Rep. Faso Urges Treasury Department to Examine Proposed NY State Tax Changes

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Washington, February 28, 2018 | comments

Washington D.C. – Representative John Faso (R-Kinderhook) today released a copy of a letter he has sent to the Treasury Department’s Office of Tax Policy concerning changes in deductibility of state and local taxes. The letter asks the Treasury Department to issue an opinion letter concerning proposed tax changes contained in Gov. Cuomo’s Executive Budget, which would convert some state and local tax payments to payments which might be eligible for charitable tax deduction under federal law. 

Full text of the letter is below and a signed copy with accompanying attachments is available here.

Mr. David Kautter
Assistant Secretary for Tax Policy
U.S. Department of the Treasury
1500 Pennsylvania Ave. NW
Washington, DC 20220

Mr. Kautter,

As you know, the limitation on state and local tax deductibility remains a concern to many taxpayers in New York State. The proposed Executive Budget in New York State contains provisions which would amend the state tax law in response to the recently enacted Tax Cuts and Jobs Act. Attached hereto are descriptions of the state proposal from the Executive Budget presentation.

One of these proposals would allow taxpayers to make charitable contributions to new state related entities for health and education-related costs, allowing taxpayers to retain most of the existing deductibility of such contributions.  The proposed state tax provisions are intended to replace traditional income tax payments to the State which are no longer fully deductible. The New York proposal and similar plans in other states are apparently modeled in part on existing state programs which award tax credits to residents in exchange for contributions to designated charitable causes.  In these instances, I’m advised that the IRS has treated such contributions as deductible under federal law.

Specifically, these contributions would be made to new entities which would turn over such contributions to the state’s general fund budget. Similar options would be made available to school districts and municipalities looking to assist taxpayers in retaining deductibility for local tax payments to localities and school districts.

I have had many questions from constituents as to whether the state initiative will be compliant with federal law and regulation governing charitable deductions. Would such payments or contributions meet the test for a charitable deduction since presumably the taxpayer is receiving benefits from the governmental units and school districts for the “contributions” donated?

This matter is of great public interest in a number of states besides New York, including California, New Jersey and Connecticut among others. Please advise whether the IRS has begun evaluating the validity of these and similar proposals?  I believe that it is important that the Treasury and the IRS issue guidance or a formal opinion letter whether taxpayer contributions to state authorized trust funds, partially reimbursed by credits reducing state and local income taxes, will be considered deductible for federal tax purposes.

I would appreciate your timely response as these proposals are now under consideration by the state legislature in Albany.

Please feel free to contact me to discuss this matter further.



John J. Faso

Member of Congress

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