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Contributions To Arizona Scholarship Organzations Raise Federal Tax Issues

By Howard M. Friedman

The Arizona Republic this week explored the question of whether Arizonans are violating federal tax law by taking charitable deductions for certain contributions to private school tuition organizations. Arizona law gives up to a $1000 tax credit per couple ($500 per individual) for contributions to these groups that then grant scholarships to private and parochial school students. Parents cannot make contributions for their own children, but other relatives can. Also a number of parents engage in "swapping", or making contributions for each others children. Tax experts say that it is clearly a violation of federal law to take a federal deduction for a swap contribution, since the gift is being made to benefit oneself. A closer question arises as to contributions accompanied by "recommendations" for scholarship recipients. IRS Publication 526 spells out the rules for which charitable contributions are deductible. Separately, the entire tax credit program is being challenged in court on Establishment Clause grounds. (See prior posting.) [Thanks to Steven H. Sholk for the lead.]

Full post as published by Religion Clause on December 30, 2009 (boomark / email).