Will the IRS be on board with lawmakers’ SALT cap workaround?

BY Brenda Flanagan, Senior Correspondent |

“We’re one of the highest tax states in the nation and this is something they have to work on,” said Paramus resident Sam Casiello.

Casiello showed up at a news conference on Trump’s tax law, the one that caps so-called SALT deductions for state and local taxes at $10,000. State lawmakers said they hope to legislate a loophole with a bill that lets taxpayers make charitable contributions in exchange for deductible tax credits. And, they’ve scheduled a vote for Monday, despite warnings that the IRS will disallow their plan.

“If we sit back, we have no chance to reverse this,” said Senate President Steve Sweeney. “We’ve got nothing to lose. They already screwed us, right? In Washington, they already put the screws to New Jersey. We got nothing to lose. We think we’re on strong footing, but I think people expect us to fight for them.”

The bill instructs New Jersey’s Departments of the Treasury and Community Affairs to set up the regulatory framework. In participating towns, tax collectors will get guidelines for a system of charitable contributions to different funds.

“So when people come in to pay their taxes, they could appropriate a percentage to law enforcement, a percentage to streets and utilities and a portion to education, so your services that are provided by municipal government, it will still meet those obligations,” said bill sponsor Sen. Paul Sarlo.

In return, taxpayers get credit for federal deductions worth up to 90 percent of their charitable contributions. But critics call the plan a gimmick doomed to rejection by the IRS, which basically defines charitable contributions as donations given in the spirit of generosity.

“You can’t deduct a charitable donation to the extent that you receive something of value in return, and the whole point of this scheme is to deliver an economic benefit to the taxpayer,” said former state Treasurer Andrew Sidamon-Eristoff.

But 5th Congressional District Rep. Josh Gottheimer, who devised this plan, says 33 other states already use it in some way with the IRS’s blessing. He asked the IRS commissioner, why not New Jersey?

“The IRS hasn’t ruled because it hasn’t seen specific programs, or any rules yet on this. But it was clear the commissioner knew a well-designed program would be very hard to rule against without killing the programs in the other 33 states. They can’t just kill ours and not the other 33, again, in mostly red states. I think they’re in a bit of a pickle here,” said Gottheimer.

Mayors in several New Jersey towns are ready to adopt the framework as soon as it’s signed into law.

“Wayne Gretzky said, ‘you’re guaranteed to miss 100 percent of the shots you don’t take.’ And with this leadership, we’re taking that shot,” said Paramus Mayor Richard LaBarbiera.

“Any way we can save taxpayers money, I’m for it,” said Casiello.

What if the IRS doesn’t buy this loophole? Lawmakers say that New Jersey could take legal action and fight this out in court.