Details of Public Law 118-146, section 2 , VSO Equal Tax Treatment (VETT) Act

The section allows a charitable contribution deduction to a 501(c)(19) organization that is a federally chartered corporation of past or present members of the Armed Forces of the United States, or an auxiliary unit or society of, or a trust or foundation for, any such post or organization. The organization must be organized in the United States, have at least 75 percent of the members that are past or present Armed Forces, and other members who are cadets, or are spouses, widows, widowers, ancestors, or lineal descendants, and no part of the net earnings are for the benefit of any private shareholder or individual.

Charitable contributions made to these types of 501(c) organizations are limited to 50-percent of the taxpayer’s contribution base, which is their adjusted gross income computed without regard to their net operating loss carrybacks.

Under the Personal Income Tax Law (PITL), California generally conforms to the federal charitable contribution rules under Internal Revenue Code (IRC) section 170 as of the specified date of 01/01/2015, with modifications. As a result, under the PITL, California does not conform to the allowance of a charitable contribution deduction for contributions to a 501(c)(19) organization or this section’s special treatment that allows charitable contributions to these organizations to qualify for the 50-percent limitation.

Under the Corporation Tax Law (CTL), California does not conform to IRC section 170 but instead has standalone law that is generally similar to federal law allowing corporations a deduction for charitable contributions. In general, in any taxable year, charitable contributions by a corporation are not deductible to the extent the aggregate contributions exceed 10 percent of the corporation’s taxable income computed without regard to net operating or capital loss carrybacks, and any excess may be carried forward for up to five years. Additionally, the CTL provides its own rules that exempt corporations from tax and a federally chartered corporation (veteran’s organization) as defined under IRC 501(c)(19) is an exempt organization for CA purposes. Thus, California would not conform to these provisions under the CTL.

The estimated revenue impact to conform to the above federal provisions would result in the following loss:

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