Congress may use the tax code to encourage 1 (at least not to discourage) taxpayers to make certain types of expenditures. In § 170, Congress allows taxpayers a deduction for charitable contributions. This, coupled with the exemption from income tax that many charities enjoy, 2 may provide sufficient incentive for some taxpayers to support the good work certain charities do.
In § 164, Congress has allowed a deduction for certain taxes that taxpayer has paid or accrued. Section 275 specifically disallows a deduction for certain taxes that taxpayer may have paid or accrued. This pattern may encourage some taxpayers to engage in activities subject to a deductible tax, most notably, owning property.
With respect to both charitable contributions and payment of taxes, a taxpayer may try to characterize payments that provide a benefit for the taxpayer as either a charitable contribution or as payment of a tax. For example, a taxpayer might contribute money to a university on the condition that the university grant a scholarship to taxpayer’s daughter. Or a taxpayer may pay his or her share of a condominium-owners’ association’s assessment to remodel the association’s common areas. In neither case should taxpayer be permitted to claim a deduction. Instead the taxpayer has simply “purchased something.” These are easy cases. How do we determine whether taxpayer has merely bought something – or has made a charitable contribution or paid a tax?