IRS Rule on SALT Cap Draws Fire

The Bond Buyer - - Front Page - By Brian tu­multy

WASH­ING­TON – A New York county ex­ec­u­tive urged the In­ter­nal Rev­enue Ser­vice Mon­day to drop its pro­posal to re­strict work­arounds of the $10,000 cap on the fed­eral de­duc­tion for state and lo­cal taxes.

County Ex­ec­u­tive Steven Bel­lone of Suf­folk County, N.Y, urged the IRS to de­fer to Congress on the mat­ter. The fed­eral ceil­ing on state and lo­cal tax de­duc­tions, com­monly re­ferred to as SALT, is op­posed by most state and lo­cal gov­ern­ment groups. They ar­gue that the ceil­ing will make it more dif­fi­cult for them to raise taxes to pay for pub­lic ser­vices and in­fra­struc­ture.

The pro­posed IRS reg­u­la­tion would cur­tail ef­forts by New York and other high tax states and com­mu­ni­ties from us­ing work­arounds to by­pass the $10,000 cap, but Bel­lone said it goes be­yond the ser­vice’s reg­u­la­tory pow­ers.

“If Congress wants to change the law, they should do so,” said Bel­lone at an IRS hear­ing.

If the work­arounds states are us­ing by cre­at­ing char­i­ta­ble foun­da­tions as a way to pay prop­erty taxes or state and lo­cal in­come

taxes are le­gal, Bel­lone said it’s up to Congress to de­cide whether to end them.

“The pres­i­dent of the United States has fa­mously said he’s used ev­ery loop­hole in the tax code to make sure he pays as lit­tle as pos­si­ble,” Bel­lone told The Bond Buyer af­ter he tes­ti­fied. “When work­ing class, mid­dle class fam­i­lies try to uti­lize the tax code to their ben­e­fit, now we’re be­ing told that’s not ac­cept­able. It’s wrong.”

Marc Egan, di­rec­tor of gov­ern­ment re­la­tions for the Na­tional Ed­u­ca­tion As­so­ci­a­tion, also spoke against the SALT cap, at­tribut­ing its en­act­ment to a drop in home sales in the North­east.

NEA will con­tinue to work with mem­bers of Congress to re­peal the $10,000 cap, said Egan, who also ob­jected to the re­cent IRS an­nounce­ment that the cap doesn’t ap­ply to busi­nesses.

Busi­ness own­ers should not be able to claim as a busi­ness what they can­not claim as an in­di­vid­ual, Egan said.

Much of Mon­day’s tes­ti­mony in­volved the re­lated con­flict whether do­na­tions to pri­vate school schol­ar­ship pro­grams should be ex­empted from the pro­posed reg­u­la­tions.

The con­tro­ver­sial cap en­acted by Congress last De­cem­ber as part of the Tax Cuts and Jobs Act has spurred high tax states such as New York and New Jer­sey to en­act work­arounds which the IRS reg­u­la­tions are in­tended to cur­tail.

But the IRS pro­posal also would limit the use of state tax cred­its which some pub­lic ed­u­ca­tion groups and think tanks say will end abu­sive tax shel­ters.

Twelve of the 18 states with tax cred­its for do­na­tions to pri­vate school schol­ar­ships also al­low tax­pay­ers to deduct the same dona­tion as a fed­eral char­ity de­duc­tion.

That’s led tax ad­vi­sors in some states to ad­ver­tise op­por­tu­ni­ties for high in­come house­holds to use a com­bi­na­tion of state tax cred­its and the fed­eral char­i­ta­ble de­duc­tion to gain a com­bined re­duc­tion in taxes that’s larger than the dol­lar value of the dona­tion.

“It isn’t char­ity when an in­di­vid­ual makes money from a dona­tion,” said Mag­gie Gar­rett, rep­re­sent­ing Amer­i­cans United for Sepa­ra­tion of Church & State. She said state tax cred­its for pri­vate schools “are es­sen­tially pri­vate school vouch­ers.”

The pro­posed IRS reg­u­la­tion al­lows tax­pay­ers to use the fed­eral char­ity de­duc­tion only for the amount of a dona­tion that’s not used for a state tax credit.

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