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IRS Panned for Overreaching, Targeting With Property Tax Rules

Posted on March 6, 2018 by Dylan F. Moroses

Several Democratic taxwriters claim that the IRS is overstepping its authority with new restrictions on property tax prepayments, going so far as to question whether taxpayers in Democrat-leaning states will be targeted in audits.

In a March 5 letter to acting IRS Commissioner David Kautter, 11 House Ways and Means Committee Democrats argue that the Tax Cuts and Jobs Act (P.L. 115-97) disallowed individuals from claiming a deduction on prepayment of state or local income taxes made in 2017. No such language was included to disallow deductions on property tax prepayments made last year, but an IRS advisory (IR-2017-210) issued six days after the TCJA was enacted “invented restrictions on the prepayment of property taxes that were not set out in — and in fact were wholly unsupported by — the statute,” the letter says. The IRS language deemed that 2018 local property tax prepayments were only deductible if the property value was assessed in 2017.

Treasury Secretary Steven Mnuchin defended the IRS advisory in January, arguing that the guidance is intended to provide clarity to the TCJA.

The Ways and Means Democrats, however, see the advisory “as a clear case of bureaucratic overreach, and now, as a result, many of our constituents are losing a valuation deduction — and consequently part of their hard-earned income.” The letter adds, “Families who made these payments — families who were discouraged from doing so because of the IRS Advisory — may see negative financial consequences as a result of IRS action not authorized by Congress, either as a result of audits or as a result of being deterred from accessing an allowed deduction. This is unacceptable.”

Some New Jersey Democratic lawmakers have already asked Kautter to rescind the guidance.

The Ways and Means Democrats requested Kautter provide information on a “targeted audit initiative” because they said Mnuchin “is indicating . . . IRS leadership will pursue aggressive enforcement against these taxpayers” who prepaid local property taxes in 2017 to claim full deductibility. “Will enforcement be spread evenly across all 50 states, or will the audits target taxpayers in blue states?” the letter asks. The TCJA set a $10,000 cap on the ability to deduct state or local income, sales, or property tax. Kautter is asked to respond by March 16.

Committee Democrats Ron Kind of Wisconsin, Terri A. Sewell of Alabama, Earl Blumenauer of Oregon, Sander M. Levin of Michigan, and Lloyd Doggett of Texas did not sign the letter.

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