IRS warns taxpayers about using property taxes as 'contributions' to charity

Workarounds to avoid federal limits on state and local taxes in some states could be considered tax evasion

May 24, 2018 @ 11:38 am

By Bloomberg News

The Internal Revenue Service warned taxpayers to proceed with caution after states including New York and New Jersey approved workarounds involving charitable organizations to circumvent new federal limits on deductions for state and local taxes.

"Taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes," the agency said in a press release Wednesday, the first time it's weighed in on the matter. The Treasury Department and IRS intend to propose regulations addressing measures that would allow homeowners to declare property taxes as charitable deductions, which are still unlimited, according to the IRS.

The tax overhaul created a cap of $10,000 for state and local tax deductions, a pittance for states that have high property taxes such as New Jersey, New York and Connecticut. New Jersey Governor Phil Murphy signed legislation allowing local governments to set up charitable organizations that can accept property tax payments. In turn, homeowners can declare those "donations" as gifts to offset federal taxable income. New York Governor Andrew Cuomo signed similar legislation last month.

"I think it's absolutely appropriate for Treasury to signal that these are tax-evasion schemes, and it's good for them to signal that early on," House Ways and Means Committee Chairman Kevin Brady of Texas said Wednesday.

Earlier this year, Treasury Secretary Steven Mnuchin called the proposals "ridiculous."

Jared Walczak, a senior policy analyst with the Center for State Tax Policy at the Tax Foundation, said the "most legally dubious" way to circumvent the new cap involves recharacterizing so-called SALT payments as charitable contributions.

Still, states have invested a lot in designing workarounds, so "it would not be surprising to see litigation here," Mr. Walczak said.

"Calling an alligator a hairless, toothy, non-barking dog doesn't make it so," said Mark Klein, the chairman of law firm Hodgson Russ in New York. "I have grave concerns that taxpayers who 'voluntarily' give to these state and local charities could be subject to tax, interest and penalties if the IRS picks up on it."

(More: N.J. homeowners get law to skirt Trump's lowered tax deductions)

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

What's behind the TCA, ETrade deal?

Deputy editor Bob Hordt talks with senior columnist Jeff Benjamin about what each party in the recent acquisition stands to gain by joining forces.

Latest news & opinion

What's in a name? For TCA by ETrade, everything

Trust Company of America is gone, and there's big buzz over the name change. But turning the custodian into an industry powerhouse will take a lot longer — if it happens at all.

When it comes to regulating AI in financial services, murky waters are ahead

Laws are unclear on how the technology fits in with compliance.

As Ameriprise case shows, firms on hook when brokers go bad ​

The SEC will collect $4.5 million from the brokerage firm for failing to supervise brokers who were ripping off clients.

10 highest paid professions in America today

These are the top-paying jobs in the U.S., according to Glassdoor.

Ameriprise to pay $4.5 million to settle SEC charges that five reps stole more than $1 million from clients

Agency censures firm for not protecting clients from thieving brokers.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print