Coalition Submits Letter to IRS to Fight SALT Deduction Cap
A growing coalition of municipalities and school districts partnered to challenge proposed regulations created by the the Internal Revenue Service (IRS) that would prevent residents from deducting state and local taxes (SALT) on their federal tax returns.
The Coalition for the Charitable Contribution Deduction, comprised of close to three-dozen Westchester municipalities and school districts, submitted a letter to the IRS before the deadline for comments requesting the proposed regulations be withdrawn. The regulations would deny a full charitable deduction for donations to the charitable funds.
Assemblywoman Amy Paulin (D-Scarsdale), who spearheads the coalition, said it was necessary to protest the IRS’ actions with the potential threat to taxpayers struggling to remain in their communities.
“Charitable reserve funds serving a public mission and encouraged by tax credits have proven to be a critical tool for taxpayers and local governments alike,” Paulin said. “These proposed regulations break IRS precedent and undermine the effectiveness of the new charitable fund established.”
The coalition is comprised of Westchester, Nassau and Suffolk counties and 34 Westchester school districts and municipalities, including New Castle, Bedford, Ossining, North Salem, Lewisboro and White Plains. Local school districts include, the Pleasantville School District, White Plains, Ossining, Briarcliff Manor and Byram Hills.
The Brewster Central School District in Putnam County has also joined the coalition.
The submitted letter takes aim at the legal reasoning and abandonment of past IRS precedent that underpins the proposed regulations. The group hopes to persuade the Treasury Department and the IRS to withdraw the regulations and preserve full deductibility for voluntary contributions.
“This letter reminds the IRS that they do not have the authority from Congress to upend longstanding principles of tax law and, in the process, harm so many New Yorkers and the local governments and school districts that serve them,” Assemblyman David Buchwald (D-White Plains) said.
If the proposed regulations become final, the coalition, which is currently working with the law firm of Baker McKenzie, is threatening to file a federal lawsuit.
Westchester County Executive George Latimer said the proposed regulations will significantly harm county residents. Roughly 38 percent of taxpayers would be negatively affected by the SALT proposal and could see an estimated 25 percent increase on their federal taxes.
“While the federal government claims only 5 percent of the nation will be impacted by the new limits on charitable deductions, we know here in Westchester that is not the case,” Latimer said. “These regulations will hurt our working families, our property values and our way of life.”
The new federal tax code signed into law last year by President Donald Trump puts a $10,000 cap on SALT deductions. State lawmakers passed legislation in March that was designed to help residents who were disadvantaged by the new federal tax law. This allowed municipalities and school districts to set up charitable reserve gift funds to which taxpayers would contribute to government or school districts instead of paying their property taxes.
In return, they would receive tax-deductible credits equal to 95 percent of their donations.
But the IRS issued proposed regulations in August that would severely restrict homeowners from taking advantage of the deduction. Under the proposed regulations, a taxpayer who makes payments or transfers property to an entity eligible to receive tax deductible contributions must reduce their charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive.
Pleasantville Superintendent Mary Fox-Alter said the proposed regulations are illogical, place an undue burden on the states’ ability to provide public education and public services and greatly diminish the federal government’s fiscal responsibility. She said officials have a fiduciary responsibility to families and taxpayers to explore a voluntary contribution system.
While White Plains Mayor Thomas Roach and Bedford Supervisor Chris Burdick are hopeful the coalition’s concerns will prompt the IRS to withdraw the proposed regulations. North Salem Supervisor Warren Lucas stressed that the law needs to allow full deductions for all individual taxpayers.
“This is double taxation at its worst,” Lucas said. “Taxing people on money they already paid in taxes with no income thresholds protecting those who are vulnerable is bad government.”
