NJ AG considers suing the IRS over charitable contributions decision

New Jersey Attorney General Gurbir Grewal is threatening to sue the Trump administration after the Treasury decided Tuesday to block a potential workaround to a new cap on state and local tax deductions.

“As I previously warned the [Internal Revenue Service], its unprecedented efforts to undermine state charitable programs are bad law and bad public policy,” Grewal said in a statement. “I was proud to lead a coalition of Attorneys General opposing the IRS’s proposal, and I remain as committed as ever to challenging the IRS in court for going through with its harmful and illegal approach.”

New Jersey and other states with heavy local tax burdens wanted to allow cities and towns to set up charitable programs that residents could pay into instead of paying state and local taxes. Taxpayers would donate to the new charity enough to cover their tax bill, but not pay taxes directly.

That would have allowed taxpayers to deduct those charitable contributions in full from their federal tax bill, avoiding a new $10,000 cap on state and local tax deductions that was part of the Republican tax overhaul.

Mike Cerra, assistant executive director of the New Jersey League of Municipalities, said some municipal officials were eager to set up the charitable programs.

“But there was also a concern — you know, the writing was on the wall coming from the IRS — that it may not be viewed favorably. So I don’t think anyone actually took the action necessary because they wanted to see where the IRS was going to go with it,” Cerra said.

The new SALT cap hit high-tax states like New Jersey and New York especially hard. New Jersey’s average property tax bill is $8,767 and in some towns, tax bills on typical homes can be $20,000 or more.

Even though the federal tax overhaul lowered income tax rates, some Garden State homeowners reported paying more overall this spring because they maxed out their local tax deduction.