local Tax Credit Programs May be Deductible as Business Expenses
The IRS recently announced the publication of a new frequently asked question (“FAQ”) regarding a specific State and Local Income Tax (“SALT”) issue that has arisen since the enactment of the Tax Cuts and Jobs Act (“TJCA”). This FAQ clarifies that recently issued proposed regulations (Prop. Reg. 112176-18) concerning the availability of charitable contribution deductions for contributions to SALT credit programs do not affect business taxpayers’ ability to claim business expense deductions for certain payments to charities or government entities for which taxpayers receive SALT credits.
Prop. Reg. § 112176-18, published August 23, 2018, generally provides that if a taxpayer makes a payment to an IRC § 170(c) entity, and receives a state or local tax credit in return, the tax credit constitutes a return benefit to the taxpayer and reduces the amount of the charitable contribution deduction. However, prior to enactment of the TCJA, a business taxpayer that made a business-related payment to a charity for which the taxpayer would receive a state or local tax credit would have the opportunity to determine whether that payment was deductible under a provision other than IRC § 170.
Clarification for Business Taxpayers
The new FAQ clarifies that Prop. Reg. § 112176-18 applies to the deductibility of SALT credit payments as charitable contributions under IRC § 170(c), and does not affect the availability of a business expense deduction under IRC § 162. Specifically, according to the FAQ, a business taxpayer that makes a payment to a charitable or government entity generally may deduct the entire payment as an ordinary and necessary business expense under IRC § 162 as long as the payment is made with a business purpose. In addition, the FAQ states that the rules allowing an ordinary and necessary business expense deduction under IRC § 162 apply to a taxpayer engaged in carrying on a trade or business regardless of the form of the business.
Louisiana Department of Revenue Amends Regulations on Corporate Franchise Tax
Effective September 20, 2018, the Louisiana Department of Revenue amended LAC §§ 61:I.301, 302, and 311 regarding the corporate franchise tax. The amendments implement the provisions of Act 12 of the 2016 First Extraordinary Session of the Louisiana Legislature, which expanded the tax applicability to include partnerships, joint ventures, and limited liability companies electing to be treated as C-corporations for federal income tax purposes. Specifically, the rules include measures: 1) imposing the franchise tax; 2) describing how to determine taxable capital; and 3) outlining the applicability to newly taxable corporations.
Please see the full amendments here.