Transcript Is Available of IRS State, Local Credit Regs Hearing

"CONTRIBUTIONS IN EXCHANGE FOR STATE OR LOCAL TAX CREDITS"

UNITED STATES DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PUBLIC HEARING ON PROPOSED REGULATIONS

[REG 112176-18]

Washington, D.C.

Monday, November 5, 2018

PARTICIPANTS:

For IRS:

For U.S. Department of Treasury:

Speakers:

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PROCEEDINGS

(10: 00 a.m.)

MR. DINWIDDLE: Good morning, everyone.

I think we'll get started here. We'll give everybody a minute to find a seat.co

So, I'm Scott Dinwiddle, I'm the Associate Chief Counsel in charge of Income Tax and Accounting, which is the Division within Chief Counsel that has the primary responsibility for drafting these 170 Regulations. Of course we also work closely with other divisions.

But as a result I get the honor of welcoming you all here as well as being one of the members that sits up on the panel.

So thank you all for coming this morning to this hearing, particularly given the amount of rain we seem to be having. It's a very wet morning, so I appreciate everybody making it through the rain here.

This is, of course, the Public Hearing on the Proposed Regulations, Contributions in Exchange for State or Local Tax Credits which, perhaps not surprisingly, have drawn quite a lot of attention.

And just to set the stage, we received 7,700 comments which we're appreciative of, and have been diligently reviewing, and we appreciate all of you have made an effort to come out today, and to provide us additional comments in the form of oral testimony. So, thank you.

The way this is going to work, I think many of you may have been at a hearing before, many of you may not have, but everybody who requested an opportunity to speak and who is on the agenda will be provided 10 minutes. You can come up here to this lectern where I'm standing to give your comments.

Just procedurally, there's a timer that you'll be able to see, which is this box right here. You cannot see it from there, but when you're standing here it's actually got the time; it also has some little colored buttons that come up, when you get towards the end; I think around two minutes or so, the yellow light comes on; and if you go over 10 minutes the red light comes on, and we'll bring out the hook.

But no, the hook is just a joke; (laughter) but if you could please try to keep your comments to 10 minutes for each of the designated 24 speakers, that would be greatly appreciated.

Okay. Let me briefly introduce the panel who is up here who are all individuals who are involved in the Regulation Project.

To my immediate left is Robin Tuczak who is a Senior Technician Reviewer with IT&A who is working on the project. To her left is Mon Lam, a Docket Attorney in IT&A working on the project — everyone is working on the project so I don't need to say that. Merrill Feldstein who is a Senior Counsel, a Reviewer; Karen Gross, who is the Special Counsel assigned to the project, has a great deal of oversight and tried to pull all of this together, and really a very big task on our hands.

And then from Treasury, we have Elinor Ramey, who is here from Tax Legislative Counsel. And then to her left is Richard Gano, who is also a Docket Attorney who has been very helpful and reviewing all of the comments and doing much of the other drafting.

So, a couple of other procedural things: we have a transcription that's being made, I think by —

SPEAKER: Tax Analysts.

MR. DINWIDDLE: — Tax Analysts, and they have asked: apparently cell phones can sometimes interfere with the recording and the transcription process, so if you have a cell phone, as I'm going to do now, if you could, please power it off. If you need to use your cell phone please feel free to just step outside, but we're just doing that to try not to interfere, not to try to cut off anybody's connection.

They say if you need to step out into the hall or something, please do that, we just want to try to make sure that the transcription doesn't have any problems. So, I'm going to do that myself. Hopefully, there we go.

And with that, I think I'm going to kick it off. So, our first speaker is Lawrence Zelenak, and I hope I have pronounced that at least close to correctly. And Mr. Zelenak, if you would come up here and share with us your thoughts, we would appreciate it. Thank you.

MR. ZELENAK: Good morning. I'm Larry Zelenak, a Professor at Duke Law School; I'm not representing anyone other than myself in connection with this.

And I'm going try to bring these comments a couple minutes under the time limit, and I would welcome any questions. So, thank you for the opportunity to comment on the proposed regulations; I commend the Treasury Department and the IRS for the Proposed Regs, which generally produce appropriate results with respect to both contributions to the states themselves, and contributions to private charities.

I want to offer two suggestions, one related to contributions to the states and one relating to contribution to private charities.

So first, contributions to the states, if a so-called contribution to the state itself produces a 100 percent state tax credit, then on the long-established principles of substance over form in the tax laws, all that has happened is that the state and the taxpayer have collaborated in attaching the charitable contribution label to what is obviously a payment of state income tax in substance.

As I explained in detail in an article published in Tax Notes last July, there is no way such schemes should succeed in avoiding the $10,000 SALT ceiling even in the absence of any new regulations.

The same would be true if the credit were 85 percent or 80 percent, rather than 100 percent, or if the supposed contribution were to a special purpose state fund, or state-owned entity rather than to the state general fund.

I'm not suggesting that the IRS should rely on only general principles of substance over form in challenging SALT ceiling workarounds, supplementing those general principles with regulations specifically addressing the effects of state tax credits on the charitable deduction is an excellent idea.

This is certainly an important enough issue of tax administration to justify what we tax lawyers like to call a "belt and suspenders approach."

I strongly urge however that the preamble to the final regulations clearly and forcefully state that the SALT ceiling workarounds would be ineffective even without regard to the new regulations.

I see three advantages in so stating. The first advantage: in all likelihood some taxpayers carried out their workaround strategies prior to the anticipated effective date of the new regulations, as New York Governor Cuomo urged New York taxpayers to do; the IRS will have to rely solely on general principles of substance over form, if it is to deny deductions — inappropriate deductions in those cases.

Second, in the unlikely, but not quite inconceivable event that the regulations are judicially invalidated, the government would again need to rely solely on substance over form arguments.

Third, quite apart from this particular issue, the substance over form doctrine is crucial to sound tax administration the government would be sending an unfortunate message; by disregarding it or not mentioning it in a situation where it should apply. So much for state tax credits for donations to — excuse me — for state tax credits for donations to the states themselves.

Moving on to state tax credits for contributions to private charities: this situation is significantly different from the new SALT ceiling workarounds: here a taxpayer donates to a private charity and receives a benefit of state tax credit, not from the charity but from a third party, the state.

The current Section 170 quid pro quo regulations do not require a taxpayer to reduce her charitable deduction on account of benefits she receives from a third party rather than from the donee.

In addition, there are no cases or rulings requiring such a reduction. In my view then, current law permits a taxpayer who makes the contribution to a private charity, and receives a state tax credit as a result to treat the entire amount contributed to the private charity, as a charitable reduction.

The structure of the proposed regulations suggests Treasury and the IRS share this view of the current regulations because the proposed regulations treat state credits resulting from a contribution to a private charity as an exception to the general rule that third-party benefits don't matter under the quid pro quo regulations.

I offer three thoughts in this area. The first thought, I think the IRS and Treasury are absolutely right as a matter of policy to include donations to the private charities in the new regulations.

Although private charity state tax credit programs predate the $10,000 SALT ceiling, and thus obviously were not created as SALT ceiling workarounds, in the absence of new regulations, they will now serve as SALT ceiling workarounds.

Moreover, there's a fuzzy borderline between state-owned entities and private charities, and regulations applying in the case of donations to one but not the other would create difficult line-drawing problems and would encourage the states to outsource various state functions to private charities in order to avoid regulations that applied only in the case of contributions to the states themselves.

Finally, limiting of taxpayers' charitable deduction to the excess of the amount donated to a private charity over the amount of state credit received is consistent with common-sense notions of what constitutes a genuine charitable donation.

Second thought, despite the fact that extending section 170 quid pro quo principles to third-party benefits would be a change in the law, I believe that regulations to that effect would be valid under the standards of Chevron and Mayo Foundation.

Section 170 is ambiguous on this point, and the choice between reasonable interpretations of an ambiguous statute is for the Agency.

And contrary to what some, in particular Professor Andy Grewal has suggested in a written submission, "The Supreme Court in American Bar Endowment does to foreclose this regulatory option, because third-party benefits were not at issue in that case."

And in fact, dictum in the American Bar Endowment opinion is rather favorable to the application of quid pro quo rules to third-party benefits.

The third and final thought: if you're going to extend the Section 170 quid pro quo rules to third-party benefits as I decidedly think you should, I strongly urge you not to do so in the way the current proposed regulations do as a special carve out applicable only to state tax credits.

Treating stating tax credits as an exception to a general rule that third-party benefits don't count, creates two problems. It invites an obvious challenge to the validity of the regulations on the grounds that nothing in the state suggests such carve out; and second, it raises the possibility that states and taxpayers might attempt to avoid the new regulations by styling the benefits from states to taxpayers in return for donations to private charities as something other than state tax credits.

It would be much better, I think, to have a new general rule that all third-party benefits reduce the amount of a charitable deduction subject only to a de minimis exception.

Thank you. And I think I have saved a little time, if you have any questions.

MR. DINWIDDLE: Thank you. Are there any questions?

MR. ZELANAK: Thank you.

MR. DINWIDDLE: Okay. Thank you very much. All right! Our next speaker is Andrew Bowman from the Land Trust Alliance. Mr. Bowman?

MR. BOWMAN: Good morning.

MR. DINWIDDLE: Good morning.

MR. BOWMAN: My name is Andrew Bowman. I'm the President of the Land Trust Alliance. The Land Trust Alliance is a non-profit corporation, a national land conservation organization based here in Washington, D.C.

We work to save the places that people need and love by strengthening land conservation across America. We're the voice of private land conservation, unifying American ideals premised on personal initiative, landowner empowerment, and individual private property rights.

On behalf of our 1,000-member Land Trust, and the nearly 5 million Land Trust supporters that we represent, I do appreciate this opportunity to comment on the proposed rule and how it will directly affect the deductibility of donations of land, and of qualified conservation interest in land received by our member Land Trust and by state and local governments across the country.

Together, national, state, and local Land Trusts hold more than 42,000 conservation easements throughout the United States covering approximately 17 million acres of land. In addition they own over 8 million acres, and collectively they have conserved over 56 million acres as of the end of 2015.

These lands provide myriad benefits to the people of America, across the United States, and will continue to do so for generations to come.

In a world where many land owners are land rich and cash poor, Federal and State tax incentives for land conservation are important tools that can often mean the different between lands being conserved or being converted to another use.

If the proposed rule clearly reduces the federal tax incentives for donations of conservation easements, made a permanent part of the Tax Code by Congress in 2015, in full knowledge of the various state and local incentives for conservation.

The proposed rule, initiated by a desire to prevent state governments from allowing their citizens to avoid the effects of the Internal Revenue Code 164(b) is too sweeping in its application, because conservation donations and other true charitable donations are in no way tax avoidance.

Stated another way, they're not donations in lieu of a state tax bill that otherwise must be paid. They're entirely voluntary donations.

Moreover, these conservation deductions are for real property interests, and not cash, a significant difference from the Section 164(b) avoidance that the Service seeks to address.

Accordingly, the unnecessary breadth of the proposed rule, as currently drafted, will cause fewer conservation donations — a result contrary to intent of Congress, which expanded the deductibility of Section 170(h) donations in 2015 and declined to limit them in any way in its 2017 tax reform legislation.

The Land Trust Alliance is proud to have worked with Congress to make permanent the Federal tax incentive for donations of conservation easements in 2015.

Good conservation happens directly as a result of this Federal support for conservation, which has been, by and large, an incredibly successful policy. We're concerned that the proposed rule will not only reduce the Federal tax incentive for donations of conservation easements, but also undermine various conservation centers offered by state governments and the Commonwealth of Puerto Rico, by withdrawing the Federal benefit in the amount each state has provided.

In fact, the conservation incentives offered by state governments were designed to enhance the Federal deduction, and bolster the Federal Government's policy in support of conservation. Without the ability to utilize the state tax credit in combination with the federal tax deduction, financial pressures may force land owners to sell land with important conservation values in order to raise funds.

As such, the outcome of limited incentives for land owners to permanently dedicate their land as open space, or working farm, or ranch, will likely be the loss of farm and ranch lands, wildlife refuges, forests, and other remarkable places that otherwise might be conserved.

Unfortunately, just by releasing the proposed rule, the Service has created uncertainty which is already having a chilling effect on conservation.

I want to share one example today. Colorado's Eagle County is experiencing enormous development pressure threatening the natural habitat agricultural heritage and scenic beauty that characterizes the region.

The Eagle Valley Land Trust works with local land owners to conserve land, to continue their rural traditions of family land ownership and working lands.

As such the Land Trust is currently working with a ranching family which owns a property along Gypsum Creek Road that they have managed and grazed for four generations. The property also includes acres of intact habitat including critical cabin areas as well as land for deer, wild turkey, bear, and mountain lion.

The family was planning to complete the donation of a conservation easement to the Land Trust by the end of this year to permanently conserve their land.

However, with the uncertainty created by the proposed rule these conservation-minded land owners have reluctantly indicated that they cannot finalize the donation at this time.

Without the assurance that they can utilize the incentive and the state tax credit, a charitable donation does not make sense at this time, and the family may be forced instead to sell the property to raise funds needed for other priorities. This result is contrary to congressional intent. It's unnecessary to limit tax avoidance, and it's a loss for the family, for Eagle County, and for America. This family in Colorado is not alone. We are hearing of similar situations from across the country. Many landowners such as the family I have just described, who are land rich and cash poor, are not in a position to protect their land without the combination of federal and state tax incentives.

This is not a story of the rich getting richer or people avoiding payment of taxes due to the federal government. This is about providing incentives to allow cash-strapped Americans across our nation to do the right thing: protect our lands, our wildlife, our waters, and our ways of life. As the Eagle County example makes clear, the timing for the proposed rule or of the proposed rule is causing harm as many easement donations take years to negotiate and are often completed toward the end of the calendar year. The uncertainty created by the proposed rule brings into question whether conservation-minded land owners can fulfill their dreams for their properties and for future generations.

With these thoughts in mind, I urge the service to withdraw the proposed rule and at a minimum the service should exempt truly charitable donations as exemplified by conservation gifts.

Again, I thank you for the opportunity to share the concerns of the land conservation community about the proposed rule. I am happy to answer questions, but I also acknowledge that there are other conservationists scheduled to testify today who may be able to provide additional information about how the proposed rule will impede conservation. Thank you.

MR. DINWIDDLE: Thank you very much for your comments. No questions. Thank you. All right. Next from the School Superintendents Association, Susan Pudelski.

MS. PUDELSKI: Good morning. My name is Susan Pudelski, and I am the advocacy director for AASA, the School Superintendents Association. And I stand here before you representing over 13,000 school leaders from across America. I am pleased to share a few comments regarding the proposed regulation on contributions eligible for state and local tax credits.

First, I want to offer my thanks to the IRS and Treasury for proposing a fair and common sense approach to tax credit programs across the country. We appreciate that the IRS has chosen to treat all tax credit programs that enable an individual to exploit the charitable deduction the same way regardless of whether these are new programs or pre-existing ones, and regardless of whether the credits benefit private entities or public ones.

Specifically, we commend the IRS for ensuring that the regulation covers tax credit programs in 12 states designed to provide educational scholarships for students attending private K-12 schools. These programs have long been used to flout federal tax law by allowing taxpayers to claim charitable deductions for behavior that is nothing of the sort.

We also believe the regulation honors the mission of the IRS which is to "apply the tax law with integrity and fairness to all." And any action that would enable the continuation of a tax shelter for educational scholarship programs would be unfair to taxpayers in the states that have chosen to structure their educational scholarship programs fairly, as well as the taxpayers across the nation who believe a federal deduction intended to reward charitable giving should not be exploited by taxpayers to turn a profit for themselves.

Based on research my organization conducted with the Institute on Taxation and Economic Policy that was widely reported on last year, it's clear that as early as 2013 scholarship granting organizations, private schools, tax attorneys, accountants, and financial advisors have been advertising the profit-generating opportunities for taxpayers who donate to certain educational tax credit scholarship programs.

For example, in 2013 a tax lawyer in Alabama noted on her firm's website that for taxpayers subject to AMT, "donating to the state tax credit program will actually put money in your pocket." In 2015, a wealth management firm from Virginia noted that a taxpayer can enjoy a savings that is "more than their original donation," before going on to explain that "there's very little logic to the tax code. Even if you don't agree with the law, you should take advantage of the tax credit from the educational scholarship program."

In 2017, Pay it Forward Scholarships, which describes itself as the largest, easiest, and fastest scholarship organization in Georgia made clear to donors that stacking state credits and federal deductions on the same donations means that, "you will end up with more money than when you started." Also in 2017, Pieceful Solutions in Arizona explained to potential donors that you can "make money by donating."

These types of advertisements grew in prominence following last year's federal tax overhaul as taxpayers sought ways to circumvent the $10,000 self-cap deduction, excuse me, self-deduction cap.

For example, earlier this year an accounting firm in Georgia stated that donors can "retain an important deduction and reap a monetary benefit" by contributing to the scholarship tax credit program. Also this year an accounting firm an Alabama steers clients towards a "time sensitive tax planning opportunity" and walks through a detailed example in which a taxpayer donating $20,000 would later be repaid with 27,400 in state and federal tax cuts. The proposed regulation would end this absurdity.

As to the claim that these educational scholarship programs are merely providing an accidental benefit to taxpayers, we ask that you consider the following. First, Florida's educational scholarship program, which is the second oldest and the largest in the nation, specifically prohibits taxpayers from receiving state and federal tax cuts that exceed their donations to the program. As early as 2001, Florida's legislature was aware of the opportunity for taxpayers to double dip and receive a generous dollar for dollar tax credit as well as a federal tax deduction.

Unlike the 12 states with education scholarship programs that allow taxpayers to profit in the absence of this regulation, Florida responsibly designed its program to ensure it would not serve as a tax shelter to donors. And Florida's program has grown every year and some years as much by 20 percent. So given the continued and outsize growth of Florida's program, even without the presence of a tax shelter opportunity, assertions by some school choice proponents that this proposed regulation will limit the growth of these programs, and this will "reduce the number of scholarships" or "jeopardize the future of thousands of children from low income families," they're just false and exaggerated claims that should be soundly rejected.

Finally, this regulation is clearly necessary because states are either unwilling or unable to police themselves despite widespread knowledge that a tax shelter is embedded in their educational scholarship programs which we've detailed in our comments. The lack of action on the parts of states to reign in this tax shelter associated with their educational scholarship programs demonstrates that the IRS must step in to end the federal tax avoidance facilitated by these programs.

We urge you not to grant any additional flexibility to states and programs that have knowingly enabled some taxpayers to claim inappropriate charitable deductions on their gifts to private scholarship programs. These educational scholarship programs have long been exploited to dodge the SALT deduction limits under the AMT. And that exploitation will continue to worsen under the new $10,000 cap if this regulation isn't finalized. There is no need to provide these states or programs with any extra time or flexibility to do what they already should have been doing, namely, preventing profiteering under these so-called charitable donation programs. It's long past time to close these tax shelters. Thank you for listening, and we hope you continue on the path towards a fair and appropriate tax policy for contributions in exchange for state and local tax credits.

MR. DINWIDDLE: Thank you very much for your comments. Okay. Next we have Mr. Allen Fagin from the Union of Orthodox Jewish Congregations of America.

MR. FAGIN: Good morning. My name is Allen Fagin, and I am the Executive Vice President of the Union of Orthodox Jewish Congregations of America. I'm very grateful for the opportunity to appear before you to discuss our concerns regarding the impact of proposed regulations on vital state education tax credit programs.

The Orthodox Union is the nation's largest Orthodox Jewish umbrella organization. We represent nearly a thousand synagogues across the country as well as hundreds of nonpublic K through 12 Jewish day schools and yeshivot and the many thousands of families who choose to have their families educated in those schools. These schools provide our community's children with a dual curriculum comprised of two essential elements. First, the in-depth study of the Torah, Talmud Jewish philosophy, and other studies essential for rearing our children to be committed and practicing Jews. And second, education in math, English, history, the sciences, civics and other studies essential for rearing our children to be productive and engaged members of American society.

There are more than 860 Jewish day schools across the United States educating over 300,000 children in grades K through 12. The financial cost of operating a dual curriculum school is enormous. Indeed, the cost is daunting to our families, and the cost of this education is the Orthodox Jewish community's most significant challenge. The Orthodox Union has worked for decades on an array of legislative and policy school choice initiatives with state governments to enable our parents to choose the education they believe appropriate for their children, and to afford to make the educational and faith-based choice to send their children to such schools.

And at the same time when parents opt to send their children to nonpublic schools, the states are relieved of an enormous financial burden. In New York State, for example, where I'm from, there are approximately 400,000 students K through 12 who attend nonpublic schools. Our research indicates that the state is spending approximately $20,000 per year to educate a child in the public school system. That's a savings of over $8 billion a year to the state. And it's no wonder that the states have, therefore, put their time and their energy into enacting tuition tax credit programs, not only to relieve the burden on parents, but frankly, to relieve the burden on themselves.

Among the most important school choice initiatives are state tax credit programs that have now been adopted in over 15 states that provide various kinds and levels of state tax credits for contributions to education scholarship funds via entities called scholarship granting organizations. If anyone can argue that there is no charitable intent in contributing to such organizations, we frankly find that an impossible argument to defend. Such programs support thousands of students annually in the Jewish community and elsewhere, students who could not otherwise afford the schooling that they receive.

Let me provide just two examples of such state-based programs. In Pennsylvania, over 40 percent of Jewish day school students are eligible for and receive scholarships from funds raised under Pennsylvania's tax credit programs. More than 1300 students receive such scholarships.

In Florida, 25 percent of Jewish state school students across the state receive tax credit scholarships and there are more than 2600 such students receiving those scholarships.

And we have significant concerns regarding the continued viability of these state education tax credit programs, each enacted well before the passage of the Tax Cuts and Jobs Act in May of last year, and certainly with no intent to evade caps or otherwise. And as a result of the position taken in the proposed regulation that the amount of the charitable contribution deduction must be reduced by the amount of any state or local tax credit the donor receives. The adverse impact of the proposed regulation on these programs will harm thousands of students that depend upon these scholarships and their families that struggle to afford their tuition. This adverse impact is unnecessary and unwarranted.

These charitable contributions to state education tax credit programs are not being used to circumvent the $10,000 SALT tax deduction limit, the concern that has prompted promulgation of the proposed regulations. The proposed regulations even impact charitable contributions by donors who are below the SALT cap. Estimates from six state education tax credit programs show that more than 60 percent of their donors are below the SALT cap. Thus, even in these cases where the granting of the credits does not allow taxpayers greater itemized deductions than they would otherwise be entitled to, the proposed rule would eliminate their charitable deduction.

So I'd like to propose two solutions to address the concerns of the Orthodox Union, and I believe many who are here today to testify, solutions that can avoid harming thousands of low-income children by denying them scholarships to attend the school of their choice.

First, I would like to propose that the regulations applied to contributions apply solely to contributions made to a state under Section 170(c)(1) for public purposes only. In this way, the new regulations would not apply to contributions made to other charities, legitimate charities, including scholarship granting organizations. Such a proposal would be consistent with the goals the Treasury Department is seeking to achieve, but still be consistent with the prior tax policy that permitted these education tax credit programs to benefit thousands of students each year.

Alternatively, if this solution is not adopted, at the very least, the current tax treatment of state tax credit programs in existence prior to tax reform enacted in 2017 should be maintained. These pre-existing state tax credit programs, whether to support school choice, environmental conservation, or other purposes, were clearly not adopted, never adopted, in some cases decades ago, for the purpose of evading the SALT limitation imposed by tax reform.

Either approach we have suggested would be consistent with the clear intent of Congress in tax reform to advance school choice programs through several other sections of the tax code.

I want to thank you for the opportunity to address you today and for the opportunity to propose various solutions which would continue to permit school choice programs to be affordable for most parents without implicating or detracting from the purposes for which the proposed regulations were developed. I'm happy to take any questions.

MS. RAMEY: So you — you made a comment that 60 percent of your donors are below the cap?

MS. FAGIN: Yes.

MS. RAMEY: Are they itemizers? Do you know — do you have that information or —

MS. FAGIN: I — I don't — I don't have that —

MS. RAMEY: Okay.

MS. FAGIN: — that information, but we but we know that based on a survey that they are below the SALT cap. I think — I think their average SALT deduction, if they itemized, is somewhere in the 9000 to $9500 range.

MR. DINWIDDLE: Okay.

MS. RAMEY: Thank you.

MR. DINWIDDLE: Any other questions? Thank you very much. Okay. Next speaker from the Frederick County Public Schools, Dr. David — I don't know if it's Sovine or Sovine, but —

MR. SOVINE: Good morning. I am Dr. David Sovine, a resident of Frederick County, Virginia, who serves as the superintendent of schools in the locality in which I reside. I have both a personal and professional interest in the amendments being proposed for Section 170 of the Internal Revenue Code.

Personally, I believe that our nation's tax code needs to be fair and equitable, which makes it imperative that loopholes and tax shelters be closed if they provide individuals with an opportunity to circumvent paying their fair share of taxes or receive a tax benefit to which they are not entitled.

Professionally, I'm a lifelong educator who has served as a teacher, a building level administrator, a central office administrator, and now a superintendent. Doing what is best for students and preparing them to be successful is what has driven me throughout my career regardless of the position I have held.

With that in mind, I want to thank the IRS for proposing regulations that would end a tax shelter for select taxpayers in Virginia and other states that not only provides an opportunity for a taxpayer to essentially profit from a charitable donation, but — but can also be used as a means of diverting funding away for the public school system. Having the resources necessary to adequately fund our nation's public schools, is critical to ensure schools are equipped to provide rich educational opportunities for all students.

Although I'm supportive of the amendments as proposed, I believe some additional changes are necessary, and I would like to take a few minutes to speak to one such change that I would encourage you to make before taking final action with your recommendations.

My concern is that the proposed regulation fails to offer sufficient clarity on the question of how donations of appreciated equities or property will be treated when those donations entitle the donor to a significant state or local tax credit. Like many others, I believe that a donation made in exchange for a 100 percent tax credit should be treated as equivalent to a sale at market value and the taxpayer should either owe tax on the portion of that sale that represents a gain, or recognize a loss if appropriate. Excuse me.

Addressing this situation, excuse me. Addressing this situation is a matter of fairness to individual taxpayers and is critical to public schools in Virginia and the 18 other states which offer tax credits ranging from 50 to 100 percent of the value of marketable securities or other assets donated to fund private K-12 school vouchers. Failing to address this issue would preserve the possibility of a taxpayer benefiting from the state and local tax credits to make a contribution in a program in which they have little to no genuine interest solely to avoid paying their fair share of taxes. If the donation is made to support private K-12 school vouchers under this scenario, public education suffers a double hit; and that legitimate tax revenue that could support public education is lost while private schools benefit and a donor can bolster their charitable deduction and receive combined state and federal tax cuts larger than the amount of their donation.

Unfortunately, Virginia's elected leaders have not taken action to eliminate this tax shelter, and I believe it needs to be addressed through the proposed regulation which will require the rejection of pleas to carve out pre-existing tax credit programs that benefit non-public entities.

Again, I thank for an opportunity to speak, to share perspective, and to offer some suggestions to strengthen the proposed regulations. I remain available to answer any questions. Thank you.

MR. DINWIDDLE: Thank you for your comments. Any questions? No questions.

DR. SOVINE: Thank you very much.

MR. DINWIDDLE: Okay. Next we welcome up to the lectern, Mr. Carl Davis from the Institute on Taxation and Economic Policy.

MR. DAVIS: Thank you for the opportunity to speak today. My name is Carl Davis, and I'm the Research Director at the non-partisan Institute on Taxation and Economic Policy, or ITEP. We are a research group that works on both federal and state tax issues, including the areas where they intersect, such as the one we're talking about right now.

ITEP uses this regulation as a sensible improvement, and one that is actually overdue, to the way that the charitable deduction is administered. At the end of my remarks, I'll discuss a few ways that the regulation could be improved; but the core point that I want to emphasize is that the general approach taken here, where quid pro quo rules are applied in a broad-based fashion to all significant state and local tax credits, is the correct one.

Many of today's commenters are here to ask for special exceptions from this regulation, either for tax credits that existed before 2018, or for programs benefitting private charities. It is enormously important that those requests for special treatment be rejected. Fair and effective administration of the tax law demands that this regulation be applied broadly and not in a scatter-shot fashion.

ITEP opposes carve-outs for any charitable credit above the 15 percent de minimis threshold, but in my remarks today, I'm going to focus largely on tax credits for donations that support private K thru 12 scholarships, also known as school vouchers.

Among the pre-existing credits, those private school programs tend to offer the highest reimbursement percentages and are, therefore, among the most problematic as SALT cap workarounds. My written comments explained in detail how two-thirds of existing private school voucher tax credits can, and will, be used for SALT cap avoidance unless this regulation is implemented. This is not a small or isolated issue. A dozen states are offering hundreds of millions of dollars in high percentage private school tax credits that can be used to circumvent the SALT cap; and the size of these credits is growing every year.

Some of the private school groups seeking special treatment are insisting that their credits couldn't possibly be viewed as SALT cap workarounds because they were enacted before the SALT cap was even created; but this narrative is misleading. Limitation on the SALT deduction, and avoidance of those limitations via state tax credits, is nothing new. Previously, this avoidance was confined largely to the alternative minimum tax, or the AMT; and in my written comments, I explain that South Carolina lawmakers knew their credit was being used to avoid SALT deduction limits under the AMT as far back as 2013. And yet, they did nothing to prevent it.

Those comments also walk through a similar story in New Hampshire, which expanded its private school tax credit this year, in 2018, despite significant publicity around the federal tax shelter that it facilitated. Rather than retell those stories here, though, I want to focus on Georgia for just a minute because some important new data on that state's tax credit came out exactly one week ago.

According to researchers at Georgia State University, who have access to official Department of Revenue data, nearly one in five dollars paid out under that state's private school tax credit in 2015 went to AMT payers. Meaning that these were taxpayers who would have received a federal tax cut on top of their 100 percent state tax credit and, therefore, would have come out ahead on their so-called donation.

These data confirm the claims of a financial planner who wrote that the credit enjoyed "a loyal base of high-income parents who benefitted from the AMT tax savings." And the data also suggest that aggressive advertisements pushed by private schools and accountants in Georgia were effective.

In Georgia and around the country, we have extensively documented instances where words like "profit" and "make money" were used to describe the fact that AMT payers were receiving tax cuts larger than their donations. And, to be frank with you, Georgia is far from the worst case scenario here. In Georgia, the tax credit is capped at $2500 per year for individuals; meaning that the tax rewards of donating max out at a few hundred dollars per year. That is not the case in Louisiana, or in Alabama, or in New Hampshire, or South Carolina, or Pennsylvania, or various other states where there is either no cap or there is a very high cap on tax credit eligible donations per taxpayer.

In these states, very high-income taxpayers who are guaranteed to face the SALT cap can transform massive amounts of non-deductible SALT payments into deductible charitable contributions using these credits unless this regulation is implemented.

Louisiana's credit is particularly noteworthy. That state offers a 95 percent tax credit for donations that fund private K through 12 school vouchers; and there is no cap at either the taxpayer level or the statewide level. Simply put, a taxpayer interested in tax avoidance would much rather have access to Louisiana's 95 percent than to New York's brand new 85 percent credit for public schools. Viewed through the eyes of taxpayers, the Louisiana credit that some of today's commenters would like to see given a free pass is unquestionably the more powerful tool for avoiding the SALT deduction cap. Viewed through the eyes of state lawmakers, both programs are efforts to stir state funding toward the education of children. In Louisiana that education happens to be taking place in private and religious schools. In New York, it's happening in local public school districts. But the fact remains that these are both K-12 education programs; and treating the Louisiana program more favorably simply because it outsources the teaching responsibilities to private schools would be a mistake, and it would offer a wide open avenue for even more states to be in facilitating SALT cap avoidance.

Given all the attention that this regulation has received, if a carve-out for private school vouchers is added to this regulation, there is no doubt that many of these state tax credits, including the existing ones and the ones that have yet to come — and these are spreading — will become immensely popular as SALT cap workarounds.

We've already seen evidence of this in Arizona, for example, where a credit that took six months to reach its statewide cap last year lasted all of two minutes — literally two minutes, 120 seconds. This year after the SALT cap was implemented, and private school groups began describing the federal tax avoidance benefits on local TV news programs and elsewhere you can find these clips on line, tens of thousands of views. Given that the goal of this project is to end the use of state and local charitable tax credits as ways to dodge the $10,000 SALT deduction cap, it is essential that these types of pre-existing programs be included within the regulation scope.

We know that these credits were used to dodge SALT limits under the AMT for many years. We know that they were used to dodge the $10,000 SALT cap during the first half of this year; and we know that they're going to become even more popular as SALT cap dodges in the years ahead unless this regulation puts a stop to it.

With my last couple of minutes, I'll just briefly outline the other recommendations from my written comments. My second recommendation, aside from rejecting appeals for a carve-out, is that the regulation should clarify that taxpayers donating appreciated property in exchange for large tax credits must recognize a gain.

Several states with private school voucher credits allow taxpayers to receive state tax credits on donations of property, including marketable securities; and, in South Carolina for example, this is especially problematic because an investor can receive a 100 percent tax credit for their donation of appreciated property; meaning that their state government will effectively pay them the same price that they could have received if they'd just sold the stock on the open market. The key difference though is that if South Carolina's government pays for the stock with tax credits, and depending on the outcome of this regulation, there might be a taxable gain.

My written comments walk through an example where a high-income investor would come out ahead by $23,000 by agreeing to donate stock under the state's credit program. And that's relatively simply selling the stock and that even assumes that this regulation is implemented without a carve-out and that the donation, therefore, does not trigger a Section 170, Charitable Deduction.

Unless this regulation requires recognition of gain, we'll be left with a hugely distortionary policy where investors seeking to make the best financial move for their own families are going to be forced to donate stock under these state credit programs, rather than simply selling it on the open market.

My third recommendation is for additional attention to be paid to businesses that seek to combine state tax credits and federal business expense deductions in order to yield tax rewards larger than the amounts contributed. In the September 5th clarification for business taxpayers, that clarification has been widely interpreted as allowing pass through businesses to use state and local tax credits as tools to convert non-deductible SALT payments into deductible business expenses.

Some firms have even begun to discuss how credit programs could be modified to make it easier for contributing businesses to secure a business expense deduction, such as through public advertising of the contributions. And there's significant uncertainty surrounding this aspect of the tax code's treatment of contributions benefiting from state credits; and I urge you to give more consideration to the business expense deduction in this context with an eye toward ensuring that businesses contributing to state tax credit programs can't reap a net financial reward because of the tax rewards alone.

And my final recommendation is to adopt the excellent suggestion made by Professor Zelenak of Duke University, who noted that this regulation may be on stronger legal footing if it treats third-party benefits of all forms as a potential quid pro quo, rather than treating them as such only when they take the form of a tax credit. And, I believe, I'm just about out of time, so I'll let his words speak for themselves.

In sum, this regulation would represent a major improvement over the status quo, particularly because it takes a broad approach to state and local tax credits. There are certain refinements that could be made to improve the regulation's consistency and close down related tax shelters, but these changes can be made while keeping the broad outlines of the regulation very much intact. And with that, I'll conclude my remarks. Thank you for this opportunity.

MR. DINWIDDLE: Thank you. All right. Next up we have Dr. Richard Fry from Big Spring School District — Dr. Frye.

DR. FRYE: Good morning. I am Dr. Richard W. Fry, Superintendent of Schools in the Big Springs School District, located in South Central Pennsylvania. Big Springs' is an average rural school district with enrollment of roughly 2700 students, and 230 teachers. I'm also the president of Pennsylvania state superintendent's association, which represents over 800 school leaders throughout the state. As both the local school superintendent and a leader of public schools throughout the commonwealth, I applaud the efforts of the IRS in proposing regulations that would end a tax shelter for select taxpayers in Pennsylvania.

This specific tax shelter diverts dollars that could be used to bolster the educational prospects for all children within the public school system — a system that is designed to educate all students regardless of religious affiliation, ethnicity, income level, and intellectual ability. In short, a public school system that is ready and able to serve every student throughout our land.

In Pennsylvania, individuals, not corporations, pick up the tab for the EITC scholarships. Of those scholarships, 9 out of every $10 is funneled toward private or religious schools. Let me say that one more time — 9 out of every $10 is currently funneled towards private or religious schools. Based on the proposed regulations by the IRS, there are private school advocates who are urging you to carve out private school programs from the proposed regulations.

That carve-out would result in extraordinarily different tax treatment for different donors under the Pennsylvania program.

With this sort of differentiation, it would more than likely create a climate where even a higher percentage of money would go to private religious schools. Corporations that utilize the exiting PA credit to fund private school vouchers would keep getting a full charitable deduction; whereas corporations who use the exact same Pennsylvania credits to fund public schools would see their deduction denied, or quite possibly reduced.

This could and would quickly turn into an unprincipled mess in the State of Pennsylvania. The current EITC program in Pennsylvania diverts taxpayer funds from public schools, and has resulted in predictable outcomes that include class size increases; the elimination of 22,000 professional positions over the last six years; student program cuts; and a system now that relies on an unsustainable local tax effort.

The proposed regulation by the IRS in its current form would peel away a portion of the triple-dip tax break that corporations are currently afforded in the Commonwealth. These same regulations would serve as step one in addressing a faulty tax credit program that, in the end in Pennsylvania, is funded by individual taxpayers at the local level.

Once again, on behalf of school leaders throughout the State of Pennsylvania, and the citizens within the Big Spring school district, I thank you for the proposed regulations that would end a tax shelter for select taxpayers in our great state. I urge you to remain steadfast with the current proposal and not entertain any sort of carve-out for private school programs.

MR. DINWIDDLE: Thank you. If there be no questions, we'll go on to the next speaker, from the Piedmont Environmental Council, W. Rex Linville.

MR. LINVILLE: Thank you. My name is Rex Linville, and I'm here as a staff member with the Piedmont Environmental Council and a board member of the Virginia United Land Trust, known as VAULT.

PEC is a regional, community-supported non-profit land conservation organization operating in the Northern Virginia Piedmont; and VAULT is a statewide non-profit organization serving members of the land conservation community in Virginia. PEC has already submitted extensive written comment on the proposed regulation, and I will reinforce and expand on those today.

Both organizations, along with the broader land conservation community in Virginia, have grave concerns with the proposed regulatory change to treat state income tax credits as quid pro quo for land conservation donations. As drafted, this is an overly broad proposal that uses a sledge hammer to fix a problem where a scalpel would be more appropriate.

Specifically, the proposal does not distinguish between genuine charitable contributions and the target of the regulation, which is to curve inappropriate attempts to gain the system and circumvent Congress' cap on SALT deductions.

I've worked on land conservation transactions with private landowners for almost 20 years. Without question, each and every one of the landowners I have helped preserve their land has been motivated by a love of their property and a philanthropic desire to protect something special in their community for the benefit of future generations.

As one member of my local advisory board says, only one landowner gets to protect the property forever. That said, land is often a family's most valuable asset and the financial implications of the conservation decision matter. Starting in 1969, and leading all the way up to 2015, whenever Congress codified or expanded the tax incentives for conservation, more land has been protected.

Further, when the Virginia General Assembly established the land preservation tax credit in 1999, and then made those tax credits transferable in 2002, we saw an increase in land conservation across the Commonwealth. The proposed regulation is contrary to this long-standing history of congressional intent and will reduce the effectiveness of both the federal income tax deduction for qualified conservation contributions and the Virginia land preservation tax credit.

Simply put, if implemented, this will result in less land being protected in Virginia. Land conservation donations are different than cash contributions that can easily be used to circumvent SALT payments, because, unlike cash, land and conservation easements can only be donated once. In the case of a donation contrived to avoid SALT, the taxpayer and state and locality are, essentially, even at the end of the transaction, and can be so again, and again, year after year.

In the case of a qualified conservation contribution, the taxpayer has permanently given away a property interest that can never be used to generate another federal charitable deduction again.

The Virginia land preservation tax credit is not quid pro quo. While it is true that a land conservation donation in Virginia may make the donor eligible for a Virginia land preservation tax credit, the granting of a subsequent tax credit by the Virginia Department of Taxation is not a foregone conclusion. A donor who grants a permanent and irrevocable conservation easement to PEC or to another member of the Virginia United Land Trust, has no way of knowing in advance if their request for tax credit will be granted by the Virginia Department of Taxation.

There are a number of reasons that taxation can choose, and has in the past chosen, to deny or challenge the requested credit. When this happens, the donor cannot withdraw their gift of a conservation easement or property. The land is still permanently protected because this was not a quid pro quo transaction and there was no bargain for exchange.

Further, at the time that Congress passed the Tax Cut and Jobs Act of 2017, the fiscal implications of the full charitable deduction for conservation easement donations, in states with tax credit programs, was well-known and documented. As such there is no unanticipated revenue loss associated with the federal deduction for conservation contributions, like there is with SALT circumvention.

And as such, there is no reason to implement this proposed quid prop quo treatment with regard to conservation contributions. In fact, doing so would raise additional revenue that Congress did not elect to raise on its own and would, therefore, exceed Treasury's authority to implement the act. This is a reversal of existing law.

The proposed regulation acknowledges that it runs counter to previous analysis reflected in IRS proposed and published CCAs and it, further, it is counter to several United States regs regarding the nature of state income tax credits. The federal government has used tax savings to encourage charitable giving for over 100 years. And until this proposal, states have been allowed to achieve the same policy goal through use of state tax deductions and credits.

The proposed regulation turns this precedent on its head and severely limits states ability to promote charitable giving through the use of tax savings. For all of the above reasons, we plead for you to exclude qualified conservation contributions under 170H from the proposed rule.

If despite numerous flaws outlined above and detailed n our written remarks, the decision is made to go forward with the regulation, then we believe the following three changes should be made.

One, if state tax credits are going to be construed at quid pro quo, when the regulation — then the regulation should be modified to stipulate that state income tax credits generated as a result of a charitable gift should be accorded a basis equal to the value of the credit received.

Two, the regulation is proposed with a 15 percent de minimis cliff where some taxpayers must treat all of their tax credit as quid pro quo and some taxpayers treat none of their tax credit as quid pro quo. This discriminatory treatment could easily be remedied by modifying the proposal such that the first 15 percent of any state income tax credit is excluded from the quit pro quo rule.

And the third land foundation to private nonprofit land trusts are different than cash gifts to state charitable funds because they often take years of planning and consideration on the part of the donor and the donee organization. As such, the August 27 effective date of this proposal punishes donors and donee organizations who have already invested time, money and scarce resources into critical land conservation transactions. At the very least, the effective date of the proposed regulation should be moved back far enough to allow projects already in the works to be finalized.

I thank you for your time and careful consideration of all the comments you have received and happy to answer any questions if there are any. Thank you.

MR. DINWIDDLE: Thank you. Any questions? Thank you very much. Okay. Next up from the Kentucky Philanthropy Initiative, Mr. Joseph —

MR. CLABES: Clabes.

MR. DINWIDDLE: Clabes. Yes.

MR. CLABES: Good morning. Thank you for the opportunity to speak today. My name is Joe Clabes. I'm the president of the Kentucky Philanthropy Initiative and I'm glad to be here to discuss this proposed rule.

The Kentucky Philanthropy Initiative or KPI is a nonprofit organization with a mission of promoting strategic philanthropy for the public good for all communities across the commonwealth. We work in collaboration with the state-certified community foundations, private foundations and donors to advance policies that empower citizen philanthropists in meeting unfulfilled needs in their communities. KPI is the only organization in the commonwealth that advocates specifically for community philanthropy and works to develop and improve the necessary infrastructure to address the persistent challenges.

Building philanthropic capacity throughout Kentucky is critical to securing our future. Local philanthropy provides communities with more control over their destinies and increases local ownership and accountability enabling more successful outcomes. We must empower every citizen regardless of personal wealth to become philanthropists and participate in improving the lives of their neighbors and protecting their community's assets and resources.

Kentucky currently has eight community foundations providing administrative and stewardship for funds serving all 120 counties. These organizations meet stringent transparency standards and are led by boards of directors that reflect the diversity of the communities they serve.

The endow Kentucky tax credit provides one million annually in state tax credits for 20 percent of any qualifying gift to a community foundation endowment serving Kentucky communities. The maximum allowable gift under the endow Kentucky program is $50,000 or 10,000 in tax credits for each individual donor. However, there is a minimum contribution — there is no minimum contribution enabling all Kentuckians to tax advantage of this incentive regardless of their level of wealth.

In 2017 — I would like to discuss a little bit the purpose of the establishment. In 2017, KPI commissioned a study of a Kentucky transfer of wealth in identifying more than 760 billion passing from one generation to their heirs over the next 50 years. The first of these studies was conducted in 2010 and prompted the passage for the endow Kentucky legislation with the goal of capturing five percent of this wealth transfer within certified community foundations to provide a permanent and growing source of revenue for community's needs.

This proposed change to the Internal Revenue Code regulation will undermine the effectiveness of the endow Kentucky tax credit. Since the establishment, we have had a great deal of success with the tax credit program. Since its establishment in 2010, 5.7 million in Kentucky tax credits have generated over 31 million in contributions to endowed funds across the commonwealth. This source of revenue provides Kentucky communities with a tool for engaging private charitable contributions to replace diminishing funding from all levels of government. These permanently available sources of revenue managed by certified community foundations represent locally controlled, non-governmental funding for community needs ranging from health initiates, educational programs and human services. This represents a free market approach to lessening our community's dependence on government funding.

If our goal of capturing five percent of the 760 billon wealth transfer projected over the next 50 years within our community foundations is met, it will represent over 1.9 billon in perpetual grant making for our communities in Kentucky. Clearly Kentucky has persistent challenges in the area of revenue and this is a tool that is very important for our communities.

In conclusion, we understand the issue that the proposed rule was intended to address and support your responsibility to make policies related to this matter. However, this proposed change could undermine the successful endowed Kentucky tax credit, an important tool available to Kentucky communities that encourages the investment of private funds to offset the decline of available resources from all levels of government. Please consider the unintended consequences that might negatively impact the long-standing and successful program. If this rule must move forward, we ask that the endowed Kentucky tax credit and similar programs in other states to be carved out or grandfathered from this proposal. Thank you.

MR. DINWIDDLE: Thank you. Any questions? No questions. Okay, thank you. All right. Our next speaker from the McMahon Parater Scholarship Foundation, Ms. Joyce Schreiber.

MS. SCHREIBER: Good morning.

MR. DINWIDDLE: Good morning.

MS. SCHREIBER: My name is Joyce Schreiber, I'm the director of the McMahon Parater Scholarship Foundation. Thanks for pronouncing it right the first time. Thank you for the opportunity to speak with you today.

McMahon Parater is one of 43 scholarship foundations approved by the Virginia Department of Education to receive donations and provide scholarships under the terms of Virginia's Education Improvement Scholarship Tax Credit program, EISTC as we abbreviate it. Established in 2008, McMahon Parater is a 501(c)(3) charitable foundation providing scholarship support to over 2,000 students choosing to attend one of the 29 Catholic schools in the diocese of Richmond.

Spanning over 33,000 square miles, the dioceses extends from the military communities of Norfolk and Virginia Beach through metropolitan areas like Richmond, continuing west through Appalachia to Virginia's border with Tennessee. Every school supported by the McMahon Parater foundation is fully accredited by advanced ed and approved by the Virginia Counsel for Private Education.

Of the 29 schools are foundation supports have been commended by the U.S. Department of Education under the national Blue Ribbon Schools Program, which recognizes public and private elementary, middle and high schools based on their overall academic excellence or their progress in closing achievement gaps among student subgroups. The U.S. average graduation rate according to the National Center for Education Statistics is 84 percent. The Commonwealth of Virginia has an average of 91 percent for all schools, public and private. Diocese of Richmond Catholic schools maintain a 99 percent graduation rate.

In addition, more than 98 percent of graduates are accepted at and attend four year colleges. On average, more than 30 percent of the students of these 29 schools is not Catholic.

In the five years before the EISTC program, McMahon Parater awarded an average of 300,000 in scholarships per year to students from low-income families. This year through the EISTC program, McMahon Parater is providing nearly 5 million dollars in scholarships to 1200 students from families whose average household income is $42,700 for a family of four.

The EISTC program has motivated previous donors to give much, much more than they previously gave. One donor who previously donated $10,000 in scholarships annually to his alma mater now gives more than $100,000 a year. So instead of helping two students pay for tuition, he is now helping 20 students.

After years of trying to find a way to help low income families receive a better education, this program provides options for students who need a different approach to education than they can receive in the public schools to which they have been assigned. This program is not funded by taking money away from public education but, leveraging private donations through tax incentives, more children are getting the change to change the trajectory of their lives.

Now that the EISTC program is five years old, regulation 112176-18 threatens these children. In my role as director of the foundation, I speak with many donors. One donor's decision to reduce his contribution by $20,000 in light of the proposed regulation means that at least four children will lose their scholarships. Sorry.

The EISTC program requires that 90 percent of all donations must be distributed as scholarships by June 30 of the fiscal year following the fiscal year of the donation. Because this ruling was implemented so suddenly in August, we are reeling from all the donors that have indicated their intent to reduce or eliminate their donations this year. Donors' tax preparers, accountants and financial advisors are telling them they will help them find other ways for them to save on their taxes. This means that our foundation is already having to begin conversations with schools about which of the 1200 children and their families will have to be told that they will not be receiving scholarships for the next year and will have to withdraw from Catholic schools.

Please preserve the federal deduction that tax credit scholarship donors have received for their donations to scholarship granting organizations. We ask that charitable scholarship foundations be exempted from rule 112176-18 either by definition or by grandfathering. We respectfully ask that you consider limiting the application of the rule to state sponsored organizations as defined in IRS Code 170(c)1.

On behalf of more than 1200 Virginia children and their families, I thank you for this consideration of this request. That's all.

MR. DINWIDDLE: Well, thank you very much for your comments. Okay. Next up Mr. Marc Egan from the National Education Association.

MR. EGAN: Good morning.

MR. DINWIDDLE: Good morning.

MR. EGAN: I'm Mark Egan, director of government relations for the National Education Association. NEA is the nation's largest labor union with three million active members and is committed to advancing the cause of public education. NEA members work at every level of education from preschool to university graduate program serving 50 million students and we have affiliate organizations in every state and in more than 14,000 communities across the United States.

Before I raise our specific comments on the guidance, I want to reaffirm that NEA continues to strongly oppose the unjust and largely political SALT deduction cap [inaudible text] Tax Cuts and Jobs Act of 2017. This limitation targets taxpayers living in states that have progressive imbalance tax systems. This change in treatment for SALT payments will have a significant impact on the ability of localities and states to raise revenue necessary for public services and obligations such as public education.

It is important to note that we are already beginning to see the impact of this unwise tax law change. As reported in Bloomberg recently, home sales in the northeast were significantly down, perhaps as much as 71 percent. This region is being hit harder than other areas in our country, leading many economists to conclude that SALT is a major factor in the decline. NEA will continue to work with Congress to repeal or modify this inequitable outcome.

Overall, NEA generally supports the guidance — supports the underlying broad-based approach followed by the guidance in treating all taxpayers and charitable entities equally and not differentiating between new and existing tax credit regimes. NEA also supports the concept that payments to certain entities can constitute a quid pro quo when the taxpayer receives state tax credit for the contribution.

For many years, the IRS has allowed certain taxpayers to claim a federal charitable tax deduction for contributions to private tax credit scholarship or voucher programs, even though the taxpayer has also received a state tax credit on the same contribution. We are pleased that this guidance will address this loophole. NEA does remain concerned, however, that the Treasury Department is taking the position that the guidance does not apply to business. This distinction creates a significant new tax loophole opportunity for many upper income taxpayers and we believe should be closed.

As you have heard before, currently 18 states offer tuition tax credit voucher programs for individuals and or businesses with state tax credits ranging from 50 percent to 100 percent of the contribution. taxpayers and such states also have been allowed to claim a charitable deduction on their federal tax return for the entire amount of their contribution, including the amount upon which they receive the tax credit.

As you know, financial planners and advisors have marketed this abuse to encourage clients to get a combined state and federal tax benefit that could be larger than the underlying contribution. As noted in the guidance, these types of arrangements are not consistent with sound tax policy. Not only do these programs create the equivalent of a school voucher, something that Congress repeatedly has rejected on a national scale, but in some case they — in some cases under current rules they traded federal subsidy in doing so.

These tax credit schemes are part of a larger ongoing effort in many states and by some members of Congress, as well as Education Secretary Betsy DeVos, to divert state and federal revenue to private schools. NEA encourages the IRS and Treasury to ensure that sound and fair tax policy is followed and federal revenue is not being diverted away to fund private K-12 school through loopholes and unintended benefits.

After the guidance was issued, the IRS released a statement and subsequent FAQ document attempting to clarify that businesses will continue to be allowed to deduct the cost of charitable contribution to tax credit scholarship programs as ordinary and necessary business deductions under IRSC Section 162, and as such not be affected by the guidance.

This new guidance creates significant new tax abuse concerns, particularly as it relates to the ability of individual higher income taxpayers to use passthrough entities to generate federal tax deductions for contributions that also benefit from state tax credits. In order to be consistent with the tax equity theories espoused in the guidance, the Treasury Department should expand this guidance to prevent loopholes to the new SALT deduction limitation. In other words, the guidance should be clear in not allowing an individual taxpayer to claim as a business what they cannot claim as an individual.

NEA remains opposed to the inequitable SALT deduction limitation. We support the approach Treasury and IRS is taking with the guidance that treats all charitable deductions or contributions that are received as state tax credit equally and we strongly oppose any carve outs or exceptions made for state tax credit scholarship programs.

Finally, we encourage Treasury to expand this guidance to limit the ability of individual taxpayers to utilize passthrough entities to receive a charitable deduction in cases where they would be denied under the same guidance. I thank you for your time.

MR. DINWIDDLE: Thank you very much for your comments. No questions. Okay. Let's see. Next up from the Alabama Scholarship Fund and I have got three names here so I don't know if all three of you are coming up which is fine. Okay, great. So we have got Grant Eady, Dalphine Wilson and Nicholas West.

MR. EADY: Good morning distinguished guests, elected officials and fellow scholars. I am Grant Ellington Eady, an 8th grade middle school student attending Montgomery Catholic Middle School, Montgomery, Alabama. I have been voted SJ president for this year. I have been a scholarship recipient for the past five years. And the impact that it has on my life has been tremendous.

My scholarship has pushed me to expect more from myself, to give voice to the curiosities of life and ultimately see a future for myself beyond the restraints of poverty, disenfranchisement and the soft bigotry of low expectations. As a student and a person, I am not permitted to settle for the average but encouraged to aspire for greatness, to reach beyond my grasp. The only drawback of this scholarship program is that more students cannot take advantage of this opportunity. Students and parents must be empowered to choose the best academic environment which benefits the innate talents and gifts of their children. Who better equipped than parents to guide and have an active input on the lives of their children? Thank you for your time.

MS. WILSON: I am Dalphine Wilson, and I'm the proud mother of Grant and Evelynn. Edie, you can give a little wave, baby. (laughing) I am humbled and grateful. My children are in school where they are challenged academically and pushed to not only be their better selves, but discover the best in others. These types of expectations are directly aligned with what my values are at home. I am a mother and speak on behalf of those who, every morning, wish for a better opportunity, a different option, or just help to send their kids to a school befitting their gifts, talents, and academic aspirations. Young wings should never be clipped as they discover their power, their span, and the heights that they are meant to soar. I want my children to enter life with an education they can be proud of, one that will allow them to stand toe to toe, shoulder to shoulder, with any student in the U.S. and globally. I want them to enter a dynamic workforce, confident in their abilities as critical thinkers, problem solvers, and leaders. This scholarship is crucial in achieving this goal. They entered through the doors of their school, and I'm excited about their futures. I'm actually a little jealous. No parent should be denied that kind of joy. My grandmother had a third-grade education, and my mother picked cotton during harvest in high school and received a secretarial science certificate. Each generation should do better than the last, and with this scholarship, I am giving it my all. Thank you.

MR. DINWIDDLE: Thank you.

MR. WEST: Hi. Hi. My name is Nicholas West, and I was a previous recipient of the Alabama Opportunity Scholarship Fund. I would like to express my thanks today to the Treasury Department and IRS for allowing me the chance to speak on behalf of Alabama Opportunity Scholarship, and just express how it's impacted me and my family. I'm Catholic. So, my mom always — when I went to high school, my mom always wanted to send us to Catholic high school, but with her having five children and being a single mom, that was very hard to do. She struggled a lot, just luckily when — it started off — I started — I went there first. She was able to be supported that first year, but I was only the first one. I mean, me and my brothers were all one year behind each other. So, the minute the next year came around, she could no — she could no longer afford to send all us to the school together, which was a big thing for her because she always wanted to keep us together. Part of the reason she didn't put us in the public-school system is because we all had diff — I have two special needs brothers. So, we all have different — like, we all had different ups and downs and everything. So, one thing, when she would put us — take us to different public schools, she couldn't do that because they always said they would have to separate us, and she would have liked to keep us together. So — but luckily, right when this — well into the semester, that's when they started to do the Alabama Opportunity Scholarship Fund and I was able to — I was able to stay at the school, and my other brother. However, because it was just starting, I was able to get in, but my other brothers couldn't, and so it was — it didn't work out — whatever, but it just didn't work out. So, my mom was like that's fine, but — cause luckily, at the same time, the state itself has begun online virtual school program. So, mom's like that's good. She can keep the other two brothers behind. They can help each other do the work, and the other brothers agreed and everything, helping them do the work and everything. So, from my experience, me going to the private school, it helped me a lot. It helped me push myself. My mom always said I was talented, and I felt like the school that I went to — it helped me push myself even further. I graduated on a full — from the high school, I had a full academic scholarship to the University of Alabama in Huntsville. I currently am attending an undergrad in computer science and I'm also in a program, so I'm — not only am I getting my undergrad in computer science, but I'm also getting my Master's in cyber security, and I also work as assistant administrator at the school, but I also work as a software engineering intern at a global company as well. So, because of the opportunity — the way my — the private school pushed me and everything, I was able — I'm able to, right now, take 18 credit hours while juggling 42 hours a week at a job, and I can actually manage it. It's not like even I'm struggling to do it. I'm still making straight A's and everything, and I'm able to manage that because my — the school prepared me for that kind of work and everything, and I want other students to have be able to have that same — be able to do those same things, and I feel like without the Alabama Opportunity Scholarship Fund that wouldn't be possible. One example I have for that is my brother. He — I told you one of my brothers has special needs and everything, and the online school program, it wasn't working out for him. So, we were like maybe he really just needs that connection that the public school never did provide him and everything, and it was weird because the day we were getting ready to go take him over there and get him enrolled and everything, it was on the news. I seen a kid in a special needs class over there had got wrecked by another student. So, we were like — we just took that as a sign, that no, no. We can't put him in the public schools or in the public-school system. That just wouldn't be the right environment for him, specifically, and what made it worse is when — from the online school and everything, he pretty much lost all motivation itself. We've talked to multiple counselors, teachers, and they say he's very talented, but when we try — so when we got him a position at a college, where they would get him into classes and get him into the workforce, he said I just don't think I — he told us he just doesn't think he can do it. He doesn't feel confident his self at all. His confidence was completely shattered and everything because he wasn't able to go through — he went to private school when he was in elementary, but he didn't get that in high school and it completely — and we still struggle today to try to get him into a program. He hadn't even gotten his GED yet, and it's two years. He would've graduated a year or two ago now, and he still doesn't even have his GED. So, we feel like if he — if there would have been more funds available for him to get in the program, that would have changed. So, on behalf of Alabama Opportunity Scholarship Fund, I hope you vote to make it where people continue to donate and provide opportunities, so kids like me, like my brothers can succeed and have a better future for themselves. Thank you.

MR. DINWIDDLE: Thank you very much for your comments and for sharing your experiences. We greatly appreciate it and for coming out today. Okay. Our next speaker is Mr. Otto Banks from the REACH Foundation and REACH Alliance.

MR. BANKS: Good morning, everyone. My name is Otto Banks. I'm executive director of REACH Foundation and REACH Alliance. Thank you for the opportunity to present to you today. I would also like to thank Senator Toomey, who is my home senator, for his continued leadership in the fight for school reform in the Commonwealth of Pennsylvania and across our great nation. Senator Toomey has been a leader on this important education issues, such as education improvement tax credit programs, charter schools, and measures to improve school safety. We look forward to working with him to ensure that parents have a true choice in their children's education. The REACH Foundation and Alliance was founded in 1991 to coordinate the passage of school choice legislation in the Commonwealth of Pennsylvania. REACH was instrumental in drafting and passing the Pennsylvania's landmark education improvement tax credit program, as well as its subsequent expansions. We are dedicated to increasing the educational options available to families in the Commonwealth, so that each and every child is able to attend the school of his or her choice. You know, as the previous speaker spoke to earlier, you know, parents know their children the best. They care the most, and they understand what the best learning environments are for their children, and, you know, you will hear, and you have heard various opinions today, regarding the details with which this illustrious body should move forward when crafting the proposed rule changes for state and local taxes as federal deductions. You know, you've heard that the SALT tax credit adversely impacts public schools. Well, in the Commonwealth of Pennsylvania, that is anything but the truth and, to be honest, over 30% of the resources that are generated as a result of our tax credit programs go directly to public schools through the education improvement opportunity component. You've also heard that, you know, it's designs — people use it to game the system. That also isn't true. What occurs is it's — it's one of those innovative programs where individuals can choose and direct exactly where they want their tax dollars to go, and what they choose and direct their tax dollars to go is directly to children and families to ensure that they have access to a quality education and, of course, we've also heard that many of these programs are dollar for dollar matched. In Pennsylvania, that is not true as well. In our state, the basis of the program starts with a 75% — 75%, not dollar and dollar match, as previously discussed. The educational inequity is a major problem in Pennsylvania, and school choice is a valuable tool that can help solve this problem. This body should act in an urgent manner to prevent any decreased donor participation that leads to a decline of school choice options. It impedes equal educational opportunities for all children throughout this great nation. As background, Pennsylvania's education improvement tax credit program and the Opportunity Scholarship Tax Credit Program are the state's primary school choice initiatives. The EITC and OSTC are educational programs that help kids get a chance to attend the right school and provide enhanced opportunities for kids in public schools as well. If you recall, I previously said that over 30% of the revenue generated go to public schools to assist them in creating additional education opportunities for children who attend public school. Since the program's inception in 2001, wherein 38,000 business applications were approved pledging over one billion in EITC, OSTC Organizations in more than 500,000 scholarships have been awarded to children, made possible by both of these programs. May have the inaccurate notion that school choice needs plenty of private education programs. In reality, school choice means a parent and child can choose from public cyber schools, public schools, home schooling, or private or parochial schools. It's about equality and education, ladies and gentlemen. It's not about funding schools, it's not about funding businesses, or about cutting corners, it's about giving children access, like the young man that — the two young men that spoke earlier, access to a high-quality education. The education and equity program that exists in Pennsylvania and nationally is an issue of social justice. The quality of a child's education plays a major role in determining their life path, what type of life choices they make, what type of profession they choose, their income level. In a zip code, you never, ever, ever determine the quality of a child's education, yet it does in Pennsylvania. We are fearful that the proposed rule changes would adversely impact and reverse the hard-fought gains we've made over the years that have benefitted countless families throughout our state. So, we'll likely tell you the proposed rule change will have little to no impact on children from middle to low income families. I will tell you the proposed rule changes could adversely affect school choice programs, expand the achievement gap, and sink the proverbial lifeboat for children trapped in struggling school districts. Pennsylvania's Education Improvement Tax Credit program and her sister program, the Opportunity Scholarship Tax Credit program, empowered families of children who live in communities where access to quality public education is limited and, in many cases, does not exist, children like Johnny. We're going to take a couple of minutes to tell you about a Johnny. Johnny comes from a low-income family, of course. He lives in one of the worst communities, worst neighborhoods in the Commonwealth of Pennsylvania, and when Johnny leaves school, he has to walk through gang-infested territory, drug-ridden territory, territory that has violence permeated throughout. So, the one day, Johnny leaves from school, he's walking through his community, and he goes home. He's a latchkey kid, by the way, so when he goes home, normally, as most latchkey kids, there's not a parent in the house, but his mother was sitting on the couch. When Johnny got home, his mother was sitting there with tears coming from her eyes. Johnny looked at his mother and said mother, what's wrong? She said Johnny, don't worry. I want you to go in your room. I want you to go in the room, and you know where I keep that box in the room, right on top — right on top of the shelf. Johnny said but of course, mother, and she said I want you to go in there, reach in that box and pull out the letter. She said — he said sure, being, you know, obedient child. He goes in there. He goes into the room. He goes to reach up and, of course, Johnny's a little guy, so Johnny can't reach it. So, Johnny looks to the side and he sees a stool. He grabs the stool, puts the stool there, steps on it, tries to reach it again, but to no avail, Johnny cannot reach it. So, then, he surveys his surroundings and he looks over in the corner and he sees this old family Bible. So, Johnny looks around to make sure his mother's not in the room. He goes, grabs the old family Bible. He sticks it on top of the stool and he knew at that point he could reach it. So, Johnny, just as he steps on the Bible and goes up to reach up, his mom said stop right there, Johnny. She said you know, in life you're going to be faced with a lot of adversity. There's going to be a lot of things that are blocking and impeding your progress. There are going to be things that are going to prevent you from achieving everything that you want to achieve in life, but as long as you can stand — continue to stand on that, continue to stand on what's right — now, of course, that Bible could be a Torah easily (laughing), but as long as you continue to stand on that, stand on what's right, everything in life will work out well. So, bring me that letter. So, what that letter really said, ladies and gentlemen, once he opened it, it says you've just been awarded an EITC scholarship. So, guess what? Johnny no longer has to go to that failing school. There are mil — there are hundreds of thousands of Johnnies in Pennsylvania. There are even millions across this nation, which has been evidenced by Alabama. These programs work. So, what I'm asking you to do, and what I'm asking this body to do is just do the right thing. Look at it. Think about the impact that it's going to have on the children and families. I know that you have a job to do and I know that you — you're excellent at what you do because I tell you what, I'm not a tax attorney, nor am I an expert on tax law, but I do know children and families and I know what's needed throughout our nation. So, with that being said, ladies and gentlemen, I want to thank you and, again, the EITC program leads to social justice, more children being lifted out of the dangerous and failing schools. It also gives families a much-needed choice. So, we ask you, we humbly ask you to keep this in mind when considering the work that you do in the proposal before you. So, thank you, ladies and gentlemen, for your time. Thank you.

MR. DINWIDDLE: Mr. Banks, thank you.

Okay. Next up, representing the Diocese of Arlington Scholarship Foundation, Mr. Timothy Cotnoir. Correct my pronunciation there. (laughing)

MR. COTNOIR: Thank you.

MR. DINWIDDLE: Thank you.

MR. COTNOIR: Thank you for the privilege to be here and provide comments on these proposed regulation changes. My name is Timothy Cotnoir. You did a good job, and I am the treasurer for the Scholarship Foundation for the Catholic Diocese of Arlington, and I echo those who have come before me in support of tax credit programs throughout the United States. I respectfully recommend that these rule changes not be adopted, due to the negative impact that they will have on those who most benefit from these charitable programs, specifically impoverished and at-risk families who wish to have a choice in education. At the inception of the Education Improvement Scholarship Tax Credit program in Virginia, our foundation was able to assist that first year, modestly, 30 students with about $100,000 in donations. Almost five years later, we're now approaching two million dollars being raised annually, and are assisting 500 at-risk youth of lower income socioeconomic strata. Not only are they given an opportunity that would otherwise be unavailable, the rest of the student bodies at the schools where they attend are made richer because of the increased diversity. The momentum this program has garnered, and the increasing popularity of it, is directly associated with the tax benefits that are received, and up to now, the program has been accessible and easily afforded. Just a couple — to reiterate some of the specifics about the Virginia program, all donations that are received through these foundations are to be utilized toward scholarships by the following year that they were donated. Nearly all of those dollars go out in scholarships, 90% of them. So, no funds are accumulated for future reserves for — in case that there are decreasing donations and, just to reiterate, all of the funds go out in a fairly short period of time. The fact is, these proposed changes will result in the reduction of the tax benefit that has been anticipated and relied upon up to this point. This decreased tax benefit will have a negative effect on the scholarship program by dampening the current enthusiasm that exists and the momentum that has been garnered up to this point. I believe the unintended consequences and negative impact will be threefold, as well as some tangential negative impacts. First, contributions will go down, due to the reduced tax benefit afforded to donors right now. Second, with fewer donations being made into these foundations, our ability to bring new students into the program will be severely limited, thus reducing the access to educational choice to the most vulnerable population, those who are impoverished and at risk. Third, with reduced donations, our ability to offer scholarships to the current at risk and impoverished student population that we've brought in for the last five years will result in us having to probably turn those guys — turn those folks away, and then pushing them back out into the public-school system, thereby burdening the public-school system further. This will be the only option that they will have to go to school, and it's now created a no-option option.

Tangentially, negative impacts include the fact that the ongoing student population in our schools will now be disadvantaged because of the lack of diversity that we have been trying to build in the socioeconomic backgrounds of those who attend. As well as the increased burden in the public-school system as I have mentioned.

In conclusion, I strongly urge you not to adopt these proposed changes on the contribution in exchange for state and local tax credits. Or at the very least, consider exempting educational foundations and tuition scholarship programs as they benefit the most impoverished and at-risk population within our country. I am deeply grateful and I thank you for your time and I feel privileged to have been given this opportunity. Thank you.

MR. DINWIDDLE: Thank you for your comments. Questions? Thank you. Next from Agudath Israel of America Rabbi Abba Cohen and Mr. Stuart Schabes.

MR. COHEN: Thank you very much. Mr. Schabes was not able to join us here today.

MR. DINWIDDLE: Oh, okay.

MR. COHEN: My name is Abba Cohen. I am the vice president for federal affairs at Agudath Israel of America. Agudath Israel of America was founded almost a century ago. It is a national grass roots orthodox Jewish organization. For over 60 years, Agudath Israel has served as a liaison between government and the entire spectrum of orthodox Jewish educational institutions in the United States. Hundreds of institutions from preschool through higher ed, educating hundreds of thousands of students. And we have taken a considerable interest and have been actively involved in the formulation and the implementation of federal and state education law and policy.

As part of our advocacy, Agudath Israel has been a prominent voice in the school choice movement. We firmly believe that one of the keys to educational excellence and success is parental involvement. And that there is no better way to encourage such involvement and to ensure educational accountability than to allow parents to choose the school that is best suited and most appropriate for their children whether public or non-public, secular or sectarian.

Over the last two decades, Agudath Israel has advocated for and helped implement scholarship tax credit programs in ten states. There are currently an estimated 6500 students attending Jewish schools in those states as a result of scholarships generated by tax credit programs that are the subject of the proposed regs. Many of the families of these 6500 students would be unable to pay their tuition obligations without scholarships from scholarship granting organizations. We're deeply concerned that the proposed regs would threaten the continued financial viability of these SGO's.

The NPRM states that the proposed regulations would affect only a small fraction of donors. Surveys conducted by several SGO's reveal that this small fraction of donors are the very donors who contribute to SGO's. Agudath Israel has heard from those SGO's that the proposed regs will dramatically reduce the number and amount of donations they have historically received. These lost donations represent the significant percent of the SGO's total donations.

The proposed regulations will cause significant and adverse consequences to young students and their low-income families that rely upon scholarships to attend the schools of their choice. We therefore believe that the proposal will have the unfortunate affect of undermining the very laudable educational objectives and successes of programs that states have decided to pursue to help boost student opportunity and achievement. This was neither the purpose nor desire of the Department of Treasury or the IRS and it is direct conflict of the Trump administration's stated policy of promoting and expanding school choice.

We have submitted written comments and, both for your sake and my sake, I won't go through them. But we do agree with those who believe that the proposed regulations are overbroad; they were intended to target a specific problem dealing with a specific workaround, SALT workarounds, and yet they go much broader than that specific problem. And addressing that specific problem, in a sense, throwing the baby out with the bathwater. And therefore, the overbroadness of them is really a mischief for all kinds of problems that would arise and generally speaking, bad public policy. When you make policy that goes beyond the scope of the problem that you're trying to deal with, that is just a prescription for other problems.

We also agree with what has been said: that it reverses longstanding IRS policy in certain respects, including the quid pro quo definition, and it has been upon the reliance of those kinds of definitions and those kinds of principles that these organizations have framed their organizations and built up their activities. And to undermine them now even though they've relied on these things is really unfair and I think as a fundamental flaw in the approach to this problem. We have proposed particular language that we think directs itself to the concern that the IRS has without throwing the baby out with the bathwater. That is language that differentiates between independent donating organizations and state controlled or governmental entities that are really the subjects of the concerns that have been expressed here.

I want to say also that there are other things that we also agree with. Aside from our proposed language which we think should be considered and adopted because think it really does target the problem without collateral damage. We think a delay in the implementation would be worthwhile. And a clarification of deductions that have been mentioned whether under section 164 or section 162, to see how everything fits and how everything falls together. We've been hearing things, there have been statements made and there have been counter-statements made, and we really need a clarification, really regardless of how the quid pro quo issue is dealt with. We really need to know or have greater clarity in regard to those things.

I just want to also make the point that I think it is somewhat unfortunate, some of the terminology that has been used which doesn't really advance the concerns here. It has been eluded to by the previous speaker, these state programs and scholarship programs are referred to as Tax Shelters. Tax Shelters, unfortunately, have a very negative connotation. Sometimes they are used in pejorative way. But there is nothing hidden here and there is nothing abusive here and there is nothing secret that would conjure up an image or conjure up the images of what we think and what are projected as tax shelters.

On the contrary, this has been adopted as the public policy of states to advance the interest of the citizens, the residents, the children, the families of that state. This is good public policy adopted by the state and should not be clouded by language like Tax Shelters and languages that conjure up a much more negative, much more sinister image. This is public policy the state has determined that's good for their citizens.

We also hear double dipping. I'm not a tax lawyer but my tax law advisors tell me that, well double dipping, as we call it, is perhaps an expected consequence of a two-tiered federal state system. And, in fact, there are other instances outside of the context that we're talking about now. So, if double dipping is a problem then okay, maybe perhaps it should be dealt with but not here in regard to only this particular issue. These are not the regs to do it and this issue should not be singled out as the issue as opposed to other issues where the problem also arises to concentrate on.

I would also say that this is not really — this should not be even though it has turned into but this should not be a discussion on the merits of school choice. School choice, if people have constitutional concerns with school choice, go to court. If you have a concern about state scholarship programs, go to state capitals and discuss it. This really should not be a discussion about the merits of school choice. This is a tax discussion, and I would say that it seems like there are those who want to create their own workarounds to work around the courts and work around the state legislatures and state governments to attack school choice in this way.

Finally, I would say on a note that is discouraging that we all have an interest. We seem to, public education and private education has seemed to be pitted against each other and we all have an interest in public education and we should have an interest in private education as well. We all have a stake in both forms of education. And I think it is worthwhile to remember that private school parents as well as public school parents pay taxes to support public education. Thank you very much.

MR. DINWIDDLE: Thank you Rabbi Cohen. Okay next up, we have a speaker from the Association of Christian Schools International. You're going to have to help me with the pronunciation of your last name, I apologize.

MR. TRYFIATES: Thank you. I'm used to a pause before I'm called up. Good morning, my name is George Tryfiates. I'm director for government affairs at the Association of Christian Schools International. ACSI is a non-profit, non-denominational association providing support services to nearly 24,000 Christian schools in over 90 countries. As the world's largest association of protestant schools, ACSI serves nearly 3,000 Christian preschools, elementary and secondary schools and 90 post-secondary institutions in the United States alone.

We are a leader in strengthening Christian schools and equipping Christian educators worldwide. ACSI accredits protestant Pre-K to 12 schools, provides professional development and teacher certification and offers its member schools high quality curricula, student testing and a wide range of student activities. Member schools educate some 5 and half million students around the world.

ACSI has in turn, established the ACSI Children's Education Fund, ACEF, which is a non-profit scholarship granting organization which operates in six states and provides over 2,000 scholarships to students. The goal of ACEF is to partner with families and schools to provide a better educational experience for students and their families. We seek to help both the scholar and the institution be successful.

We're urging the Treasury to narrowly address its valid concerns outlined in the NPRM and to preserve federal charitable tax deductions to state tax credit scholarship programs as they are. We believe there is good reason to leave the programs unhindered. The NPRM came about in large part by the efforts of states to circumvent the lower state and local tax or SALT deduction in the new Tax Cuts and Jobs Act of 2017. Rather than address this specific challenge, the NPRM applies to all state tax credit programs including, in particular, to state tax credit scholarship programs.

It thus poses a threat to the latter which are valuable programs designed to serve low and moderate-income families and it does that by discouraging donors from ongoing giving. We urge the Treasury to craft its regulations to apply only to the specific offending practice and thus to keep the current tax treatment of tax credit scholarship programs. Tax credit scholarship programs were not created in response to recent tax reform law but have, in fact, been operational for many years. 24 tax credit scholarship programs exist in 18 states and as on average, the year of enactment was 2010. Of the 24, only two have been passed since 2017 and the oldest was created 21 years ago in 1997. In short, they long predate the TCJA.

Worth noting, states have also created multiple avenues for donors to receive various forms of state tax credits even beyond the impact of SALT. So, those avenues include not only personal income taxes and corporate income taxes but things like insurance premium taxes and motor vehicle licensing fees. Thus, the scholarship programs were created primarily to provide economically and academically disadvantaged students opportunities to find schools that better fit their needs and not to evade SALT deduction limits.

Since the programs were not designed to evade the Tax Cut and Jobs Act and predate it, then the regulations to overcome those evasions should be carefully and clearly drawn to ensure the continued operation of state tax credit scholarship programs. Which are so vital to helping low and moderate-income families gain access to the education they choose, especially faith-based options such as those offered by ACSI member schools. We suggested in our written public comment that one approach for the NPRM may be to consider focusing on section 170 c 1 which deals with one particular definition of a charitable contribution. "A contribution or gift to or for the use of a state, a possession of the United States, or any political division of any of the foregoing et cetera. But only if the contribution or gift is made for exclusively public purposes."

So, the new state SALT workarounds typically involve an attempt at creating a way to give a so-called charitable gift to a state or political division which will be used for exclusively public purposes. Namely, in order to find a way to pay state taxes and yet have the system avoid the new federal cap on the SALT deduction. Tax credit scholarship programs encourage giving to private sector scholarship granting organizations, not to states or political subdivisions so that parents may take advantage of private sector education options including significantly faith-based education options which do not receive public or government funding. So, by definition or not, exclusively for public purposes.

These programs seek to improve the life of a child and positively change their trajectory by giving the child access to schools that are simply a better fit. Across the country, nearly 272,000 low to moderate-income students are in private schools as a result of these programs. A significant majority of programs are for families identified not only as low to moderate income but also, in some cases, for students assigned to a failing school district. The programs provide an option to families that would not otherwise exist. When a child loses a scholarship, our contention is that the impact is not de minimis.

The federal government has the means and the capacity and the expertise to craft regulations which can deal with the specific challenge to its authority without harming scholarship programs for low income families. Every gift left ungiven will cut the number of scholarships available and affects a real child who merely seeks options and opportunities. Every gift the regulations unnecessarily discourage involves the life of a child and our contention is simply this with respect. That if the final rule causes even one child to lose her scholarship, then perhaps we've done it wrong. I thank you for your consideration.

MR. DINWIDDLE: Thank you very much for your comments. Any questions? No, thank you again. Okay, we've come to 12 o'clock noon so we're going to take a break and then reconvene. So, we'd like to take a 45-minute break and come back at 12: 45 to finish the remaining presentations by the eight speakers on the list. So, we'll reconvene at 12:45. Thank you.

MS. GROSS: Please make sure you have an escort if you are leaving the building for lunch. Escorts, if you could be close to the door, you can see them in the back there, we're happy to take you —

MR. DINWIDDLE: I guess we should also mention, there is a cafeteria just down the hall for those who don't want to leave the building. I don't know if it's still pouring rain but there is a cafeteria just down the hall to the left and then the first right.

MS. GROSS: Thank you.

(Recess)

MR. DINWIDDLE: All right. We — we'll reconvene our hearing here. Thank you for our momentary confusion. We came back from break, and we were down one chair, but we weren't down one listener, so we've got that sorted out. So anyway, thank you for your patience.

So we will get started and continue. I think we are ready for our 17th speaker who is Ms. Maggie Garrett, representing Americans United for Separation of Church and State. So if you want to come on up to the lectern, we will be happy to hear from you.

MS. GARRETT: Good afternoon. I just missed the cut off this morning of being able to say good morning. Thank you for allowing me the opportunity to speak today. My name is Maggie Garrett, and I am the Vice President for Public Policy at Americans United for Separation of Church and State.

I am also the cochair of the National Coalition for Public Education. NCPE is a coalition of more than 50 national organizations. There are education groups, civil rights groups, religious groups, secular groups, LGBTQ groups, disability rights groups that all come together to support public schools and oppose private school voucher programs. And I'm here today to testify in favor of closing the private school voucher loophole.

The loophole doesn't simply allow taxpayers to lessen their tax burden when they contribute to a state tuition tax credit program. It actually allows them to turn a profit, and we think that's bad policy. The government should not grant tax benefits that exceed the value of a charitable donation. Doing so drains money away from public services such as our public schools, and isn't subsidizing charity because it isn't charity when you — an individual makes money from a contribution.

In addition, it threatens the integrity of the charitable deduction. A charitable deduction is meant to reward genuine philanthropy and to incentivize donations to charities whose missions taxpayers believe in and support. The purpose is not to — to provide a tax shelter from which taxpayers can profit.

A report by the Institute on Taxation and Economic Policy provided a helpful example of how this loophole works in South Carolina. First, a taxpayer in South Carolina makes a $1 million dollar contribution to the South Carolina voucher program. Then, because the state tuition tax credit they get — because of the tax credit, they get every cent of that contribution back, every cent. In reality, the taxpayer didn't make a donation to the private school for private school tuition.

In reality, the state paid for it. Yet existing federal tax law allows the taxpayer to — to claim the same contribution, the contribution the taxpayer was already fully reimbursed for, as a charitable donation. This allows them to get another $370,000 in tax benefits. In the end, the taxpayer gets $1.3 million in tax benefits for the $1 million contribution made. That's a net gain of $370,000 in tax benefits and that's fiscally irresponsible.

As my colleagues at the Baptist Joint Committee for Religious Liberty explained in their written comments, when a charitable organization "thanks a donor with a bag, a book or a burger, the donor typically must deduct that value from their donation in claiming a tax deduction." This uncontroversial commonsense principle should apply equally to charitable giving incentivized by the states.

It is true that Americans United also has serious concerns about the underlying state tuition tax credit programs. Tuition tax credits are essentially private school vouchers used that drain public school from public schools for the benefit of public — private schools. And these programs have significant flaws.

These programs lack transparency and accountability. They allow the government to subsidize schools that can discriminate against students on the basis of criteria like religion, sex, sexual orientation, or disability. These programs have never been shown to improve education. To the contrary, recent studies, many studies show that overall voucher programs decrease student achievement. And, of course, we have serious concerns when it comes to the religious liberty aspects of school vouchers. Taxpayer dollars should not be used and funneled to private schools for private religious education.

We believe that the government should not be funding — we believe that the government should be funding public schools that serve everyone regardless of religion, sex, disability, not private religious schools.

But even if you support tuition tax credit programs and private school vouchers, it's still difficult to justify this loophole. It's one thing to lessen the taxpayer's tax burden for charitable donations. It's another thing altogether to allow a taxpayer to turn a profit off of a contribution, all especially when it's at the expense of our public services, especially our public schools. Thank you.

MR. DINWIDDLE: Thank you for your comments. All right. Next we've got two speakers listed from Barnes & Thornburg LLP & Ed Choice, Inc., a Mr. Brandt Hershman and Ms. Leslie Hiner. Welcome.

MR. HERSHMAN: Thank you for the opportunity to speak, and thank you for holding the hearing. My name is Brandt Hershman. I'm a counselor at Barnes & Thornburg, and I serve as outside counsel to Ed Choice. Ed Choice is a nonpartisan 501(c)(3) organization that serves as a clearinghouse of information and as a leader in research related school choice policies in the U.S. It was founded by Nobel laureate, Milton Friedman.

From 2000 to 2018, I served in the Indiana Senate retiring as the Majority Leader. And from 2009 to 2018, I served as Chairman of the Committee on Tax and Fiscal Policy. During that time, Indiana engaged in a fundamental restructuring of its tax system. We put property tax caps in our Constitution. We've lowered income taxes and eliminated the inheritance tax and lowered corporate rates.

And as a result, Indiana is today widely recognized as having one of the most competitive state tax systems in the United States. But lowering taxes while maintaining balanced budgets required constant scrutiny of our tax code and our tax expenditures.

We began a rigorous process of nonpartisan tax incentive review resulting in a system that today is recognized by the Pew Foundation as a national leader. We econometrically analyzed the impacts of tax credits we offered, and eliminated dozens of them that had outlived their usefulness or were not providing desired policy results. The elimination of those credits was broad-based and affected a wide variety of stakeholders on the political left and right.

My argument was relevant to the discussion today for two reasons. First, Indiana extensively considered the type of policies it wished to promote through the tax code, and made informed decisions on them. Second, we regularly reviewed those decisions to ensure they were producing the desired outcome. And, working with then governor, Mike Pence, tax credits for scholarship granting organizations are a credit we chose not only to preserve but to expand because we were able to conclusively demonstrate through independent research that they had a meaningful impact on the students who came from families of limited means.

We were fully aware that the effectiveness of such credits were leveraged by the deductibility of the donation at the federal level, and created our system with that synergy in mind. The credit was last reviewed in 2015 using data through 2013, and it will be reviewed again in 2020. We do a five-year rolling cycle.

2013 data showed roughly 2000 individual donors and only one corporate donor contributing $3.4 million to the program. It was growing at a 43 percent year-over-year rate. This funded 9127 scholarships with an average award of $1361. Over 300 schools participated in the program. Recipient household income is limited to 200 percent of the federal poverty level and based upon income levels, roughly 800,000 Hoosier children could qualify for a scholarship if we received enough funding.

The average contribution was $3593, and the average tax credit per student was $822, not a large amount of money. Elasticity studies we conducted concluded that a $500 tax credit resulted in an additional $500-$750 contribution, suggesting that the credit was an important but not an exclusive reason for the contribution. Individual contribution levels grew from 2011 through 2013 while taxpayer incomes remained flat, strongly suggesting that the motives for the contributions were not exclusively tax related.

I note a 2012 report by the Iowa Department of Revenue stated that although some high income taxpayers may be using the credit as a tax strategy, there were a higher number of households that did not benefit significantly on their taxes, but contributed based upon their beliefs. And a 2008 Florida study showed that taxpayers saved $1.49 in government education funding for every dollar given in a tax credit.

While this data is illustrative as to the merits of the credits, they reflect policy decisions that are the purview of state legislatures. Any attempt to pass judgment on the merits of them, are clearly beyond the scope of this inquiry. And many of the comments today, I believe, are thinly-veiled attempts to relitigate policy battles that were lost at a state level.

The Tax Cuts and Jobs Act placed a limitation on the deductibility of state and local tax payments, I believe, because Congress disapproved of the policy of forcing residents of low tax states to subsidize the policy decisions of legislatures in high tax states via the federal tax code. And that is clearly the net result of the prior law. This too was a policy decision made by Congress and beyond the scope of this inquiry.

I see no evidence that the law authorized or contemplated wholesale re-examination of charitable giving regulations. It appears, and reasonably so, that the purpose of the proposed regulations is to present — prevent manipulation of the SALT cap through improper characterization of what are clearly tax receipts as charitable donations.

While the intent of the regulation is honorable, the practical impact is to have a serious and negative impact on existing charitable entities, in particular, scholarship granting organizations of you've seen — as you've seen today, that are funded through state tax credits and leveraged by federal deductions.

Rather than seeking to reduce benefits created through state policy decisions to encourage legitimate charitable deductions, a method which looks at the conduit of any contributions which directly or indirectly benefit state government, as defined in Section 164(b)(2), I consider more appropriate. Such a method would also suggest making the Section 164 SALT cap apply to any Section 170(c)(1) donations made to state government.

There's prior guidance on this proposal under the integral part test and Treasury Regulations and Revenue Rulings. We believe this approach creates a clear distinction based upon largely existing IRS guidance while maintaining the intent of the proposed regulations. A clear distinction arises between the legitimate activities of SGOs, and other charitable organizations, and the pseudo-charities created by state governments to engage in tax arbitrage.

The IRS has a long history of evaluating the legitimacy of charitable activity, and I believe it remains well-equipped to exercise appropriate judgment in this case without changing the fundamentals of what constitutes a charitable contributions and limits on such contributions. Thank you.

MR. DINWIDDLE: Thank you.

MS. HINER: Thank you. My name is Leslie Hiner. I am the Vice President of Legal Affairs at Ed Choice, and I also lead our Ed Choice Legal Defense and Education Center. We began as the Friedman Foundation for Educational Choice back in 1996. And we continue to carry forward the vision of our founders which is very simply that we believe every parent in America should be able to access funds to choose the school or educational option that that parent decides is, in fact, the best opportunity for learning for the parent's child. That is what school choice is all about, and we are purely educational, so we try to educate people around the country on how to make that happen in their own states. This is very much a state-based initiative.

We do not engage in politics. We are strictly educational, and we also don't get very involved in tax policy normally. However, we are now. So, we are involved in tax policy now because this tax policy has the potential to harm a lot of the families and the students that we currently serve.

We care about freedom. We care about these families. We care about the families like the family we heard from earlier today that was from Alabama. Their needs are very real. Don't think for a moment that they aren't.

There are over 270,000 students who currently have tax credit based scholarships. The number is actually 272,322, but that's using the states figures from a couple years ago. They're a little late in reporting. Cautious estimate that there is that there are over 300,000 students today who are using scholarships to attend the school of their choice.

There are also 426 scholarship granting organizations. Each one of these, these are private organizations. In many cases, you'll find people in communities who came together to form their own nonprofit when they saw that there was, in fact, a need for education in their own communities, and they sought to serve that need.

So why do states encourage donors to give? Why do they do it? They do it because it's necessary. The need is great. I would ask you to please forgive those tax credit scholarship advocates who have been perhaps zealous in advocating that there are new tax benefits that everyone should pay attention to, and give more money to the tax credit scholarship programs.

Well, there's a reason why they do that too because they are the ones who face the parents every day, and they even have — they either have money and scholarships for these parents, or they do not. There is no question that there are long waiting lines of parents who are eager to get scholarships for their children. And why is that the case?

Well, it's very simply the case that oftentimes children are bullied or harassed in their state-assigned schools. They are harassed because they speak differently, because they look different, because they have a faith that's different. They have some sort of disability. There are different in some way.

And yet, if those same children could go to a different school where their differences are embraced and not scorned, then those children face a situation where their lives are transformed from one — from a life of being afraid and having no confidence to being full of confidence and hope for the future. That's what is at risk today.

We know that the incentives that states offer for these donors to pay less in — in state taxes because they contribute to these programs, we know that that's necessary. Because in Indianapolis the very first scholarship granting organization started back in the late 1980s early 90s. And for a while it was very successful when the creator, J. Patrick Rooney, as he said — went to his rich friends and said, you know, there's a better way to use your money. We have some kids in the inner city who are desperately in need, and we can help them so we're going to, and they did.

But helping children in this way where you're relying on the generosity of your rich friends and we can help them so we are going to. And they did. But helping children in this way where you are relying on the generosity of your rich friends if you have them or relying on the generosity of strangers works for a while. But when the need is so great, the sustainability that comes with the states recognition that yes, this is serving a very real public good and the state incentivizes the private sector to come in and help with that public good, that's necessary. So these tax credits are in fact necessary at both levels, state and federal. Thank you.

MR. DINWIDDLE: Thank you. Okay. Is our next speaker here? I know there was a little difficulty. Okay, great. I'm glad you were able to work through it. Okay. So we will welcome up to the lectern Mr. Steven Bellone from the Suffolk County Executives' Office.

MR. BELLONE: Yes, and my thanks to the assistance of everyone for getting me up here. Good afternoon to the distinguished members of the panel. My name is Steve Bellone, I'm the Suffolk County Executive, one of the largest suburban counties in our country with 1.5 million residents.

First, let me say — I want to say a thank you to the hardworking men and women of the IRS for the service to our country and the work that you do each and every day. I also want to acknowledge the presence of a colleague, New York State Assembly Woman, Amy Paulin, who has been a leader in our state on the issue that I am discussing, that we are discussing here today.

On behalf of the counties 1.5 million residents, I wish to express my strong opposition to the proposed regulations under discussion here today. If adopted, these regulations would deny a full deduction for donations made by taxpayers to charitable funds either already created in New York or under consideration to be created. It is well established that New York State and its local municipal governments have the legal authority to create charitable funds. Accordingly, New York State created the Charitable Gifts Trust Fund comprising two separate accounts, the Health Charitable Account and the Elementary and Secondary Education Charitable Account. This fund is therefore lawfully created and supported by the laws of the state of New York and the federal rules and regulations of the United States including those of the Internal Revenue Service.

Many local and municipal governments including mine were considering creating local charitable trusts, although such efforts have in many cases been stymied by the publication of the proposed regulations that arbitrarily, and I would say capriciously, preclude our residents from utilizing such funds as others have done in the past.

I am also under the impression that such funds continue to be used by others who have not been targeted for punishment from the IRS and so such deductions remain allowable. In fact, it is with shock and frustration that we find the IRS has decided to amend its regulations, divert from past practice, punish charitable donors, undermine recipients of charitable donations, and in effect politicize the regulatory process in order to punish donor states such as New York State that send more of our tax dollars to Washington than we ever see in return.

The residents of Suffolk County in Long Island and of the state of New York deserve better treatment. It is simply untenable that this regulatory body put forward regulations that appear to be meant to change current law in order to punish communities such as mine. I am sure that it is no surprise to any of you that New York is one of the states hardest hit by the 2017 Tax Cuts and Jobs Act according to the Tax Policy Center.

In fact, as I understand it, the average SALT deduction in New York is approximately $22,000.Limiting the SALT deduction to $10,000 is therefore the equivalent to a multiple thousand dollar tax increase on many of our residents. With this in mind, it is my intention to recommend, support and implement legislation creating local charitable trusts while educating my residents on how to utilize the state trust fund for their benefit.

The goal is to simply use tools that others have been able to use and some continue to be able to use to mitigate negative tax consequences. If such tools had value in our country prior to the issuance of the proposed regulations, they have value still and the body should not arbitrarily change them to meet a political agenda. Simply put, our residents should be able to mitigate the harsh impact of the 2017 tax act by utilizing lawful tools that have been found acceptable in the past.

One might ask who is impacted by the tax act and also the corresponding proposed regulations. I submit to this body that our residents will suffer higher tax burdens. Our homeowners will face a devaluation of the value of their homes, their single biggest investment normally. Businesses will suffer when so many within our community will have to pay thousands more in taxes in order to satisfy this regulatory scheme and thus will consume less. Local governments will suffer when we fail to realize the full value of our sales tax and other revenue. Schools will suffer as revenue shortfalls ultimately plague them as well.

In the communities in my county, these regulations will have a disproportionate effect on working and middle-class homeowners, teachers, police officer, nurses, small business owners and so many others. It is not right and it is not fair and it should not be allowed to happen. In my county, in my state, we do invest in our teachers and our first responders and such as our police officers and emergency medical professionals.

We support paying our laborers a living wage and respect their right to organize to achieve safe and proper work conditions. We protect our environment and invest in education and safety of our children. The wages that are generated result not only in an appropriate standard of living but of significant tax dollars being raised and sent to Washington and then spread across the country to other states. So be it, we accept that reality, but by crafting regulations that prohibit the use of charitable funds to particular taxpayers while still having this, these regulatory proposals, is unfair and it is wrong. In fact, it is an arbitrary and capricious use of regulation to hurt our taxpayers.

For the record, in regard to the legal arguments being used to challenge the proposed regulations, I accept in sum and substance the comments submitted by counsel to our regional coalition, the Coalition for the Charitable Contribution Deduction. I believe that our coalition counsel, Baker and Mackenzie provided — provide a thorough and convincing legal basis to reject the proposed regulations.

This regional coalition is made up of counties, cities, towns, villages and school districts along with state and county-wide professional and advocacy organizations. As a proud member of the coalition, it is our belief that these proposed regulations not only ignore long standing precedent within our tax code but also prevent taxpayers from utilizing a perfectly fair and accepted mechanism to donate funds and achieve recognized tax benefits.

In conclusion, the consequences of the proposed regulations to many of my residents will be the equivalent of a significant tax increase. For many and by many, I mean tens of thousands of my county residents. The increase will be several thousand dollars — several thousands of dollars in additional taxes per year. It is not fair. It is not rational. It is not tenable and I believe it is not legal.

I request that these regulations be reconsidered and ultimately rejected. I request that the residents of Suffolk County and the state of New York and of those who are similarly situated throughout our country get the benefit of the laws and regulations as they have existed. And if Congress wants to change the law then they should do so.

On behalf of Suffolk County, New York, I thank you for the opportunity to testify at this important hearing and I thank you for receiving my written comments as well. I hope that the testimony that I and others are presenting leads to a reevaluation and rejection of the proposed regulations so that the taxpayers in my county are not unduly burdened and punished as I believe they would be if these regulations were adopted. Thank you very much. Thank you.

MR. DINWIDDLE: Thank you for your comments. Okay. Next up we have Mr. Elliot Holtz who is representing a number of different organizations I think, and I don't know if you want to just go through them.

MR. HOLTZ: Sure. Esteemed committee, thank you mostly for your patience today in listening to a lot of repetition and we really appreciate you taking the time to hear all of our comments. The reason I'm here is for the kids and I'm not a tax expert, I'm not a tax attorney but I am a volunteer in many organizations.

My name is Elliot Holtz and I'm the volunteer chairman of the second largest scholarship granting organization in Pennsylvania which is the Foundation for Jewish Day Schools. I also head up development for Aim Academy which is a special needs school for children who are severely learning disabled. We work closely with other denomination organizations such as the Catholics and the largest scholarship granting organization known as BLOCS, Business Leaders Organized for Catholics Schools in Pennsylvania.

I also chair the advocacy organization Teach PA that is represented here today. In these capacities I wear several hats as some people refer to me and I'm here on behalf of thousands of Pennsylvania children who take advantage of these programs.

As we have heard from others this morning and afternoon, Pennsylvania educational program and there is actually two of them, EITC and OSTC. One allows students with a certain income to attend the school of their choice and the other is income-restricted, and if that family would otherwise go to a failing school in a neighborhood that has terribly performing schools. So we have two programs that and then there is a third program that was referenced earlier that provides opportunities for public school students to receive these funds as well.

This past year around 50,000 students in Pennsylvania were awarded tuition scholarships for their schools. Schools that they might likely not have been able to attend if we didn't have these scholarships. And just by reference, for the over a thousand students in the Philadelphia area in the Jewish schools, our average scholarship for the income restriction, the average income was $36,000.And for the income and geographic based on the lowest performing schools income of the family was only $17,000.So in most cases, these are very needy students.

For the 2017 and 2018 school year, the Foundation for Jewish Day Schools in Philadelphia, Pittsburgh as well as AIM Academy awarded over 13 million dollars in scholarships for over 1500 students. These are very significant scholarships to keep these kids in the right school.

Like many other organizations that advocate for educational opportunity, our Pennsylvania Catholic, Jewish and special needs associates are deeply concerned. We are deeply concerned that the regulations proposed in the notice of proposed rulemaking under Section 170 will undermine the state tax credit programs and promote educational opportunity in school choice that will be diminished. And the significant reduction of these contributions will also eliminate consistency in education that these children have today. Taking away these scholarships will significantly impact the students that have been receiving them for a number of years under these state programs. That is a disaster from an educational standpoint.

Our organizations are responsible for helping these children and continuing to solicit funds from donors with the charitable contribution impact is incredibly important. It is key to helping these families. Our donors are highly interested in our schools. We are not running into strangers soliciting funds to make a profit for these schools. We are going to community people who are involved or organizations that want to help children be in the right school.

We have actually spoken to a number of our donors including some of our larger donors. We estimate, and it can't be scientific until it happens, but we estimate that over 10 percent of our donors would reduce or eliminate their contributions with the proposed rules. I would like to share our request which echoes everything we have heard today. From the proponents is that and I'll just say it plainly. We ask that the application of the proposed rules be restricted to state sponsored entities under IRSC section 170(c)1.

Extending the restrictions to education oriented programs is the result of a broad stroke reaction that should be narrow and targeted. Alternatively, we would request maintaining the current legal treatment of state tax credit programs created prior to Congresses consideration of placing a cap on SALT payment deductions.

We would also ask that the committee resolve and confirm this policy as soon as possible, well before year end. Extending the timeframe will seriously impact the donor's ability to complete their contribution within the Commonwealth of Pennsylvania's guidelines, a stipulated timeframe that ends at the end of the calendar year, 2018, with roughly six weeks left would tremendously impact the ability of each of these families to continue their scholarship for the next school year.

For many, being involved is the great reason to participate in the program. They're involved in the schools, they're involved in the community, they're involved in children's lives. I am here today because I am compelled to do what I can for those kids who will not get their scholarship because of the changes we are discussing today. And many, many people are counting on me.

My passion is probably best up summed by — summed up by the story of a young woman with severe learning disabilities. She was in fourth grade, unable to read, with my son, also in fourth grade and unable to read. My family was fortunate to be able to afford the tuition for AIM Academy, a special-needs school.

However, this young African American girl from West Philadelphia was unable to pay that tuition and would come to school each week with dollar bills paying tuition. We had no idea why she kept bringing dollar bills to school. We found out that her father was baking and selling pies and giving her the proceeds coming to the school each week to be able to try to keep her in school. And this was fourth grade.

In the case — in her case, she was in a school in Philadelphia that just could not teach her to read. She was failing. She had no other way to get ahead in life. And I — while I can't do the justice to the stories that we heard firsthand, this is a daughter who was — a child who was in school with my son throughout their high school careers. We found her father was baking, making the pies. She was bringing the cash in and she was, I mean, and she needed to be in this school.

When I learned of this, I spoke to another parent and I explained to him how the Pennsylvania tax credit program worked in conjunction with the federal charitable contribution laws. We were successful in getting this parent to participate. He continues to participate today and we were able to keep this young woman thriving through her high school career. The great news is that today she is a successful junior at Penn State in their main campus. Without the support of these programs, she may have never been able to read, let alone thrive.

Taking this away by applying the new IRS Rule 170 to existing programs will simply hurt our children, a consequence we do not think was ever intended. The bottom line is that children's lives are changed and in some cases even saved by Pennsylvania's scholarship tax credit programs. We are requesting that regulations do not impugned — impinge upon student opportunity and success and we greatly appreciate your taking the time to listen to all of us today. Thank you.

MR. DINWIDDLE: Thank you. Okay. Our next speaker is Mr. Stuart Cantor.

SPEAKER: (off mic)

MR. DINWIDDLE: Hold on. We have got a badge on the lectern that needs to be returned.

SPEAKER: Thank you.

MR. DINWIDDLE: Thanks Adam. Okay. All clear. Mr. Stuart Cantor, welcome.

MR. CANTOR: Thank you. I am pleased to be here today to speak about concerns with the proposed IRS designed rule, regulation to counter SALT limitation work arounds contemplated by various states. I thank the IRS and the Treasury Department for holding this public hearing and for giving me the chance to address these concerns.

My name is Stuart Cantor. I'm a CPA, I don't practice. But more importantly for today, in connection with this issue, I'm a long term volunteer in the Richmond, Virginia Jewish community and have been particularly involved with local Jewish private schools. In this volunteer capacity, I worked on many aspects of advocating for and implementing the Education Improvement Tax Credit Program in Virginia, a state tax credit driven scholarship program that serves children in grades K through 12 from low and modest-income homes.

In all of these efforts, I have had the privilege to work closely with representatives of national Jewish organizations as well as lay-persons and professionals from various Catholic, Protestant, Seventh Day Adventists, non-denominational, secular, inner city and rural private schools. So I believe my comments today are representative of a large spectrum of concerned individuals and institutions.