IRS Notice 2018-54 Warns Taxpayers to Avoid State Work-Arounds $10,000 SALT Deduction Cap

By Steven J. Oshins, Esq., AEP (Distinguished)

The $10,000 SALT Deduction

Section 11042 of The Tax and Jobs Act limits an individual’s State and Local Tax Deduction (“SALT” deduction) to $10,000 per calendar year.

Adoption of State Proposals to Work Around the SALT Deduction Limitations

In response to this new limitation, some state legislatures are considering or have adopted legislative proposals that would allow taxpayers to make transfers to funds controlled by state or local governments, or other transferees specified by the state, in exchange for credits against the state or local taxes that the taxpayer is required to pay.  The aim of these proposals is to allow taxpayers to characterize such transfers as fully deductible charitable contributions for federal income tax purposes, while using the same transfers to satisfy state or local tax liabilities.

IRS Notice 2018-54:  The IRS Warns Taxpayers!

However, the IRS recently issued IRS Notice 2018-54 which provides a warning to all taxpayers that the IRS will be issuing proposed regulations to address these attempted work-arounds.  This Notice is intended to give taxpayers advance notice of the risks they will be taking should they decide to utilize these state work-arounds.

The IRS makes it abundantly clear that “[d]espite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes.”

The NING Trust:  An IRS-Approved Work-Around State Income Taxes

The term “NING Trust” stands for Nevada Incomplete Gift Non-Grantor Trust.  Transfers to the trust are incomplete for gift tax purposes which means that there is no gift tax for any transfers to the trust.  However, for income tax purposes, transfers to the trust are complete and the trust is a non-grantor trust so that the trust pays all income taxes at its federal income tax brackets.

The IRS has issued numerous Private Letter Rulings approving NING Trusts for many years.  Private Letter Rulings are only valid for the taxpayer who applied for the Ruling; however, they provide guidance as to whether the IRS would likely approve a similar trust for a different taxpayer.

Who is the Typical Client?

The primary use for a NING Trust is to save state income taxes.  Therefore, the typical client is a resident of a state with a high state income tax who is either selling a business or other asset that will have a large capital gain or who has an asset, such as a large brokerage portfolio, that has sizable distributions that would be taxed by the client’s home state if the client hadn’t set up the NING Trust.  It is important to note that income earned by an asset, such as a locally-run business or local real estate, is considered sourced to the client’s home state and therefore cannot avoid state income taxes using the NING Trust.

Why Nevada?

The trust must be sitused in a jurisdiction that has Domestic Asset Protection Trust statutes in order to avoid being a grantor trust for income tax purposes.  Nevada is generally considered the leading Domestic Asset Protection Trust jurisdiction which is why it is also the leading state for these trusts.  A NING Trust is simply a non-grantor Domestic Asset Protection Trust.  In addition, the chosen jurisdiction must not have a fiduciary state income tax.  That excludes many of the Domestic Asset Protection Trust jurisdictions, leaving only Nevada and a small handful of other states where this technique is viable.

How the NING Trust Works

Unlike nearly every other estate planning technique, the NING Trust requires the client to give up some control.

First, since the NING Trust can’t have any trustees who live in the client’s home state, the client can’t be a trustee and therefore loses direct managerial control over the trust assets.  However, the client can retain the power to remove and replace trustees, so this loss of control is merely indirect control with the presumption being that the selected trustees will invest based on the client’s wishes.

Second, the NING Trust must have a Power of Appointment Committee (also sometimes called a Distribution Committee) made up of adverse parties initially selected by the client from the potential distributees of the trust.  This Committee makes distribution decisions either (a) by unanimous vote or (b) by majority vote plus the vote of the client.  The client cannot retain the power to remove and replace the Committee members, so the technique does not work well for a dysfunctional family.

No State Income Taxes!

The key here is that the NING Trust protects the capital gains and ordinary income earned by the Trust from state income tax (except for income sourced to a state with state income tax).  Therefore, if there are no state income taxes, then there is no reason to worry about whether the state income taxes (and local taxes) are deductibility above $10,000 per calendar year!  This, the NING Trust provides the ultimate work-around an therefore has become much more popular since the SALT Deduction became limited.


IRS Notice 2018-54 is a warning by the IRS to taxpayers considering using their state’s work-around the $10,000 SALT Deduction.  Consider using a NING Trust to avoid state income taxes altogether on non-source income earned by the NING Trust’s assets.


Please join me on Wednesday, August 15, 2018 at 9am Pacific Time (12pm Eastern Time) for a 60-minute presentation where I will go over NING Trusts, how it works, why you should consider this strategy with your clients, and much more.  For more information and to register, click here.


Steven J. OshSteven-Oshins43721143ins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best Lawyers in America®. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection laws that have been enacted in Nevada. He can be reached at 702-341-6000, ext. 2, at or at his firm’s website,

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