IRS appears to shoot down N.J. plan to make local taxes a charitable (and deductible) contribution

About that idea of calling tax payments charitable giving so they would be deductible on your federal taxes … 

It appears the IRS is wise to it. 

At least, that was the basis of a statement issued Wednesday when the Internal Revenue Service reminded local municipalities that federal law decides what is tax deductible on your federal tax form. 

The IRS took aim at proposals in New Jersey (and other states) to do a workaround on the $10,000 deductible limit on local taxes. 

“The aim of these proposals is to allow taxpayers to characterize such transfers as fully deductible charitable contributions for federal income tax purposes, while using the same transfers to satisfy state or local tax liabilities,” the IRS said in a statement. 

“Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes.” 

New Jersey politicians were not happy — and lashed out at President Donald Trump while saying so. 

“For the federal government to permit certain states to allow for charitable deductions, but not others that are following the same principles, is unconscionable,” Gov. Phil Murphy said. “Once again, President Trump is unfairly targeting the hardworking people of New Jersey.”  

Sen. Bob Menendez (D-N.J.) said it was political payback. 

“As appalling as it was for President Trump and congressional Republicans to use tax reform as a way to exact political revenge against so-called blue states by limiting the state and local tax deduction, it is absolutely unacceptable to use the IRS as a political weapon to target New Jerseyans,” he said in a statement. 

U.S. Rep. Josh Gottheimer (D-N.J.), one of the earliest and strongest proponents of the idea, also went after Trump. But he also offered analysis by tax experts to prove the idea is sound.  

“It has always been this administration’s intent to impose a tax hike on New Jersey families, so I’m not surprised they are taking aim at the state’s charitable Tax Cut Plan,” he said. “The IRS told us that they would challenge it — and they know they are in a pickle on this one. 

“They can’t just hose New Jersey taxpayers to the benefit of ‘Moocher States.’ Now, it’s off to court, where I’m sure we will be joined by the 33 other states, mostly Moocher States, currently utilizing the provision.”