Gov of CT comes up with property tax scam

[upset264]

Our governor has proposed a scheme to circumvent the provision in the recently enacted federal tax legislation which caps the deduction for state and local taxes at $10,000.

Under the proposal towns and cities would be allowed to establish "charitable foundations" to accept contributions in lieu of property taxes. Charitable donations would then be fully deductible for the donor.

Seeing the first mention of this six or eight weeks ago I could not believe that an elected leader who one would think wants to be taken seriously would utter such a proposal. Worse, his plan was endorsed by the state tax commissioner. In the newspaper this morning it is reported that the finance committee made some changes to the proposed bill and voted 44-7 (all D's and 11 R's in favor, some R's opposed) to send the bill to the senate.

So when the annual property tax bill comes the taxpayer would have the option of paying the tax or making a contribution in an offsetting amount to the towns charitable foundation. The charitable foundation would then report the payment to the tax collector who would waive, credit, erase, whatever, the tax debt. Optionally of course the taxpayer can choose neither option and in the course of time a truck will pull up and post a sign that the property is being auctioned off on such and such a date for back taxes.

Am I alone in my belief that the IRS will be on this in about 30 seconds. The "if it walks like a duck and quacks like a duck its a duck" dept. will say if it acts like a tax its a tax.

I'm interested in what others think of this cockamamie scheme.

 

[ChiliPepr]

cockamamie scheme.

yup, that about sums it up.

 

[marko]

Am I alone in my belief that the IRS will be on this in about 30 seconds.

Isn't it the IRS that defines what is and isn't a charitable entity?
You can't just call yourself a charity and automatically allow people to deduct their contributions.

 

[ChiliPepr]

cockamamie scheme.

yup, that about sums it up.

The reason I say that is that the IRS says any value you receive from a charitable donation is not deductible. So if you go to a charitable fundraiser and pay $1,000 for the tickets, but you have a sit-down dinner of soggy chicken that is "valued" at $50, you can only deduct $950.

If you donate $10,000 to a city, but you get the ability to not pay $10,000 in taxes, I cannot see how you have a deduction.

Now, if they got rid of all required property taxes, but REQUESTED people donate, that would be different. But do you think enyone would then donate?

 

[phil1ben]

I think the first formal step will be for the Commissioner of the IRS to issue a Revenue Ruling confirming that such payments are not a "gift" under the Internal Revenue Code and consequently do not qualify for a charitable deduction under Section 170 of the IRC. Then the Revenue Ruling will get appealed to federal court which will affirm the Revenue Ruling.

It will take about a year for this nonsense to be put to rest.

Without going into details my property taxes on our homes are many multiples of the $10,000 limitation. I wasn't crazy about the resolution of the SALT issue in the tax code revisions. However, politicians in the northeast want to "appear" that they are doing something to pander to voters and would prefer the courts tell them their is nothing they can do rather than simply admitting these facts themselves to the voters. Let us not forget it is their own policies (and particularly school funding) which has led to such high property taxes in the northeast and California. In this way the governors of NY, NJ and Conn can appear to be fighting the fight but they are just looking for a scapegoat--which will be a court decision. Just my humble opinion.

 

[FIRE'd@51]

Isn't it the IRS that defines what is and isn't a charitable entity?
You can't just call yourself a charity and automatically allow people to deduct their contributions.

Yup. To be eligible for the charitable deduction the organization must be designated as a 501(c)(3) entity. IMO, the chance of the US government granting CT that designation is zero. Every state would then do this. It's an insult to the residents of CT that it's government would spend money on legal fees to try to promote this.

 

[joeea]

I'm interested in what others think of this cockamamie scheme.

Schemes are fun.

If I lived in a state that had high property taxes I'd probably welcome a scheme that let me deduct tax payments - tax avoidance is the American way.

If I lived in a state that had low property taxes I'd probably welcome punishing the high property tax states while my income taxes were being cut.

It all depends on whose ox is being gored, right?

 

[MichaelB]

Changed forums for a better fit.

 

[CRLLS]

I think it MAY BE a "cockamamie scheme", but not in the way being discussed. What if, and I'm just postulating here, the elected Gov Malloy knows that the IRS will disallow the "donation"[mod edit] Of course this is all speculation on my part.

From my Googling this morning there are several other states currently looking at various ways to make an end run around the 10K Fed limit. CT is just one. Even if there is a way, one would have to have >$24K in other deductions in order for this to be deductible dollar-for-dollar.

 

[CaptTom]

Without condoning it, I can actually see a way this could work.

Many municipalities do a lot of what might be considered "charity" spending. There are also a lot of non-essential services. The Recreation Department comes to mind. If these were spun off as independent non-profits, I'd be OK with that.

I have no clue as to the legality of this scheme. If the state can allow tax deductions, why not the city? Likewise, there are already a number of property tax abatement programs (homesteader, veteran, elderly, etc.) which are apparently legal.

I have no horse in this race; my property taxes are under $10K. I guess it would be in my best interests to hope this is found illegal, so the federal government doesn't lose the money and need more from me. But ethically, I can see where it could make some sense. Depending on how its implemented, of course.

 

[ChiliPepr]

Without condoning it, I can actually see a way this could work.

Many municipalities do a lot of what might be considered "charity" spending. There are also a lot of non-essential services. The Recreation Department comes to mind. If these were spun off as independent non-profits, I'd be OK with that.

I have no clue as to the legality of this scheme. If the state can allow tax deductions, why not the city? Likewise, there are already a number of property tax abatement programs (homesteader, veteran, elderly, etc.) which are apparently legal.

I have no horse in this race; my property taxes are under $10K. I guess it would be in my best interests to hope this is found illegal, so the federal government doesn't lose the money and need more from me. But ethically, I can see where it could make some sense. Depending on how its implemented, of course.

The problem with what you put out is that the federal government would have to declare that contributions to the "recreational department" would be to a charity, and you would have to receive no benefit from contributing to that charity. If you contribute and then receive the same amount off your taxes, I doubt the feds would allow it.

I would like this to be possible since I am currently paying well above $10k in SALT taxes and this change is going to cost me a lot. But I do not have my hopes up!

 

[38Chevy454]

All previous replies are correct. No chance of snowball in hell of this scheme working. Eventually people will realize that, until then plenty of wasted resources and court time to come to that conclusion.

 

[Chuckanut]

The last time I checked charitable deductions were useful only if they exceeded any benefit that you might get from the contribution. IOW, you bid on a fancy vase worth $100 at a charity auction, but you 'pay' $400, well, you can only deduct the $300 extra you pay.

If they get away with this, I can only imagine the number of goofy tax shelter schemes we will see offered to us by banks and insurance companies and downright swindlers.

I understand the different views on taxation and the idea of the "loyal opposition" but these guys are setting precidents that will come back to bite them big time when their boys and girls control the Federal Government. Remember, the move that eliminated the filibuster rule for Federal judges? It happened under the previous President. Now, the current one has used that change to get his judges approved. And then used the precedent to successfully argue for removing the filibuster for Supreme Court judges.

I do not mean to be political or take sides. I merely point out that sauce for the goose is sauce for the gander. Or, like my old grand pappy used to say: What goes around, comes around.

 

[harley]

All previous replies are correct. No chance of snowball in hell of this scheme working. Eventually people will realize that, until then plenty of wasted resources and court time to come to that conclusion.

But the politician in question will have been seen as trying to help his constituents only to stomped on by the big bad IRS. Mission accomplished!


Edit: Everything about this comment was sarcasm, except for the "big bad IRS" part. I meant that.

 

[pb4uski]

Yup. To be eligible for the charitable deduction the organization must be designated as a 501(c)(3) entity. IMO, the chance of the US government granting CT that designation is zero. Every state would then do this. It's an insult to the residents of CT that it's government would spend money on legal fees to try to promote this.

+1 how a 501(c)(3) spends the money spends its charitable contributions are a critical factor in getting and keeping 501(c)(3) status.... it has to be demonstrated each year on the entities Form 990. This alone is enough to kill it.

Also, there is a provision that if you receive something of value then a contution needs to be reduced... so for example, if I donate $100 and receive game tickets with a value of $25 in return, then my charitable contribution deduction is only $75. It is likely that not having to pay property tax will be viewed by the IRS as a benefit received... effectively scuttling the scheme.

The likely end result if they move forward is lots of lawsuits that they will lose and the taxpayers will be worse off than they were to beging with.

 

[gerntz]

The last time I checked charitable deductions were useful only if they exceeded any benefit that you might get from the contribution. IOW, you bid on a fancy vase worth $100 at a charity auction, but you 'pay' $400, well, you can only deduct the $300 extra you pay.

I would imagine those that would most benefit from this are receiving less than average direct benefits from the state such that much of these funds would exceed benefits. I.e., if you pay $50K in state taxes now, how much in state benefits do you receive? E.g., no more state police protection than a homeless person, maybe less.

 

[Texas Proud]

Just want to point out that the scheme has been in existence for awhile... not sure where, but when I heard about it the first time they were referencing some places that do it now...


HOWEVER, I do not think they could not donate that much so it was not a big deal nor was it designed to skirt the federal tax laws.... IOW, the deduction was going to be taken either as a tax or charity.....

I think the states that are doing this or have talked about doing it (Cali, NY, NJ and now CT) will be shut down one way or another....