IRS About to Shut Down Tax Dodge Scheme Which Liberal States Have Employed to Recast State Income Tax as "Charitable Donations" and Thereby Defraud the Federal Government of Its Fair Tax Take

Via Jazz Shaw, high-tax liberal states have been chafing at the $10,000 max on the deduction of state and local taxes (SALT) paid from someone's federal taxable income.

They constructed a fiction -- a shell-game -- whereby wealthy blue staters could pretend their SALT taxes were actually charitable contributions and still deduct them from their federal taxable income.

I know there are Americans who deserve to keep their money in blue states, but the issue of high taxation has to be taken up with state and local government. Blue states can't be permitted to basically steal money from the federal fisc -- especially given that they're the ones pushing for higher and higher federal taxes at the same time they build fraudulent tax shelters to keep their high-dollar citizens from squealing too much.

But no more of that, says the IRS.

But I'd like to know why no one is being prosecuted for tax fraud, or why these states aren't being charged with massive penalties.

The Treasury Department on Tuesday finalized regulations that would bar individuals in high-tax states from creating charitable funds in exchange for state tax credits -- a maneuver developed as a workaround for changes to the treatment of state and local taxes under the 2017 tax reform.

The Republican-backed law capped the amount of state and local tax -- or SALT -- payments that individuals could deduct from their federal taxes at $10,000. As a result, states like New York, New Jersey and Connecticut tried to find ways to minimize the economic pain felt by residents from the cap.

"The regulation is based on a longstanding principle of tax law: When a taxpayer receives a valuable benefit in return for a donation to charity, the taxpayer can deduct only the net value of the donation as a charitable contribution," the Treasury Department said in a statement.

In other words: Rich liberals would create charitable funds and donate them, and the state would give them state tax credits in return. Then they would use those credits to pay down their state taxes -- while then turning around to the federal government and claiming the "charitable funds" were actually charity, instead of just purchasing dollar-for-dollar credits they could use to pay state taxes.

The IRS is saying, "If you got something valuable in return for your 'charitable contribution,' like a dollar-for-dollar 'tax credit' you used to pay taxes you already had to pay, then that wasn't a charitable donation -- it was a straight-up purchase for value, and is taxable like any other voluntary expenditure."

Think of it like this: I "donate" my costs for rent to an organization that then pays my rent for me. Then I claim all of my rent money was a "charitable donation."

That's fraud, straight-up. I am attempting to shield money that would otherwise be taxed by laundering it through a third party who just pays my rent for me, but then claims I "donated" it, when in fact all I did I was send it to them, and then they sent it straight to my landord.

This is illegal. This is tax fraud conducted by states. This may be legal under state law, but it's fraud under federal law.

Weird how liberals who say always agitate for higher taxes resort to open criminality to shelter their precious dollars from the taxman's hands.

posted by Ace of Spades at 01:33 PM

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