House Ways and Means Democrats, in a March 5 letter to Acting IRS Commissioner David J. Kautter, criticized the Service’s interpretation of certain provisions within the Tax Cuts and Jobs Act of 2017 (TCJA) (P.L. 115-97). In the letter to Kautter, lawmakers accused the IRS of alleged “bureaucratic overreach.”
Kautter was confirmed as acting commissioner last year (TAXDAY, 2017/07/24, C.1). He is expected to remain as head of the Service until President Trump’s nominee for commissioner, Charles P. Rettig, is confirmed by the Senate (TAXDAY, 2018/02/09, W.1).
Property Tax Prepayments
The letter from Democratic members of the Ways and Means Committee, spearheaded by ranking member Richard Neal, D-Mass., expressed concerns about the IRS’s interpretation of the new tax law’s provisions on taxpayers’ prepayment of 2018 state and local taxes. According to the lawmakers, the TCJA did not include any language disallowing prepayment of 2018 real estate taxes during the 2017 tax year.
The IRS issued IR-2017-210 shortly after the TCJA was enacted. The news release states that 2018 state and local property tax prepayments would only be an allowable deduction in the 2017 tax year if the property taxes were assessed in 2017. Ways and Means Democrats argue that the word “assessed” does not appear in the provision of the TCJA related to the State and Local Tax (SALT) deduction and, therefore, the IRS has “invented” restrictions on property tax prepayments that the statute itself did not create.
“When Congress singled out a prohibition on only state and local income tax prepayment for future years, it is entirely reasonable to conclude that the omission of state and local property taxes was the express intention of the law,” the lawmakers wrote. “There is no reason to believe that Congress made a mistake in omitting property tax prepayments, and there was certainly no basis for the IRS to substitute its own policy judgments that departs from the act of Congress, especially when the consequence of the IRS’s determination may have cost taxpayers millions of dollars.”
To that end, Senate Finance Committee (SFC) Chairman Orrin G. Hatch, too, has cautioned generally against misinterpreting Congress’ legislative intent. “I’m going to keep working to ensure that everyone recognizes and respects Congress’ role in this process and the fact that the best place to get an explanation of Congress’s intent is Congress itself,” Hatch said regarding implementation of the new tax law in a recent SFC hearing.
Ways and Means Democrats requested an update by March 16 on how the IRS intends to implement this particular aspect of the new tax law. Additionally, lawmakers requested answers to the following inquiries:
– the IRS’s plan for real estate audits;
– statutory language IRS may have considered when disallowing the itemized deduction of 2018 property taxes;
– the basis for IRS’s determination of authority on the matter; and
– details concerning taxpayers who claimed the property tax prepayment deduction.
By Jessica Jeane, Wolters Kluwer News Staff
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