IRS Publishes Final Regs on Payments to Charitable Entities

IRS Publishes Final Regs on Payments to Charitable Entities

Internal Revenue Service

The IRS has published final regulations (T.D. 9907) on the treatment of payments to charitable entities in return for consideration. Effective August 11, 2020, the final regs adopt proposed regs (<a href="/lr/resolve//2bphn">REG-107431-19</a>) issued in December 2019 with clarifications in response to written comments and testimony. The final regs continue to clarify that a taxpayer’s payment or transfer to a section 170(c) entity may constitute an allowable deduction as a trade or business expense under section 162, rather than a charitable contribution under section 170. The regs also retain the examples demonstrating the application of this rule with minor clarifying changes. The final regs retain the safe harbors under section 162 to provide certainty regarding the treatment of payments made by business entities to an entity described in section 170(c). The regs also retain the safe harbor under section 164 for payments made to an entity described in section 170(c) by individuals who itemize deductions and receive or expect to receive a state or local tax credit in return. The final regs retain amendments to the regulations under section 170 to reflect past guidance and case law regarding the application of the quid pro quo principle under that provision to a donor who receives or expects to receive benefits from a third party. The regs clarify that the quid pro quo principle applies regardless of whether the party providing the quid pro quo is the donee or a third party. To reflect existing law, the regs amend specified rules regarding a donor’s payment in exchange for consideration. Under the regs, a taxpayer will be treated as receiving goods and services in consideration for a taxpayer’s payment or transfer to an entity described in section 170(c) if the taxpayer receives or expects to receive goods or services in return when making the payment or transfer. The final regs make a clarifying change and state that the fair market value of goods and services includes the value of goods and services provided by parties other than the donee. The regs also add a definition of “goods and services,” and revise some cross-references. The preamble to the final regs summarizes comments on the proposed regs, about half of which expressed support for and suggested finalization of the proposed regs. Other commentators expressed concerns, which are addressed in the preamble, regarding section 162 deductions for business payments to section 170(c) entities, quid pro quo provided by a third party, and reduced charitable giving. The amendments to reg. section 1.162-15 apply to payments or transfers made after December 16, 2019, but taxpayers may choose to apply the amendments to payments or transfers made after December 31, 2017. Reg. section 1.164-3(j) applies to payments made to section 170(c) entities after June 10, 2019, but taxpayers may choose to apply paragraph (j) to payments made after August 27, 2018. The definitions provided in reg. section 1.170A-1(h)(4) apply to amounts paid or property transferred after December 16, 2019.

The IRS has published final regulations (T.D. 9907) on the treatment of payments to charitable entities in return for consideration.

The IRS has published final regulations (T.D. 9907) on the treatment of payments to charitable entities in return for consideration. Effective August 11, 2020, the final regs adopt proposed regs (REG-107431-19) issued in December 2019 with clarifications in response to written comments and testimony. The final regs continue to clarify that a taxpayer’s payment or transfer to a section 170(c) entity may constitute an allowable deduction as a trade or business expense under section 162, rather than a charitable contribution under section 170. The regs also retain the examples demonstrating the application of this rule with minor clarifying changes. The final regs retain the safe harbors under section 162 to provide certainty regarding the treatment of payments made by business entities to an entity described in section 170(c). The regs also retain the safe harbor under section 164 for payments made to an entity described in section 170(c) by individuals who itemize deductions and receive or expect to receive a state or local tax credit in return. The final regs retain amendments to the regulations under section 170 to reflect past guidance and case law regarding the application of the quid pro quo principle under that provision to a donor who receives or expects to receive benefits from a third party. The regs clarify that the quid pro quo principle applies regardless of whether the party providing the quid pro quo is the donee or a third party. To reflect existing law, the regs amend specified rules regarding a donor’s payment in exchange for consideration. Under the regs, a taxpayer will be treated as receiving goods and services in consideration for a taxpayer’s payment or transfer to an entity described in section 170(c) if the taxpayer receives or expects to receive goods or services in return when making the payment or transfer. The final regs make a clarifying change and state that the fair market value of goods and services includes the value of goods and services provided by parties other than the donee. The regs also add a definition of “goods and services,” and revise some cross-references. The preamble to the final regs summarizes comments on the proposed regs, about half of which expressed support for and suggested finalization of the proposed regs. Other commentators expressed concerns, which are addressed in the preamble, regarding section 162 deductions for business payments to section 170(c) entities, quid pro quo provided by a third party, and reduced charitable giving. The amendments to reg. section 1.162-15 apply to payments or transfers made after December 16, 2019, but taxpayers may choose to apply the amendments to payments or transfers made after December 31, 2017. Reg. section 1.164-3(j) applies to payments made to section 170(c) entities after June 10, 2019, but taxpayers may choose to apply paragraph (j) to payments made after August 27, 2018. The definitions provided in reg. section 1.170A-1(h)(4) apply to amounts paid or property transferred after December 16, 2019.

Sec. 162 Trade or business expenses

Sec. 164 Taxes

Sec. 170 Charitable, etc., contributions and gifts

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IRS Publishes Final Regs on Payments to Charitable Entities