States governed by Democrats that are trying to set up government charities to circumvent the new tax law’s limit on state and local tax deductions are being “ridiculous,” Treasury Secretary Steven Mnuchin said Thursday.
Mnuchin declined to say what response the Treasury or IRS might have to state attempts to shield taxpayers from tax hikes by allowing them to donate to state charities and giving them credits against local state liability in return, effectively converting state and local taxes to charitable donations. Charitable donations are still deductible at the federal level, while state and local tax deductions are capped at $10,000 under the new law.
“It’s one of the more ridiculous comments to think that you can take a real estate tax that you’re required to make and dress that up as a charitable contribution,” Mnuchin said at a White House press briefing.
“I hope that the states are more focused on cutting their budgets and giving tax cuts to their people in their states than they are on trying to evade the law,” he added.
Some high-tax, Democratic-led states, including California and New York, have eyed the charitable contribution workaround.
Although tax experts view the scheme as viable under current IRS guidance and tax case law, Congress or the administration could shut it down through legislation or regulation.
