Westchester and Suffolk Counties Vow to Battle IRS Regulation Limiting Charitable Deductions

John Jordan | October 2018

From left, Westchester County Executive George Latimer and Suffolk County Steve Bellone

WHITE PLAINS—Standing in front of the White Plains Internal Revenue Service office on East Post Road here, Westchester County Executive George Latimer and Suffolk County Steve Bellone staged a press conference on Oct. 3 to announce their partnership to fight new IRS regulations that would limit the benefits of charitable deductions.

In response to the federal tax reform law signed into law in January that caps SALT (state and local tax) deductions to $10,000, Gov. Andrew Cuomo signed legislation in April that authorized New York municipalities to establish charitable funds to which homeowners may contribute, and later receive, both income and property tax credits. The new state program was an attempt to mitigate the SALT deductions cap on state taxpayers and particularly those who reside in affluent New York suburban counties like Westchester and Suffolk counties.

However, on Aug. 23, the US Treasury Department and the IRS proposed regulations that would severely limit the benefits of the charitable fund contributions. The IRS explained that if a state grants a 70% state tax credit and the taxpayer pays $1,000 to an eligible entity, the taxpayer receives a $700 state tax credit. Under the new IRS regulation, the taxpayer must reduce the $1,000 contribution by the $700 state tax credit, leaving an allowable contribution deduction of $300 on the taxpayer’s federal income tax return.

At the White Plains news conference earlier this week, both county executives called on the IRS to amend its proposed regulations that would significantly limit the ability of homeowners and individuals to deduct authorized state and local charitable contributions on their federal tax returns.

Westchester County Executive Latimer said, “While the federal government claims only 5% of the nation will be impacted by the cap on SALT deductions, we know here in Westchester that is not the case. This cap will hurt our county’s working families, our property values and our way of life.”

He added that Westchester County estimates that 185,000 taxpayers will be negatively impacted by the SALT deduction cap.

Suffolk County Executive Bellone added, “The looming tax increase headed towards New York from Washington can, and must, be stopped before it is too late. We will fight Washington’s effort to hurt our homeowners and residents, and I thank County Executive Latimer for his leadership and partnership in this endeavor.”

Latimer said that like the San Francisco earthquake in 1906, if the impacts of the federal tax reform law and the SALT cap are not mitigated, Westchester County economy will take a major hit that will take years to recover from.

“The devastation will be significant to business disincentive, to housing price disincentive, to the level of public service that makes this economy move,” Latimer said. “This is not just the money that we spend on charitable things, this is the money we invest on public infrastructure. How do we fix our roads when people wind up paying a huge increase in taxes and then don’t want to pass a school budget and don’t want to be involved in anything other than reduce everything you are spending money on so they can have a lower bill?”

The Westchester-Suffolk County initiative is just one of a number of campaigns in opposition to the IRS regulation that substantially limits the federal tax reform workaround by New York State. State Assemblywoman Amy Paulin of Scarsdale is leading an effort against the new IRS regulation as well, according to a report in the Journal News.

Gov. Andrew Cuomo has threatened to sue the federal government over the new IRS regulations that all but kill the benefits of his federal tax reform workaround.

The IRS is accepting comments until Oct. 11 and a public hearing on the new regulation is scheduled in Washington, DC on Nov. 5. Suffolk County Executive Bellone says he plans to travel to the nation’s capital to testify against the regulation.

In July, New York and other states filed suit against the federal government charging that the federal tax reform law was unconstitutional and that specifically the SALT cap was enacted to target New York and other states, that it interferes with states’ rights to make their own fiscal decisions and that it will disproportionately harm taxpayers in these states.

John Jordan
Editor, Real Estate In-Depth