Award letters dated October 10, 2018 began arriving this week to existing donors and Special Purpose Entities that applied on May 15, 2018 for 2018 EITC tax credits.Our charity Central Pennsylvania Scholarship Fund will be collecting donations for an existing SPE Children’s Jubilee Scholarship 1 LLC $833,333 award letter which arrived Friday. This SPE is currently filled with existing donors from prior years. Contributions will be collected up to the December 9, 2018 deadline and then remitted to Central Pennsylvania Scholarship Fund for distribution as scholarships.
All donors to this SPE will receive a 2018 PA K-1 in early February 2019 reflecting a 90% PA tax credit calculated based on the amount of the donors contribution.The Federal Tax Cuts and Jobs Act signed into law December 2017 created changes to how SPE federal K-1 donation deductions are used by 2018 SPE donor/partners. 90% of taxpayer’s are expected to use the higher standard deduction of $24,000 married and $12,000 single in 2018 under the new law. This new standard deduction will impact some EITC donors who will no longer itemize donation deductions.
Currently under IRS temporary regulations effective August 27, 2018 a federal donation deduction of 10% of the EITC donation is allowed because of the 90% state tax credit benefit for 2018 EITC contributions by individuals. In the opinion of many tax experts in Pennsylvania 100% business donation deductions under code section 162 versus code section 170 are not allowed for EITC contributions and the proper treatment is to deduct 10% for federal purposes after August 27, 2018.
2018 contributors to Children’s Jubilee SPE will receive a federal K-1 with a 10% donation deduction and a 90% non deductible expense on the federal K-1 under current IRS rules.
The new 2018 temporary regulations will be debated at a public session in November 2018 and possible modifications or clarification may occur. A delay in effective date has been requested in public comments by myself and others and this appears to be the change the IRS may consider for 2018 that will impact year end 2018 K-1s. If that delay were to occur the 2018 federal K-1 issued in February 2019 would reflect a 100% donation deduction similar to prior year federal K-1s.
Our website will be updated regularly as new developments occur from the IRS concerning these new temporary regulations. Other award letters are expected to arrive weekly in October, November and early December.