New York official asks IRS to withdraw SALT regulations

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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,” Bellone said 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.

Rabbi Abba Cohen, vice president of federal affairs for Agudath Israel of America representing orthodox Jewish schools, told the IRS panel that Monday’s hearing shouldn’t be the place to debate school choice issues that have been decided by states.

“Double dipping is perhaps a consequence of the two-tiered federal-state system,” he said. “There’s nothing hidden here. There’s nothing abusive here. This is good public policy adopted by the state and should not have a negative image.”

Cohen said the proposed regulations go further than addressing the specific problem with workarounds of the new SALT cap.

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