Cuomo vows to fight IRS rules that thwart NY tax workarounds

ALBANY — The Internal Revenue Service on Tuesday issued final rules that would hinder states such as New York from helping some taxpayers avoid higher federal taxes under President Donald Trump’s tax law.

The tax law capped the amount taxpayers who itemize could deduct for state and local taxes at $10,000. That’s a far smaller deduction for wealthier taxpayers in high property tax areas such as Long Island.

In response, Cuomo proposed a complex system in which New Yorkers could use specially created state and local funds set up like charities to help pay their state and local taxes while maintaining the full deductibility of charitable contributions through tax credits.

On Tuesday, the IRS rejected that plan by creating rules that would drastically reduce the benefit of using Cuomo’s optional workaround plans.

Under Cuomo’s program, a taxpayer could donate $1,000 to a special state fund and get a 70 percent credit against the taxpayer’s state and local tax bill. But the final IRS rules say the taxpayers could only claim a tax deduction of $300.

“The federal government is continuing its politically motivated economic assault on New York,” Cuomo said, again accusing the Trump administration of targeting Democratic-dominated states such as New York. “We will pursue all options, including litigation, to resist this attack on our state and our taxpayers.”

Few New Yorkers had signed up for the state plan because the IRS already had been critical of the workarounds by large, Democratic states lsuch as California, New Jersey and New York.

Many middle-class and working families received a tax cut under Trump’s plan. But the plan also included a large corporate tax cut, and the cap on the deductibility of state and local taxes was a way to pay for it.

By Michael Gormley

michael.gormley@newsday.com@GormleyAlbany

Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.