New Jersey sues Trump administration over tax workaround

Posted: Updated:
TRENTON -

New Jersey has filed a lawsuit against the Trump administration over an IRS rule that weakens the state's attempts to work around a cap on state and local tax deductions.

Attorney General Gurbir Grewal, along with the attorney generals from Connecticut and New York, filed the lawsuit Wednesday against the U.S. Treasury and IRS in federal court in New York.

The 2017 tax overhaul capped the deductions taxpayers can take on their federal returns for taxes paid at the state and local levels. That was a blow to taxpayers in states with high property taxes.

In response, states like Connecticut, New Jersey and New York changed their laws to allow taxpayers to donate to charitable funds in exchange for tax credits.

RELATED: NJ Democrats continue battle with Trump administration on tax deduction reform 

But a June IRS rule said taxpayers have to subtract the value of the credit from their charitable donations.

“When it makes new rules, the IRS must follow two basic requirements: First it has to follow the language of the tax code and second it has to act in ways that are rational and well-reasoned. Here we allege that the IRS broke both of these rules,” Grewal said.

The suit alleges 33 other states had been allowed to develop similar programs.

A treasury spokeswoman declined to comment.

The Associated Press wire services contributed to this report.

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