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I.R.S. Warns States Not to Circumvent State and Local Tax Cap

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Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#41

Post by ngoldbaum »

gnicholas wrote: post #21

TLDR: the tax reform bill put a cap on deducting state and local taxes, which were previously fully deductible. Now you can only deduct $10k between property tax and state income taxes. Residents of CA, NY, NJ, etc. easily hit these limits, so some of these states are giving residents other ways to effectively pay their state/local taxes while maintaining full deductibility for federal tax purposes. Now the IRS is tr…

Capping the state and local tax deduction isn’t closing a loophole. It’s punishing blue states for funding social services and state government via state taxes.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#42

Post by bcheung »

noobermin wrote: post #35
bcheung wrote: post #28

Classifying local taxes as "charitable contributions"? I'm really on the fence about this. On the one hand, it seems an absurd and grossly inaccurate characterization, borderline lying and definitely tax evasion. On the other hand, there's this: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." Also, some…

Not really. The IRS is enacting the law Congress gave them, as it's supposed to. You can disagree with that law (I do) but I don't see them stepping outside their constitutional authority

In spirit, yes, but I think this is a matter of debate and ultimately will need to be decided by the tax courts. The states are following the letter of the law but definitely circumventing the spirit of the law. This really comes down to how much leeway the Federal government, more specifically the tax courts, gives the IRS.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#43

Post by gnicholas »

ngoldbaum wrote: post #41
gnicholas wrote: post #21

TLDR: the tax reform bill put a cap on deducting state and local taxes, which were previously fully deductible. Now you can only deduct $10k between property tax and state income taxes. Residents of CA, NY, NJ, etc. easily hit these limits, so some of these states are giving residents other ways to effectively pay their state/local taxes while maintaining full deductibility for federal tax purposes. Now the IRS is tr…

Capping the state and local tax deduction isn’t closing a loophole. It’s punishing blue states for funding social services and state government via state taxes.

You’re right. The “loopholes” that people are discussing are the novel workarounds to get around the cap.

When I said “enforce” loopholes I meant they are trying to defeat them.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#44

Post by einarvollset »

dahdum wrote: post #29
JumpCrisscross wrote: post #20

Earlier quoted context omitted.

> I would be surprised to see a judge take kindly to that type of nonsense We're a nation of laws. Not taking kindly to a case isn't justification for a ruling. The tax law was haphazardly drafted and written specifically to increase wealth transfers from surplus states ( e.g. Delaware, Minnesota and New Jersey) to deficit states ( e.g. New Mexico, Mississippi and West Virginia) [1]. I see valid arguments for both si…

The SALT deduction was a handout to the most affluent and a subsidy to the wealthiest states. It allowed them to increase their state and local taxes at the expense of federal revenue, spreading that burden across the country. The tax plan certainly had flaws, but capping SALT was egalitarian IMO.

You can certainly convincingly argue that, but to retain a coherent argument you also now need to tell me how it’s egalitarian that all the states hit by this overwhelmingly contribute more to federal tax coffers per capita (and hence are subsidizing) the states where the $10k cap will have no impact.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#45

Post by adventured »

It's wild to watch the Democrats argue in favor of preserving tax advantages for the top income tiers. Ie arguing for regressive tax policies and for preventing taxes from going up to where they should be on high income persons. And not just argue, but invent ridiculous schemes to try to maintain that special tax treatment for well-off people.

88% of the SALT deductions were going to households earning over $100,000. 1% were going to households earning $50,000 or less. The tilt is obvious: this was a tax benefit for better off persons, a way for higher income earners to avoid paying the full high tax rates in states like New York and California.

This is an extremely ugly hypocrisy as it pertains to what their platform is supposedly all about. I've yet to see very many prominent people on the left, either politicians or media, call it out. It also defangs the left's ability to pursue Republicans for their favoritism toward high income brackets regarding taxes: they're plainly arguing & working to preserve a tax cut for higher income earners.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#46

Post by lotsofpulp »

JumpCrisscross wrote: post #40
lr4444lr wrote: post #36

Earlier quoted context omitted.

I don't think you're understanding how this is being constructed: the money wouldn't be going to the government (i.e. directly to the department of finance), precisely for the reason you're describing. That's why they're floating the idea of establishing charitable institutions under a kind of trusteeship in the municipalities as per the bylaws of what those shell entities will be. EDIT: Stated specifically, for NY:…

> the money wouldn't be going to the government Hence my argument for the lack of a quid pro quo . The charity gets the quid ; someone else provides the pro quo . How states and municipalities count their tax obligations could be argued to be local issues, from a Tenth Amendment perspective. (We just had a landmark anti-commandeering case get decided on by SCOTUS.) Here's a clearer quid pro quo : churches.

How is the charity and the government not the same entity?

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#47

Post by bcheung »

Spooky23 wrote: post #12
tango24 wrote: post #3

Earlier quoted context omitted.

Wait, property and state taxes are already deductible on federal 1040, right? So why are the states even doing this? The article is paywalled so surely I’m missing some info here.

The tax reform hit many places hard. You can only deduct the first $10,000. Every suburb of NYC has an average property tax of over $10k, plus most people pay state income tax. These people are doubly impacted by the higher standard deduction, which makes it difficult for all but the wealthy to deduct.

Not sure I follow. The wealthier have higher incomes and higher property taxes due to buying more expensive homes. The $10,000 cap hits them even harder.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#48

Post by MrMorden »

gnicholas wrote: post #21

TLDR: the tax reform bill put a cap on deducting state and local taxes, which were previously fully deductible. Now you can only deduct $10k between property tax and state income taxes. Residents of CA, NY, NJ, etc. easily hit these limits, so some of these states are giving residents other ways to effectively pay their state/local taxes while maintaining full deductibility for federal tax purposes. Now the IRS is tr…

The "role-reversal" is only surprising if you had believed that the parties have actual principles.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#49

Post by virmundi »

duxup wrote: post #37
virmundi wrote: post #24

Earlier quoted context omitted.

We are to pick this as a topic to fight back on? How about fighting back on law requiring people to purchase a product that they don’t want? No, USG says I have to have insurance while I don’t use doctors in network because they are worth less than WebMD. Instead I go to a doctor that I pay $160 out of pocket for a full hour visit that keeps notes on me that help to inform my future care. Fighting what largess the US…

Aren't networks and medical insurance a problem across the board? I've had that problem on employer provided insurance plenty of times... it's got nothing to do with the federal requirements, it's just how dorked up the medical industry is. I get what your'e saying but the details if what you describe is the a whole healthcare industry issue. Too often I see "OMG THIS IS THEIR FAULT" no it's just how the insurance in…

Here’s where it is their fault. I quit my job, moved to Florida. I figured my wife and I could get a high deductible plan like my former employer provided, and save $100/month into our new HSA all for $400. We had a plan picked out from Florida Blue. Then, bam! I couldn’t get that plan anymore. Federal regulators required baseline features that moved that plan to, and I shit you not, $730. That’s more than my mortgage. So we used my wife’s company plan. No HSA. No asset accumulation. Just pure cost. Her doctor, same as mine, is not in network and does not take insurance. So that’s $1,500 a year that doesn’t go to the yearly 12k deductible.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#50

Post by throwaway76543 »

JumpCrisscross wrote: post #23
throwaway76543 wrote: post #18

Earlier quoted context omitted.

This would be a quid pro quo contribution, already prohibited by the IRS. It's hard to see this "charitable conversion" nonsense as anything other than (potentially criminal) tax evasion. https://www.irs.gov/charities-non-profits/substantiating-cha...

That's an oversimplification. "A quid pro quo contribution is a payment made to a charity by a donor partly as a contribution and partly for goods or services provided to the donor by the charity" [1]. In this case, the charity isn't providing the quid pro quo , the local government is. States are already allowed to let one deduct charitable contributions from state taxes however they like. And visiting a park one do…

All of this has been tried before with folks trying to funnel profits into charities. The IRS is going to say "no, we're considering these entities to be a single entity" and they may even say "and furthermore it's criminal tax evasion and you're all going to prison."

This is a news article about a notice they've just issued indicating as much.

The law is not a computer program. Being clever about definitions does not often have pleasant results. This approach is unlikely to work.

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