Since the landmark Alabama Accountability Act was enacted in 2013, allowing individual and corporate donors to provide scholarship funds for underprivileged children in our state who are zoned for underperforming public schools, there has been some confusion regarding how those donations interact with the estimated tax penalty rules. Many donors and their tax advisers interpreted the Alabama Department of Revenue’s position to mean that they could only donate money to a qualified scholarship granting organization (SGO) in the fourth quarter of the year if they wanted to avoid the risk of estimated tax penalties -- in effect, leaving SGO’s unable to make long-term scholarship commitments.
Thankfully, new Commissioner of Revenue Vernon Barnett and his staff issued Revenue Procedure 2017-01 on August 3 at the request of the Alabama Opportunity Scholarship Fund (AOSF), one of the state’s two largest SGOs. AOSF’s newest board member, Page Stalcup, a senior partner at Wilkins Miller CPAs in Mobile, assisted in the effort along with his tax partner, Frank Brown. “Frank and I were glad to help out on this. Hopefully, it will result in more donations and credits that will help a child get a better education. After all, it’s about the kids,” said Stalcup. The Revenue Procedure was followed by an email clarification to all SGOs from Deputy Commissioner Curtis Stewart on August 14.
The Revenue Procedure provides a safe harbor that allows donors to minimize the risk of quarterly estimated tax penalties. The Revenue Procedure confirms that no penalty will be assessed if the amount of estimated tax payments made to the ADOR by the quarterly due date, plus the amount of creditable donations made to SGOs during that quarter, exceed the total amount of estimated tax payments otherwise required to be made for that quarter. Please consult your CPA for assistance. The good news for 2017 and beyond is that qualified donors may in some cases choose to direct their entire third and fourth quarter Alabama estimated tax payments to an SGO without penalty – a win-win resolution for all concerned, especially the students.
Not only do donations to qualified SGOs provide a dollar-for-dollar Alabama tax credit (up to 50 percent of the donor’s annual income tax liability), but donors should be eligible for a charitable contribution deduction on their federal income tax return. Also, individuals who are subject to the federal Alternative Minimum Tax (AMT) could actually receive a net cash benefit when they donate to an SGO. The procedure for making these donations and donor qualifications are available on the AOSF website and on the ADOR’s helpful website.
In thanking Commissioner Barnett and his staff, AOSF Executive Director Lesley Searcy said: “Our students just want the opportunity to learn, be safe, and succeed. So many are in desperate situations and the scholarship provides the opportunity they need to get on track academically and to feel safe at school. AOSF needs $5 million to commit to our students who are re-enrolling this school year, and an additional $4 million to move students off the waiting list. We hope corporate and individual taxpayers will take advantage of this new opportunity to support low income students through their 3rd and 4th quarter estimated tax payments.”
*The authors’ law firm was involved in seeking the Revenue Procedure and clarifying email on behalf of AOSF and one of firm’s corporate clients.
Jimmy Long Appointed SALT Practice Team Chair
Bradley tax partner Jimmy Long has been appointed by the firm’s Board of Directors to succeed Bruce Ely as chair of the SALT Practice Team, while Bruce continues to serve in his roles at the national level. “I am honored and humbled to be leading our SALT Practice Team and following in Bruce’s footsteps,” said Long. The team represents taxpayers in multiple states, including Alabama, Tennessee, and Mississippi, before the state and local taxing authorities, as well as the trial and appellate courts of those states and before the U.S. Supreme Court.
Jimmy holds a Master of Laws (LL.M.) in Taxation from New York University School of Law, a J.D. from the University of Alabama School of Law, and a finance degree from Auburn University. Jimmy and his wife, Claire, have two sons, Jay (3) and Grier (1).
Chris Grissom named “Lawyer of the Year” for Alabama Tax Litigation
Birmingham partner Christopher R. Grissom was named as a “Lawyer of the Year” for Alabama Litigation and Controversy – Tax in the 2018 edition of The Best Lawyers in America®.
Lawyers on The Best Lawyers in America list are divided by geographic region and practice areas. Only a single lawyer in each practice area and designated metropolitan area is honored as the "Lawyer of the Year," making this accolade particularly significant. Receiving this designation reflects the high level of respect a lawyer has earned among other leading lawyers in the same communities and the same practice areas for their abilities, their professionalism, and their integrity. In addition to this recent honor, Chris has been ranked in Best Lawyers for Tax Law since 2009.
Upcoming Seminars and Events
August 29, 2017 – Annual Meeting of the Alabama State Bar Tax Section in Montgomery, Alabama. Bruce Ely, Will Thistle and Jimmy Long are each presenting at the meeting.
October 1-4, 2017 – Annual Meeting of the Western States Association of Tax Administrators (WSATA) in Missoula, Montana. Bruce Ely will be part of a panel presentation on the state taxation of pass-through entities and how the states should deal with the new federal partnership audit rules, including an overview of the model act which Bruce and Will Thistle helped co-author. For more information, visit www.WSATA-Conference.com.
October 6, 2017 – The Alabama Society of CPAs, Birmingham Chapter – Recent Alabama Tax Developments at The Club in Birmingham, Alabama. Bruce Ely, Jimmy Long, Will Thistle, and Chris Grissom will be presenting.
October 22 – 25, 2017 – Annual Meeting of the Council On State Taxation (COST) in Orlando, Florida. Bruce Ely will be participating in a panel presentation discussing the state implications of the new federal partnership audit rules and the model act that is being advocated by COST, ABA, AICPA, TEI and several other interested parties. Chris Grissom will be discussing recent Alabama tax developments. For more information, visit www.COST.org.