From the moment we passed the Alabama Accountability Act in 2013 to create Alabama’s version of a school voucher program, proponents have shouted from the rooftops that it has been “All about helping kids.” And they were quick to add that this especially meant kids from low-income families.
But as we have watched this program unfold, it has become harder and harder to believe that it was ever about the education of poor children and not about tax breaks.
Here is a good example of what I am referring to. The Bradley law firm is one of the state’s largest. They have attorneys who are experts in helping clients maximize profits by taking advantage of tax breaks. Here is part of a recent alert they prepared about the accountability act:
Department of Revenue Issues Favorable Ruling for Tax Credit Scholarship Donors
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.
While I am sure the info distributed by the law firm is accurate, it is simply hard to believe that for the kids is what is uppermost in their mind. Especially when they point out some people “could actually receive a net cash benefit when they donate to an SGO.”
Take the Alabama Opportunity Scholarship Fund, the scholarship granting organization that is mentioned. The most recent info available from the organization on the Alabama Department of Revenue web site shows that on June 30, 2017, they had scholarship recipients in 129 schools in Alabama. However, 45 of these schools are non-accreditied. If AAA was really all about the kids, would we be diverting money from public schools to send children to non-accreditied schools?