“My message to Mr. Trump and the IRS is simple: we look forward to seeing you in court,” New York Gov. Andrew M. Cuomo said Wednesday concerning a new lawsuit filed by New York, Connecticut and New Jersey against the Internal Revenue Service. The lawsuit seeks to overturn an IRS rule preventing people from claiming contributions made to local governments as charitable contributions.
The notion of making charitable contributions instead of tax payments to local governments was put forward as a way to skirt the new limit of $10,000 in deductions on federal income tax returns for payment of state and local taxes. The limit, known as SALT, was put into effect in the 2017 tax bill passed when Republicans had control of both the House and Senate and was seen by critics as retribution against states controlled by Democrats which have high local and state taxes.
In addition to the IRS, the suit names Treasury Secretary Steven Mnuchin as a defendant. Mnuchin had said that the cap on SALT deductions was intended to “send a message.”
The new IRS rule requires anyone making a charitable contributions to remove from their federal charitable contribution deduction any state and local tax credits they may receive.
New York State Attorney General Letitia James, who filed the lawsuit on behalf of New York state, said, “The IRS’s move to end tax benefits for charitable giving is yet another attempt by the Trump Administration to unfairly target hardworking taxpayers of states like New York.”
The suit was filed in U.S. District Court for the Southern District of New York. It describes what the IRS did as a “radical break” from historic precedent and says the rule is not within the statutory authority of the IRS, is a violation of the federal Administrative Procedures Act, and is “arbitrary.”
James said, “We will not stand idly by as this administration throws out decades of historic precedent putting our local economies, education systems and other critical programs at risk. My office stands firm against this unlawful attack and will do everything in our power to ensure that state taxpayers are protected.”
Connecticut Attorney General William Tong said, “Our legislature sought to ease the financial burden this cap has on residents by passing a law to protect our taxpayers. The IRS final rule not only undermines those legislative efforts but it eliminates the state’s ability to mitigate the harmful effects of this law. Our office stands ready to protect Connecticut taxpayers.”
Connecticut Gov. Ned Lamont said, “The federal tax reforms approved by Congress were promoted as a tax cut, but in reality they’ve resulted in a tax hike for millions of citizens, including thousands here in Connecticut. This was a purely partisan bill and – let’s be frank – aimed directly at blue states like Connecticut, New York and New Jersey. It’s unfair, discriminatory and unconstitutional.”
Cuomo noted that a separate lawsuit challenging the constitutionality of the SALT policy is ongoing. “The Trump administration’s SALT policy is an economic civil war that helps red states at the expense of blue states,” he said.
Cuomo said that the new IRS rule contradicts existing federal tax law that says state choices to provide tax incentives for charitable donations do not affect the federal deductibility of those gifts.
“The IRS regulations lack any basis in the law, upend decades of precedent without authorization from Congress, and target programs established by New York and other states to incentivize charitable contributions,” Cuomo said. “New York already sends $36 billion more to Washington than we get back every year. And thanks to the Republicans’ SALT cap, New Yorkers are being used as ATMs, footing an additional $15 billion each year that will be redistributed to red states and corporations.”