Charitable checkoff questions raised by Illinois ‘borrowing’ tax return donations

When we paid state income taxes in Maryland, I was a big fan of the charitable checkoff system.

But looking at what Illinois has done with these philanthropic tax return gifts has changed my mind.

A check-off contribution typically allows you to give to a nonprofit when you send in your state tax return by, as the name indicates, checking the box next to one of the charities listed on the form.

If you have a state tax refund coming, you can choose to send part or all of it to the charity of your choice.

If, on the other hand, you're not getting any money back, you can make a donation and add that amount to what you send your state tax department. The tax officials then will forward your contribution to the organization.

Unless you live in Illinois.

State tax officials recently "borrowed" the charitable donations to pay other state bills.

'Borrowing' charitable gifts: Almost $1.2 million intended by Illinois taxpayers for 11 state tax checkoff funds was diverted from fiscal 2011, according to figures provided the by the state's Office of Management and Budget.

Things were even worse in fiscal 2010 for tax-return eligible charities in the state that claims Abraham Lincoln as a favorite son.

That year Illinois "swept," or took permanently, $434,000 that had been donated via tax returns to seven funds as part of a much broader emergency fiscal measure approved by the General Assembly then.

The $434,000 will not be repaid, Office of Management and Budget spokeswoman Kelly Kraft told the News-Gazette. But the $1.2 million borrowed in fiscal 2011 by law has to be returned, plus interest, within 18 months, according to Kraft.

What the … ? What would Honest Abe say?

The charities that were stiffed, even just short-term, are not happy. If I had given them money that way, as a donating taxpayer I wouldn't be happy either.

Other tax implications? I'd also wonder if I might be in inadvertent federal tax trouble.

If I had deducted my Illinois check-off as a donation on my federal return and the money didn't go to the charity in the tax year for which I claimed the deduction, does the write off still count?

Or is my federal tax return on which I itemized the deduction now wrong? And if so, will the IRS come after me?

Realistically, folks who contribute to charities via state return check-offs should be OK. You followed the federal donations rules and in good faith gave to a nonprofit. It's not your or the charities' fault that the state didn't act as scrupulously.

And even in normal budgetary times, the transfer of the money from the tax collector to the charities is not instantaneous.

Still, it's troubling.

Checking out your charities and your state: The state taking of designated donations also raises the important issue of checking out a charity.

The IRS warns that you need to make sure that the organization to which you give is qualified. That is, it has followed all Uncle Sam's rules making it eligible to receive tax-deductible donations. Earlier this year, around 275,000 charities were dropped from the official IRS OK list.

Illinois' action also indicates that you might want to check out the middle man.

Data from the Federation of Tax Administrators show that 41 states and the District of Columbia offer some type of charitable check-off on their returns. Is your state having such financial difficulties that it might "borrow" or even re-appropriate the tax-filing donation you intended for a charity?

If so, you might want to reconsider your tax return check-off method of giving.

Wait until you get your full tax refund from your state and then send a separate check to your favorite charity. That way you'll know it got to where you intended.

Related posts:

• Tax rules for charitable giving
• Deductions demand documentation
• Cat lady goes to tax court
• Maryland tax tidbit: charitable check-offs
• State Tax Departments

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