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Treasury blocks blue state efforts to get around cap on state, local tax deductions

8/25/2018

Treasury blocks blue state efforts to get around cap on state, local tax deductions

Steve Mnuchin.

“Congress limited the deduction for state and local taxes that predominantly benefited high-income earners to help pay for major tax cuts for American families,” Treasury Secretary Steven Mnuchin said. “The proposed rule will uphold that limitation.” | Mark Wilson/Getty Images


By BRIAN FALER

The Trump administration on Thursday moved to knock down efforts by some blue states to get around a new limit on state and local tax deductions.

The administration says the new rules will prevent people from ducking the $10,000 cap by construing tax payments as charitable contributions, which are not subject to the cap.

The move was immediately denounced by Democrats, and the issue is likely to end up in court.

Lawmakers have been battling over the issue for months, with Democrats like New York Gov. Andrew Cuomo complaining they were unfairly targeted by congressional Republicans to shoulder much of the cost of their recent tax overhaul. Many blue states are highly dependent on taxes paid by the rich, so the new cap threatens a major source of funding for their budgets.

Republicans say the workarounds are little more than gimmicks, and note that most taxpayers are getting a tax cut from the law, even with the cap on the break.

“Congress limited the deduction for state and local taxes that predominantly benefited high-income earners to help pay for major tax cuts for American families,” said Treasury Secretary Steven Mnuchin. “The proposed rule will uphold that limitation by preventing attempts to convert tax payments into charitable contributions.”

Mnuchin also downplayed the risk the new rules posed to similar, preexisting programs run by other states that use tax breaks to help other non-profit causes.

“We believe the proposed rule will have no impact on federal tax benefits for donations to school choice programs for about 99 percent of taxpayers,” he said.



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Cuomo denounced the new rules as “politically motivated,” adding: “We will use every tool at our disposal, including litigation, to fight back.”

“In New York, we will not stand for this abuse of government power,” he said. “We are confident that the recently enacted opportunities for charitable contributions to New York State and local governments are consistent with federal law and follow well-established precedent.”

Even if the issue gets tied up in court, the government’s announcement today may be enough to scare many taxpayers from trying to tap the workarounds. Many accountants won’t recommend it to their clients, given the IRS’ stance, because it raises the specter of a major fight with the agency.

Also, people can end up losing money if they try to use the workarounds and are rejected by the IRS.

New York, Connecticut and New Jersey have adopted proposals allowing taxpayers, to varying degrees, to sidestep the SALT cap by recharacterizing their state and local tax payments as charitable contributions, which remain fully deductible. Other blue states like California and Illinois have considered similar moves.

Cuomo and other Democrats have said they are merely restoring what congressional Republicans took from them, but in fact their workarounds actually left their constituents better off than they were before the Tax Cuts and Jobs Act. That’s because taxpayers there would not only be able to effectively claim the same break as before the new law, they will be able to sidestep longstanding federal rules on when exactly the deduction may be taken.

The administration’s new rules target the workarounds by essentially declaring that the IRS will subtract from a taxpayer's federal charitable deduction whatever they get from the state in exchange for their payment.

“For instance, if a state grants a 50 percent credit and the taxpayer contributes $1,000, the allowable charitable contribution may not exceed $500,” the Treasury Department said.

Some Republicans are worried the administration’s efforts to quash the workarounds would hurt other similar — and, in many cases, long-standing — state programs that offered tax breaks for contributions to private charities backed by the government. The new rules include provisions that appear to be designed to shield those programs, though some experts said it was not immediately clear how well they would be protected.

What is clear, said Daniel Rosen, a former IRS lawyer, is that the new rules contradict previous agency edicts — which he said will leave them vulnerable to legal attacks.

“I absolutely expect it to be in court,” said Rosen, now a partner at the law firm Baker McKenzie. “I can guarantee you that there will be challenges.” 






8/25/2018

打击加州、纽约富人逃税 国税局酝酿新规


财政部将拟提新法规,阻止高税捐的州让纳税人规避新税法对扣减州和地方税订定的限额,这项法规将对纽约、加州等民主党执政州产生冲击。图为旧金山市容一角。

财政部23日计画提出新法规,阻止高税捐的州让纳税人规避新税法对扣减州和地方税订定的限额,使联邦与民主党州长的争执为之升高。

以前申报联邦税时,纳税人缴付的州和地方税都可以全额扣减,共和党去年底通过的税法却规定最多只能扣减1万元。新法对税捐重的地区居民造成更大的负担,包括纽约、加州、康州等民主党主政的州。

为了规避联邦限制,纽约和新泽西州已立法为州政府提供的各种服务设立慈善基金,并根据对这些基金的捐款提供州抵税额。

这种做法可为州政府的服务带来经费,同时为居民保留更高的联邦扣减额,因为联邦新税法并未对慈善捐献订定扣减上限。其他一些州也考虑跟进。

财政部拟议的新法规对申报联邦税时哪些慈善捐献可申报扣减设限,有效排除用州抵税额提供的捐款,像是向某些私立或特许学校和大学提供的慈善捐献、为保护自然环境捐献的土地,以及向住所援助计画提供的捐款。

绕弯子的纳税人仍需向州政府付同样多的钱,可是不能从联邦获得更多税务扣减。

根据财政部的计画,向州提供1万元慈善捐献,并获得8500元州抵税额的人,申报联邦税时只能扣减1500元,不像以前可以把与州抵税额有关的慈善捐款全额扣减。

新法规不适用于州税扣减,也不影响捐款获得的抵税额不超过捐款总额15%的人。

这种仍待联邦进一步检讨才能定案的新法规,主要是针对纽约等高税捐州。2015年纽约州有三分之一以上纳税人申报州和地方税扣减,平均扣减额超过2万元。

2015年所得至少20万元的家庭,有90%以上申报州和地方税扣减,总共省下2690亿元税捐。这些家庭占所有纳税人的不到5%,却申报当年所有扣减额的将近50%。












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