WASHINGTON, DC – (RealEstateRama) — U.S Representative Bill Pascrell, Jr. (D-NJ-09) and 10 Democratic members of the Ways and Means Committee sent a letter to Internal Revenue Service (IRS) Acting Commissioner David Kautter requesting an explanation for the agency’s decision to create restrictions on the prepayment of 2017 property taxes that are not included in the Tax Cuts and Jobs Act of 2017 (TCJA). The letter also raises concerns regarding reports that U.S. Treasury Secretary Steven Mnuchin has threatened to enforce these IRS-invented restrictions by auditing taxpayers who prepaid their property taxes, targeting individuals who live in Democrat-leaning states. Reps. Pascrell, John Lewis (D-GA), Mike Thompson (D-CA), John Larson (D-CT), Joe Crowley (D-NJ), Danny K. Davis (D-IL), Linda Sanchez (D-CA), Brian Higgins (D-NY), Suzan DelBene (D-WA), and Judy Chu (D-CA) joined Ranking Member Richard Neal (D-MA) in signing the letter.
“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,” wrote the members. “We view this as a clear case of bureaucratic overreach, and now, as a result, many of our constituents are losing a valuable deduction—and consequently part of their hard-earned income.”
In their letter, the members note many taxpayers’ confusion after the Republican tax bill’s rushed passage at the end of 2017. The members also point out that the IRS’ decision to wait until December 28, 2017 to issue guidance on the prepayment issue only added to Americans’ uncertainty about what actions they were able to take.
“Now, after this confusing and disorganized process, the Treasury Secretary is indicating that the IRS leadership will pursue aggressive enforcement against these taxpayers,” the members added. “We are surprised and dismayed at this expression of IRS priorities, and we are angry to read of this naked political payback against taxpayers in blue states.”
Specifically, the members requested Acting Commissioner Kautter to answer the following questions:
• Please explain in detail the agency’s plans for real estate audits. How many enforcement agents and other agency resources will be dedicated to this? Will enforcement be spread evenly across all 50 states, or will the audits target taxpayers in blue states? Given how strapped the IRS is for resources, what other enforcement initiatives will recede in priority to accommodate the real estate audits?
• What statutory language or other evidence did the IRS consider authorization to disallow the itemized deduction of 2018 property tax prepayments made in 2017?
• The word “assessed” did not appear anywhere in the section of the TCJA devoted to the State and Local Tax Deduction. On what theory did IRS determine it had authority to restrict taxpayers’ access to this deduction based on whether their 2018 state and local property taxes had been assessed?
• How many taxpayers have claimed itemized deductions for property tax prepayments, and in what counties/states do they reside? What was the dollar value of these deductions?
The members requested a response from Acting Commissioner Kautter by March 16, 2018.
Full text of the letter is available HERE.