SPRINGFIELD – State Representative Keith R. Wheeler, R-Oswego, was one of only 15 legislators voting “No” on House Bill 4237 on Wednesday, legislation aimed at skirting the 2017 federal tax reform law that caps deductions of state and local property taxes at $10,000. Specifically, the bill would allow Illinois residents to make “charitable” contributions to a new state-run nonprofit program in exchange for a credit that would offset their state tax burden. While classifying the payments as charitable contributions rather than local taxes would help individual taxpayers avoid hitting the cap, Representative Wheeler stressed that fact that the Internal Revenue Service (IRS) could nix the plan with a ruling that such contributions are subject to the state-and-local-tax (SALT) deduction cap.
“It is reckless and unwise for Illinois to move forward with passing a plan to circumvent the state and local tax deduction cap under the new federal law until we see how the IRS rules on it,” Representative Wheeler said. “If we pass this bill now and it becomes law, taxpayers who take advantage of it may well end up having made contributions to this program for nothing, because the IRS could step in and rule that these payments are indeed subject to the cap. The IRS is well aware what states like Illinois, California, New York and New Jersey are trying to do by considering similar proposals. We should not subject Illinois taxpayers to this risky scheme.”
Backing up Representative Wheeler’s concern that the plan contained in House Bill 4237 would not hold up to IRS scrutiny, according to an article in The Washington Poston a similar bill filed in California:
Two former Treasury officials and five former IRS officials — including a former IRS commissioner, an attorney who served in the IRS chief counsel’s office, and a director of the IRS’s nonprofit division — have told The Washington Post that the agency could view the charitable contributions as an attempt to get around the [federal] tax law, and issue guidance saying that it will view these payments as taxes subject to the cap. That could throw the issue to the courts.XXX
House Bill 4267 was approved by the Illinois House of Representatives on Wednesday by a vote of 93-15. It now goes to the State Senate for consideration.
Representative Wheeler is a Chief Co-Sponsor of alternative legislation, House Bill 4563, filed by Representative Peter Breen, R-Lombard, which would provide the same relief to property tax payers with an approach that better aligns with federal guidelines.
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