You are using an older browser version. Please use a supported version for the best MSN experience.

IRS rules block NY, NJ attempts around $10K SALT tax cap deductions

Lohud.com, Westchester County logo Lohud.com, Westchester County 6/13/2019 David McKay Wilson
UP NEXT
UP NEXT

The IRS on Tuesday squashed attempts by New York and New Jersey to circumvent the federal cap on the deductibility of state and local taxes, issuing final regulations that bar governments from giving substantial tax credits in exchange for charitable contributions.

The charitable funds, which many local governments set up to provide relief from the $10,000 cap, were seen as a way to help taxpayers in high-tax states. New York’s law allowed counties and municipalities to set up charitable reserve funds that would give tax credits equal to 95% of a contribution.

© Provided by Gannett Co., Inc.

The regulations would allow tax credits equal to just 15% of the contribution, making them an unappealing way to get around the cap, which was imposed to help pay for the Tax Cuts and Jobs Act of 2017.

At the same time, the IRS published a proposed regulation that would allow a “safe harbor” for those who itemize their deductions and have participated in certain state or local programs that allow tax credits for contributions to certain nonprofit organizations.

The regulations were not a surprise. The IRS indicated last year that it was looking at whether the states' actions were legal.

What happens now?

It was uncertain Tuesday how the proposed “safe harbor” regulations would affect programs in New York and New Jersey.

In New York, $93 million was donated to its Charitable Gifts Trust Fund.

The state Budget Division said the money will be spent down with $58 million going to health care and $35 million to education, as the funds initially prescribed.

The majority should still be deductible for those who contributed, the state said, saying that the IRS rules apply to contributions made after Aug. 27, 2018.

Eighty-six percent of the contributions to New York came prior to the cut-off date, said Freeman Klopott, a spokesman for the Budget Division.

Gov. Andrew Cuomo said New York is looking at the legalities of the IRS ruling, "but that is another assault by the federal government."

He added, "We need the Congress to reverse it, and while you only have the Democratic House, I know, but it still takes two to tango and this should be a priority for every Democrat in the House."

OPINION: Tax law requires more than ‘SALT Cap’ workarounds

More: Trump administration wants New York's SALT cap lawsuit tossed

Decision panned in NJ, NY

UP NEXT
UP NEXT

The decision was assailed by political leaders in both states.

The two states were among Democrat-led states that sued the federal government last year over the SALT cap, but the federal government has sought to have the case tossed.

In New Jersey, Rep. Josh Gottheimer, D-Wyckoff, said the ruling would favor less wealthy states that typically receive more in federal aid than they provide in tax revenue. 

"This seems to be a massive giveaway to the Moocher States and another whack at states like New Jersey," he said. "This is the ultimate politically-motivated giveaway to red states. It doesn't even pass the laugh test and will face tough legal scrutiny."

New York Assemblywoman Amy Paulin, D-Scarsdale, on behalf of the Coalition for the Charitable Contribution Deduction, a New York coalition representing counties, cities, towns, villages, school districts and professional organizations, said the ruling could have a far-reaching impact. 

State Assembly member Amy Paulin, D-Scarsdale, co-sponsored a new law to help Temporary Assistance for Needy Families recipients in a variety of ways to prepare for a more stable life without government assistance. Contributed photo State Assembly member Amy Paulin, D-Scarsdale, says she opposes the education-tax credit programn for public and private schools. © Contributed photo., Contributed photo. State Assembly member Amy Paulin, D-Scarsdale, co-sponsored a new law to help Temporary Assistance for Needy Families recipients in a variety of ways to prepare for a more stable life without government assistance. Contributed photo State Assembly member Amy Paulin, D-Scarsdale, says she opposes the education-tax credit programn for public and private schools.

“We are shocked at the IRS final regulations, issued today, that would overturn decades of precedent and IRS guidance to disallow a federal deduction for a charitable contribution if it is accompanied with a state or local tax credit to incentivize charitable giving,” she said.

Paulin said the programs set up in New York used the same structure as 70 tax credit programs in 24 states.

She said the coalition will now look to the federal courts to overturn the IRS regulation.

“We fully plan to turn to the courts to continue to press the case that this regulation is arbitrary, capricious, and unfair, and should not be allowed to stand.”

Sen. Bob Menendez, D-N.J., said the IRS ruling was an attack on New Jersey taxpayers. 

“Not surprisingly, the Trump administration is once again taking a swipe at New Jersey’s middle-class taxpayers," he said. "The IRS has allowed these charitable funds for decades and is only now banning them because states like New Jersey sought to utilize them and establish its own."

COALITION: Paulin builds coalition on SALT deductions

CRUMBLING: Anti-Trump tax plan crumble in face of IRS proposed regulations

TAX CREDITS: School bill holds up NY state budget

Follow Tax Watch columnist David McKay Wilson on Facebook or Twitter @davidmckay415.

Includes reporting by USA TODAY Network's Albany Bureau Chief Joseph Spector.

This article originally appeared on Rockland/Westchester Journal News: IRS rules block NY, NJ attempts around $10K SALT tax cap deductions

AdChoices
AdChoices

More from Lohud.com, Westchester County

Lohud.com, Westchester County
Lohud.com, Westchester County
image beaconimage beaconimage beacon