Senate ignores IRS warning, passes tax work-around bill
Defying a warning from the Internal Revenue Service, the Illinois Senate has overwhelmingly approved a bill intended to give local taxpayers a workaround for new federal caps on state and local tax deductions. […]
The Senate action came yesterday afternoon when, by a 51-1 margin with one abstention, the Senate approved a bill sponsored by Sen. Julia Morrison, D-Deerfield, that allows taxpayers to substitute donations to charities benefiting state government, municipalities and school districts for regular Illinois income-tax and property-tax payments. Donors would receive a credit worth 90 percent of their donations, applied to their state or local tax liability.
The IRS earlier this week suggested that it will rule against such measures, which already are the law in Connecticut, New Jersey, New York and other high-tax states. The agency suggested that charitable donations are not supposed to reap a financial reward for the donor and said it will follow not state but federal law, which under the measure approved by President Donald Trump last year limits SALT deductions to $10,000 a year.
“Property tax relief is an important issue all around the state,” Morrison said in a phone interview. Any final IRS ruling “probably is not going to happen until the fall,” and may be challenged in court, she said. “I think it’s important for us to pass legislation that will help our residents.” […]
“How quickly, what’s in it, how it’s impacted by the IRS, all those things need to be considered,” [Steve Brown, spokesman for House Speaker Michael Madigan] said. Concurrence motions on House bills that were amended in the Senate and sent back will occur “next week.”
* Sen. Jim Oberweis was the lone “No” vote. From a press release…
The Internal Revenue Service has warned states looking to get around the deduction caps – New York, New Jersey, Connecticut and now Illinois – that they could face new regulations.
“There is no way the federal government is going to allow states to pull a fast one like that, to find a tricky way around the deduction limits,” Oberweis said. “Trying to get around the IRS is not a good idea. This is a ‘lose-lose’ situation.”
If somehow a court upheld the Illinois plan (unlikely), Oberweis said the federal government could come back and limit all deductions to $10,000, which would be bad news for charities, as charitable contributions could be negatively impacted.