Blue States sue IRS over new rule that prevents taxpayers obtain full charitable deductions

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New Jersey lawsuit IRS
New Jersey Gov. Phil Murphy announces lawsuit against IRS, Treasury Department

The U.S. Internal Revenue Service (IRS) and the Department of Treasury are facing a lawsuit filed by blue states on Wednesday.

New Jersey Governor Phil Murphy announced the lawsuit, which challenges a new rule that prevents taxpayers from obtaining full federal deductions on their charitable contributions.

The States of Connecticut and New York are part of the litigation against the IRS and the Treasury Department.

In the complaint, the plaintiff states alleged that the IRS and the Treasury Department’s new rule “undermines state and local programs designed to promote charitable giving through the use of state and local tax (SALT) credits.”

The States of Connecticut, New Jersey, New York and many other states developed charitable giving programs to help taxpayers avoid the negative impact of the cap on SALT deductions.  In 2017, President Donald Trump signed into law the Tax Cuts and Jobs Act, which contains a provision limiting SALT deductions to $10,000.

The IRS new rule prevents taxpayers from obtaining full federal deductions on their charitable contributions to local and state programs, which is unlawful under the Administrative Procedure Act (APA), according to the plaintiff states.