Christopher Lang, Correspondent, @topherlang2 | May 29, 2018 | MonroeNow
New Jersey will fight any attempt by the IRS or the U.S. Treasury department to block or impose restrictions on a state law that would allow residents to bypass the federal government’s new cap for deductions on state and local taxes, Governor Murphy said last week.
Just before the Memorial Day weekend, on May 23 the U.S. Treasury and IRS said it was preparing new regulations for states that allow residents to make contributions to local government-backed charitable funds and in return receive property tax credits for those payments. The payments are seen as a workaround to the new federal tax law that placed a $10,000 cap on the state and local taxes deductions, commonly called SALT.
“The upcoming proposed regulations, to be issued in the near future, will help taxpayers understand the relationship between federal charitable contribution deductions and the new statutory limitation on the deduction of state and local taxes,” the IRS said in its May 23 statement.
The federal agencies have said in the past, after New Jersey adopted a state law allowing for the charitable contributions, that such payments could only be deemed allowable by the federal government, not local or state authorities.
“Taxpayers should also be aware the U.S. Department of Treasury and the Internal Revenue Service are continuing to monitor other legislative proposals being considered to ensure that federal law controls the characterization of deductions for federal tax income filings.”
In response to the IRS and Treasury statement, Governor Murphy accused the federal agencies of playing politics.
“For the federal government to permit certain states to allow for charitable deductions, but not others that are following the same principles, is unconscionable. Once again, President Trump is unfairly targeting the hardworking people of New Jersey,” said Governor Murphy, a Democrat. “I remain committed to fighting the SALT deduction tax cap and am confident that the solution signed into law can and should be embraced by the IRS. Anything less is a flat-out admittance that politics rather than policy guide the decisions of the Trump Administration.”
In response to the tax cap deduction, the state lawmakers approved legislation that Governor Murphy signed earlier this month to allow municipalities, counties and other government entities to establish charitable accounts for taxpayers to donate to in return for the property tax credit.
The move was controversial with some, such as state Sen. Joe Pennacchio, R-Essex, saying in February that “I have no doubt that the Internal Revenue Service of Congress will strike down this concerted effort to evade federal taxes.”
The government-sponsored charitable accounts would use the money collected to pay for residential services that are generally funded from property taxes. Earlier this month, the state Department of Community affairs distributed a notice to municipalities that governments could now create the charitable accounts for specific purposes, but warned that there is no guarantee that the IRS would accept those contributions to be deducted.
According to multiple reports, the new federal tax code does not cap charitable deductions.
New Jersey Attorney General Gurbir S. Grewal responded in a letter to the IRS about the forthcoming proposal, saying that federal tax code makes “plain that these contributions are permissible.”
“The statute is explicit that such contributions include gifts given to state governments and their political subdivisions,” Grewal wrote. “The only remaining issue is whether such gifts are deductible if the contributor gets a tax credit in return. … The IRS’s longstanding approach, supported by precedent and policy, supports what New Jersey has done.”