The Tax Cuts and Jobs Act of 2017 limits the annual federal tax deduction for state and local taxes to $10,000. In response to this limit, some states with higher tax rates (including California) considered programs that would allow taxpayers to characterize tax payments as charitable donations instead.

Now, three months after putting tax professionals on  notice about this plan, the Internal Revenue Service and U.S. Department of the Treasury have confirmed their intent to disallow the charitable deduction work-around for the cap on state and local tax deductions on federal returns. The proposed regulations are now open for public comment, and specifically state:

The Treasury Department and the IRS believe that when a taxpayer receives or expects to receive a state or local tax credit in return for a payment or transfer to an entity listed in section 170(c), the receipt of this tax benefit constitutes a quid pro quo that may preclude a full deduction under section 170(a). In applying section 170 and the quid pro quo doctrine, the Treasury Department and the IRS do not believe it is appropriate to categorically exempt state or local tax benefits from the normal rules that apply to other benefits received by a taxpayer in exchange for a contribution. (...) Disregarding the value of all state tax benefits received or expected to be received in return for charitable contributions would precipitate revenue losses that would undermine and be inconsistent with the limitation on the deduction for state and local taxes adopted by Congress.