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It is also uncertain that the taxpayers who donated these funds in 2018 can claim a charitable deduction in their federal tax return for that year.
The rule proposed by the IRS and the Treasury came into effect on August 27, 2018.
If you made a contribution to a public fund after that date and then claimed it as a charitable donation in your 2018 federal tax return, you risk a confrontation with the IRS, Daniel said. Rosen, a partner in the North American Tax Group at Baker and McKenzie.
"If the final regulations are published with the retroactive date of August 27, 2018, you will have to declare on your statement that you are taking a position that is incompatible with the regulations," he said.
"You bought yourself a fight," Rosen said.
Donors who wish to continue giving to these funds will need to determine how much federal tax relief matters to them.
"Losing a federal benefit is certainly an important calculation for anyone who wants to make a contribution to a state charitable fund," Rosen said.
"But if you're not motivated by the desire to get a deduction at the federal level, your decision-making should not be affected by the pending regulatory measures," he said.
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