Prior to Senate Confirmation Vote, Menendez Leads Colleagues in Call for Trump IRS Nominee to Make Clear He Will Treat Taxpayers Equally, No Matter Where They Live

Over 30 states have similar tax credit programs, which NJ created to protect middle class homeowners from Trump Tax increase

Senators warn IRS is poised to weaponize tax law to punish political opponents

WASHINGTON, D.C. — U.S. Senator Bob Menendez (D-N.J.), senior member of the Senate Finance Committee that sets national tax policy, led colleagues in calling on Trump’s nominee for Commissioner of the Internal Revenue Service (IRS), Chuck Rettig, to make clear – before his nomination comes to a vote – he will treat all taxpayers equally, regardless of the political leanings of the state in which they live. Sen. Menendez was joined on the letter by Senators Cory Booker, Charles Schumer (D-N.Y.), Ron Wyden (D-Ore.), Ben Cardin (D-Md.), Kristen Gillibrand (D-N.Y.), Chris Van Hollen (D-Md.), Jeff Merkley (D-Ore.), Richard Blumenthal (D-Conn.) and Chris Murphy (D-Conn).

Recently, the IRS issued guidance targeting only states that created charitable tax credit programs after Republicans passed the Trump Tax bill, while holding harmless more than 30 states, such as Louisiana and Georgia that for years have implemented such programs.

“The IRS has blessed such programs and allowed for the full deductibility of donations from taxpayers’ federal tax liability,” the Senators wrote. “Unfortunately, it appears the IRS is poised to completely disregard years of precedent and instead, administer the tax code in a partisan and biased manner.  [T]he Agency [guidance] made unwarranted accusations that states are attempting to ‘circumvent the new statutory limitation on state and local tax deductions’ and essentially warned taxpayers from making donations to these charitable funds. Even more egregious, the guidance is only directed at states with new programs.  This effectively creates two separate sets of rules, treating taxpayers differently based solely on what state they live in,” they added.

The Senators called for Rettig to clarify his intentions before his nomination comes to the floor of the United States Senate:  “The nation’s tax laws must be applied fairly and equally, not used as a partisan weapon to punish perceived political opponents.  We urge you to provide assurances that, if confirmed, you will correct course and pledge to enforce the tax code in an objective, fair, and non-partisan manner,” the Senators concluded.

Sen. Menendez grilled Mr. Rettig, about the Trump Administration’s repeated efforts to increase the property tax burden on middle-class New Jerseyans and warned him about using the IRS as a political weapon before voting against him in the Senate Finance Committee.

Sen. Menendez is the author of legislation in the U.S. Senate to fully restore the State and Local Tax Deduction (SALT). He also led the New Jersey Congressional delegation’s response to the announcement by the IRS that it intends to issue new rules to effectively block New Jersey’s efforts to protect its taxpayers from the Trump Tax Law’s $10,000 cap on SALT deductions, resulting in the double-taxing of up to 1.8 million, or 40 percent of New Jersey taxpayers.

When the Trump tax plan was first being introduced, Sen. Menendez called it, “One giant hit job of New Jersey’s middle class.”  The senator stood with middle class homeowners in Bloomfield, N.J., to highlight how the bill was a direct attack on New Jersey, and after two different versions passed the House and Senate, Menendez was named by Senate Democrats to the Tax Conference Committee to defend deductions essential to New Jerseyans.  Unfortunately, the Republican legislation passed the Senate despite Menendez’s objections, and was signed by President Trump.

The full text of the letter can be found here and below.

Dear Mr. Rettig:

We are writing to express our concern with the unequal manner in which the Internal Revenue Service (IRS) intends to treat state programs that provide tax credits to incentivize charitable contributions.  Specifically, IRS Notice 2018-54 appears to arbitrarily target states that developed programs after the passage of P.L. 115-97, treating taxpayers differently based only on what state they live in.  With your nomination to lead the IRS pending and guidance on this issue imminent, we respectfully ask you to clarify your intentions before your nomination comes to the floor of the United States Senate. 

As you may know, 32 states and the District of Columbia have for years implemented programs that provide state or local tax credits as a way to incentivize charitable donations.  Some states, like Georgia and Louisiana for example, offer dollar for dollar state tax credits for donations made to state-approved funds.  The IRS has blessed such programs and allowed for the full deductibility of donations from taxpayers’ federal tax liability.  Indeed, in an IRS Chief Counsel Advisory memo published in 2011, the IRS cited various case law to support the conclusion that any state or local tax benefit received by the donor should not be considered income or a thing of value.  Rather, the memo concludes that a state or local tax credit should be treated as a reduction in tax liability, and thus should not reduce the value of the federal charitable deduction. 

Unfortunately, it appears the IRS is poised to completely disregard years of precedent and instead, administer the tax code in a partisan and biased manner.  In IRS Notice 2018-54, the Agency made unwarranted accusations that states are attempting to “circumvent the new statutory limitation on state and local tax deductions” and essentially warned taxpayers from making donations to these charitable funds.  Even more egregious, the guidance is only directed at states with new programs.  This effectively creates two separate sets of rules, treating taxpayers differently based solely on what state they live in. 

The IRS announcement that it intends to specifically target state tax credit programs developed after passage of P.L. 115-97 is fundamentally unfair and raises serious suspicions of political targeting.  The nation’s tax laws must be applied fairly and equally, not used as a partisan weapon to punish perceived political opponents.  We urge you to provide assurances that, if confirmed, you will correct course and pledge to enforce the tax code in an objective, fair, and non-partisan manner. 

Sincerely,