An upstate congressman has asked the U.S. Treasury Department to determine the legality of a Cuomo administration proposal that would allow New Yorkers to make donations to a charitable education fund in lieu of paying local school taxes.
Rep. John Faso (R-Kinderhook) asked Treasury whether the proposal would comply with federal tax law. Gov. Andrew M. Cuomo has acknowledged he has proposed the idea as an end-run on the new federal tax law, which capped deductions on local taxes paid to $10,000.
In theory, by channeling school payments through a charitable fund, a New Yorker could then take a federal deduction for the “donation.” It’s a proposal that probably would help only a small percentage of New Yorkers: those households who pay more than $10,000 in local taxes and claim more than than $24,000 in itemized deductions.
Faso, who voted against President Donald Trump’s tax plan, but who also has sparred with Cuomo over some aspects, said many of his constituents want to know the IRS’ view before New York lawmakers weigh Cuomo’s proposal.
“Would such payments or contributions meet the test for a charitable deduction since presumably the taxpayer is receiving benefits from the governmental units and school districts for the “contributions” donated?” Faso wrote to the Treasury Department on Monday. “I believe that it is important that the Treasury and the IRS issue guidance or a formal opinion letter whether taxpayer contributions to state authorized trust funds, partially reimbursed by credits reducing state and local income taxes, will be considered deductible for federal tax purposes.”
New Jersey, California and other states are considering similar taxes-as-charity proposals. Treasury Secretary Steve Mnuchin has called such end-runs “ridiculous,” though the IRS hasn’t formally offered an opinion.
Under Cuomo’s proposal, donations to the education charitable fund would be worth up to 85 percent in state income tax credits.
In contrast, similar plans floating around in the state legislature would offer a dollar-for-dollar match on contributions, including one such measure offered by Assemb. Steve Englebright (D-Setauket).
All the ideas are part of state budget discussions. Cuomo and legislators are supposed to adopt a spending plan by April 1, the start of New York’s fiscal year.