Senator Seeks Exemption From SALT Cap for State-Based Charity

October 1, 2019

The Honorable Steven T. Mnuchin
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Re: Treasury Decision 9864, Contributions in Exchange for State or Local Tax Credits (84 FR 27513, 26 CFR 1)

Dear Secretary Mnuchin:

On June 13, 2019, the Internal Revenue Service published a final regulation pertaining to Contributions in Exchange for State or Local Tax Credits.

Prior to final implementation, we spoke about my concerns that the proposed regulation could pose unintended harm to the South Carolina Research Authority (SCRA). Unfortunately, the final regulation did not resolve my concerns with treatment of contributions to state-based charities created prior to passage of the Tax Cuts and Jobs Act.

The South Carolina General Assembly created the SCRA in 1983 to grow South Carolina's innovation based economy. Since inception, the SCRA has been extremely effective in assisting startup companies and growing jobs in South Carolina.

The final regulation has harmed the SCRA by including its contributions against an individual's State and Local Tax Deduction (SALT) cap. Unlike “charities” that were recently created in other states for purposes of avoiding the cap, the SCRA was created to help South Carolina's economy and job growth. Contributions to SCRA and entities like it should be treated as proper charitable contributions apart from the SALT cap.

I would like to discuss with you ways that this devastating impact may be eliminated. One approach may be to add appropriate language to the pending “safe harbor” proposed regulation that is currently under review by Treasury. There may also be other ways to address this disparity; I look forward to speaking with you further at your earliest opportunity.

Sincerely,

Lindsey O. Graham
United States Senator