***VIDEO RELEASE*** Menendez, Booker Lead NJ Delegation Fight against IRS Plan to Undermine NJ’s Efforts to Protect Taxpayers

***VIDEO RELEASE*** Menendez, Booker Lead NJ Delegation Fight against IRS Plan to Undermine NJ’s Efforts to Protect Taxpayers

   

SPRINGFIELD, N.J. – U.S. Senators Bob Menendez, a senior member of the Senate Finance Committee that sets national tax policy and the author of legislation in the U.S. Senate to fully restore the State and Local Tax Deduction (SALT), and Cory Booker, as well as Congressman Frank Pallone, Jr. (N.J.-06), stood today with Springfield Mayor Richard Huber and local residents as the federal lawmakers continue to fight Trump Administration efforts to harm New Jersey taxpayers.

“The Trump Administration has it out for New Jersey.  No other state was hit harder by the Trump Tax Plan,” said Sen. Menendez.  “By gutting the property tax deduction, Republicans have capped the rights of states to set their own tax policies and protect hardworking people from getting taxed twice.  And now, the Trump Administration has weaponized the IRS to go after New Jersey for something that 32 states already do.  It’s wrong.  It’s un-American.  And we’re not going to take it.”

“The disastrous Trump Tax Plan was a massive giveaway to big corporations and the wealthiest Americans, at the expense of everyone else," Sen. Booker said.  "Now, the Trump Administration continues to target hard-hit New Jersey families by undermining our state's efforts to provide relief to taxpayers affected by the tax plan's unfair cap on deductions for state income and local property taxes.  Hardworking New Jersey families deserve better than punitive, politically-driven policies like this and I will continue to fight every step of the way."

“The GOP Tax Law gives massive tax breaks to the wealthy and multinational corporations while jeopardizing programs like Medicare that mean so much to working families,” said Rep. Pallone.  “The IRS should not stand against New Jersey’s commonsense proposal to provide New Jerseyans relief from the scam’s most unfair provisions.”

CLICK HERE TO WATCH SEN. MENENDEZ’S REMARKS

The senators are leading the New Jersey Congressional delegation’s response to the recent announcement by the Internal Revenue Service (IRS) that it intends to issue new rules to effectively block New Jersey’s efforts to protect its taxpayers from the Trump Tax Law’s $10,000 cap on SALT deductions, resulting in the double-taxing of up to 1.8 million, or 40 percent of New Jersey taxpayers. 

“The IRS announcement that it intends to specifically target state tax credit programs developed after passage of [the Trump Tax Law] is fundamentally unfair and raises serious suspicions of political targeting.  The nation’s tax laws must be applied fairly and equally, regardless of the state in which the taxpayers lives,” stated the lawmakers in a delegation letter to Acting IRS Commissioner David Kautter.  “This flawed interpretation has no foundation in law and would upend years of precedent, infringing on the rights of states to provide local tax benefits for charitable contributions.” 

Sen. Menendez stood with Governor Phil Murphy in East Rutherford, N.J., last month as he signed legislation to mitigate the impact of the Trump Tax Law, allowing taxpayers to donate to a charitable fund established by their municipality, county, or school district.  In return for their donation, the taxpayer receives a credit on their property tax bill of up to 90 percent of the donation.  Taxpayers would then be able to claim their donation as a charitable deduction on their federal income tax return, preserving the deduction homeowners enjoyed for the more than 100 years since the federal income tax was instituted in 1913.

“While this is the first time New Jersey is undertaking such an effort, the concept of incentivizing charitable contributions with state tax benefits, including credits, has long been found by the IRS to be acceptable,” the letter continued.  “Indeed, in an IRS Chief Counsel Advisory memo published in 2011, the IRS cited various case law to support the conclusion that any state or local tax benefit received by the donor should not be considered income or a thing of value.  Rather, the memo concludes that a state or local tax credit should be treated as a reduction in tax liability, and thus should not reduce the value of the federal charitable deduction.”

The senators visited the home of Sy Mullman, a Springfield retiree living on a fixed income whose annual property taxes exceed the $10,000 deduction cap.  Mayor Huber is currently exploring creating charitable funds in Springfield to help bring tax relief to residents, who paid an average $11,117 in 2017 combined property taxes. 

Sens. Menendez’s and Booker’s response to the IRS was open to the entire bipartisan delegation.  The letter was cosigned by Reps. Pallone, Donald Norcross (N.J.-01), Josh Gottheimer (N.J.-05), Albio Sires (N.J.-08), Bill Pascrell, Jr. (N.J.-09), Donald Payne, Jr. (N.J.-10) and Bonnie Watson Coleman (N.J.-12).

“[The Trump Tax Law] delivered a significant blow to the people of New Jersey, raising taxes on hundreds of thousands of residents and increasing the property tax burden on many more,” the lawmakers wrote.  

When the GOP tax plan was first being introduced, Sen. Menendez called it, “One giant hit job of New Jersey’s middle class.”  Sens. Menendez and Booker stood with middle class homeowners in Bloomfield, N.J., to highlight how the bill was a direct attack on New Jersey.  After two different versions passed the House and Senate, Sen. Menendez was named by Senate Democrats to the Tax Conference Committee to defend deductions essential to New Jerseyans.  Republicans, however, never had any intention of listening to Democrats’ concerns and released a bill they negotiated in secret.

In the week leading up to the vote, Sen. Menendez took to Facebook Live to explain the tax bill, responded to Sen. Pat Toomey’s (R-Pa.) attack on states like New Jersey and New York, detailed how the bill specifically hurts New Jersey, and offered measures to restore the state and local tax deduction New Jersey’s middle class relies on.  Unfortunately, the Republican legislation passed the Senate despite Menendez’s objections, and was signed by President Trump.

The full text of the letter follows and can be downloaded here

June 18, 2018

The Honorable David Kautter

Acting Commissioner

Internal Revenue Service

1111 Constitution Avenue NW

Washington, D.C. 20224

Dear Acting Commissioner Kautter:

We are writing to express our concern with the Internal Revenue Service’s (IRS) Notice 2018-54, which announces an intention to question the federal deductibility of charitable donations made to state-approved, non-profit entities.  This flawed interpretation has no foundation in law and would upend years of precedent, infringing on the rights of states to provide local tax benefits for charitable contributions. 

As you may know, New Jersey state law authorizes municipalities, school districts, and counties in the state to establish non-profit entities and provide a 90 percent property tax credit for any contributions to these funds.  While this is the first time New Jersey is undertaking such an effort, the concept of incentivizing charitable contributions with state tax benefits, including credits, has long been found by the IRS to be acceptable. 

Indeed, in an IRS Chief Counsel Advisory memo published in 2011, the IRS cited various case law to support the conclusion that any state or local tax benefit received by the donor should not be considered income or a thing of value.  Rather, the memo concludes that a state or local tax credit should be treated as a reduction in tax liability, and thus should not reduce the value of the federal charitable deduction.  This concept has also been validated by eight of the nation’s top tax scholars, who argue in an academic paper that, “under current law, expressed through both court opinions and rulings from the Internal Revenue Service, the amount of the donor’s charitable contribution is not reduced by the value of state tax benefits.”

This is not a theoretical question: 32 states and the District of Columbia have for years implemented similar funds, some of which offer dollar for dollar state or local tax credits in exchange for contributions.  The IRS announcement that it intends to specifically target state tax credit programs developed after passage of P.L. 115-97 is fundamentally unfair and raises serious suspicions of political targeting.  The nation’s tax laws must be applied fairly and equally, regardless of the state in which a taxpayer lives.

P.L 115-97 delivered a significant blow to the people of New Jersey by gutting the state and local tax deduction, raising taxes on hundreds of thousands of residents and increasing the property tax burden on many more.  While appalling as it was to use the tax code 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.  We call on the IRS to issue unbiased guidance— implementing the law as written and as historically interpreted by the agency.

Sincerely,