This August the Internal Revenue Service (IRS) released proposed regulations that would decrease the federal deduction allowed on charitable contributions made to nonprofits that are eligible to receive state or local tax credits. The credits granted by state and local entities would not be affected, but donors would have to reduce the amount they claim as a deduction on their federal return by the amount of the credit they receive.

For example, if a state grants a 50% tax credit to a nonprofit and a donor makes a $1,000 contribution to an eligible organization, the donor must reduce the deduction they claim on their federal return by the $500 in state credit they receive, leaving an allowable deduction of only $500 instead of the $1,000 that is permissible now.

While it should be noted that this regulation, if approved, will not affect those who take the standard deduction on their federal return and does not apply to tax credits of 15% or less, we are especially concerned with this IRS proposal because of the potential impact on charitable giving on priority issues in our community.

For example, in the last legislative session, we were pleased to see the Colorado legislature reauthorize the Child Care Contribution Tax Credit (CCCTC), extending it to 2025.

The CCCTC has a 20-year history in our state, providing more than $50 million in funding to qualified organizations in fiscal year 2016 alone. Donations received promote child care in Colorado and serve to increase and incentivize both the quantity and quality of care available for children ages 0 -12. Licensed centers, youth-serving organizations and approved nonprofits who support childcare through scholarships, staff training or information and referrals (including United Way of Larimer County) are eligible to accept donations and provide the credit to donors.

This proposal is even more alarming due to the critical issues surrounding childcare in our community. Facilities in Larimer County currently meet only 25% of the need for infant care through licensed child care centers and the cost of unsubsidized care far exceeds many families’ ability to pay (at almost $14,000 per year). We hope you will consider joining United Way of Larimer County and a wide coalition of business, nonprofit and public entities who oppose this proposed regulation that disincentivizes philanthropic giving and will likely decrease overall funding to childcare in Colorado. To learn more, please click here and consider voicing your opinion to our Senators, Michael Bennet and Cory Gardner, Representative Jared Polis or directly to the IRS by the comment deadline of October 11.

Send comments to the Internal Revenue Service:

CC:PA:LPD:PR (REG-112176-18), Room 5203
P.O. Box 7604, Ben Franklin Station
Washington, DC 20044

Submissions may be also be sent electronically at: www.regulations.gov (Type: IRS and REG-112176-18 into the Search box at the top of the page and then click on the blue “Comment Now!” button). For tips on filing comments on proposed rules, please click here.

We are grateful to our friends at Eide Bailly and EKS&H for alerting us to this potential change.

United Way of Larimer County is committed to tackling the issues that matter most to our community and using a collaborative approach to accomplish more together. We appreciate your support and action as we work to strengthen Larimer County.

Annie Davies, President / CEO
United Way of Larimer County