U.S. Treasury readies crackdown on state SALT cap workarounds

WASHINGTON (Reuters) – The U.S. Treasury said on Wednesday that it will soon propose regulations aimed at recent state efforts to circumvent a new Republican law that caps a longstanding federal tax deduction for state and local tax payments.

The new rules will assert the authority of the Internal Revenue Service over workaround strategies devised by officials in half a dozen states, most of them “blue” states with Democratic majorities, the Treasury and IRS said in a public notice.

The Republican-controlled Congress capped the federal SALT deduction at $10,000 in tax legislation that President Donald Trump signed into law in December. The move spawned official protests in states where the popular deduction has helped mitigate the burden of state and local taxes that fund local services including public education.

New York, New Jersey and Connecticut have already adopted measures that allow taxpayers to fund municipal governments by making tax-deductible charitable donations to specified funds in lieu of taxes. California, Illinois and Nebraska could follow a similar path.

But the Trump administration suggested that such actions could be viewed as being outside the jurisdiction of state governments.

“The proposed regulations will make clear that the requirements of the Internal Revenue Code, informed by substance-over-form principles, govern the federal income tax treatment of such transfers,” Treasury and the IRS said.

The agencies added that the new regulations would help taxpayers understand the relationship between the federal deduction for charitable contributions and the new limit on so-called SALT payments.

“I applaud the administration for responding to these gimmicks,” said Representative Kevin Brady, Republican chairman of the House Ways and Means Committee and a main author of the SALT deduction cap.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.