//Limiting state and local tax deductions to hurt 11 million taxpayers, government report shows

Limiting state and local tax deductions to hurt 11 million taxpayers, government report shows

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U.S. Treasury Secretary Steven Mnuchin

The cap on deducting state and local taxes will prevent nearly 11 million people from deducting some $323 billion payments from their federal tax returns, according to an audit released Wednesday that shows Treasury Secretary Steven Mnuchin’s efforts to block state efforts to get around it.

The cap of $10,000 was brought in as part of the Tax Cuts and Jobs Act, and primarily impacts payers in higher-tax states in California and the Northeast.

The audit, conducted by the Treasury Inspector General for Tax Administration, is the full version of a redacted report that had been released on Tuesday. House Ways and Means Chairman Richard Neal, a Massachusetts Democrat, released the full version on Wednesday which includes details on how Treasury Sec. Steven Mnuchin sought to block state efforts to work around what’s called the SALT cap.

The full report includes the chronology of how the Internal Revenue Service came to produce guidance on payments made in exchange for state and local tax credits. This chronology was not included in Tuesday’s report.

Date Key event
1/11/18:

Chief Counsel assigns Income Tax and Accounting staff to begin work on the SALT deduction limitations and Internal Revenue Code §164 related provisions affected by the TCJA to determine if formal guidance is needed.

1/11/18 through 1/23/18:

Chief Counsel gathers media reports, inquiries from the public, and proposed legislation designed to allow State residents to bypass the SALT limitations. Chief Counsel and Treasury meet to discuss a strategy for upcoming guidance

1/24/18:

Chief Counsel officially establishes a proposed guidance project to determine what type of guidance should be issued.

2/15/18:

The Acting IRS Commissioner meets with several members of Congress to discuss the SALT limitation. Chief Counsel briefs Treasury officials.

3/08/18:

The Acting IRS Commissioner, Chief Counsel, and Treasury agree that the IRS should quickly issue a notice or announcement.

3/27/18 through 3/29/18

Chief Counsel attorneys prepare a draft press release to address SALT issues and send it to Treasury for review

5/07/18:

Treasury forwards a draft notice to the IRS (Treasury changed Chief Counsel’s press release into a notice).

5/16/18:

The Treasury Secretary approves issuance of the draft Notice pending discussion with the Office of Management and Budget

5/22/18:

The Acting IRS Commissioner approves the Notice and forwards it to Treasury for review. The IRS initiates the process to publish the Notice in the Internal Revenue Bulletin.

5/23/18:

After receiving approval from the Treasury, the IRS issues Notice 2018-54 to the public.

Related: Should I itemize or take the standard tax deduction? A calculator to help decide

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