More than 70 percent of the 828 certified public accountants who were polled this month by the New Jersey Society of CPAs said treating New Jersey property tax payments as charitable contributions would not stand up to legal scrutiny by the Internal Revenue Service.
Respondents were asked their opinion on the issue after Gov. Phil Murphy announced a proposal in January to use charitable contributions as a way to help New Jersey homeowners who may be affected by the new $10,000 cap on federal deductions for state and local taxes.
Survey respondents noted taxpayers would receive a benefit from their charitable donation, such as a reduction in their property taxes equal to the amount of their donation, so it would not qualify as a contribution.
Congress approved President Trump’s $1.5 trillion tax reform package in December. The law reduces corporate tax rates from 35 percent to 21 percent.
In the Murphy proposal, towns would create the charitable funds and homeowners would receive a credit off their property tax bill for all or most of their donation. In turn, the funds would be used for the same purposes as taxes, such as for schools or other municipal needs.
Typically, taxpayers claiming charitable deductions must reduce the donation amount by the amount of the benefit that is received by the donor -- which in this case would be the same.
Other respondents cited that the action may give rise to increased audit risk. Some also said they doubted the IRS would grant a 501(c)(3) status to the proposed charitable trust being created to simply avoid any impact from the new $10,000 cap.
Ralph Albert Thomas, CEO and executive director of New Jersey Society of Certified Public Accounts, said that New Jersey homeowners would want to reduce their property tax bill. New Jersey has the highest property tax rates in the nation with four counties having property taxes that exceed $10,000, he said.
"Anything that can help New Jersey homeowners reduce their property tax burden should be explored in light of the recent federal tax law changes," Thomas said. "But until there is clarification from the IRS, homeowners should look to their CPA for advice and guidance."