Last month, New Jersey, New York and Connecticut filed a suit against the IRS and Treasury Department challenging rules that restrict certain workarounds to the cap on state and local tax deductions. The Tax Cuts and Jobs Act includes a provision that imposes a $10,000 cap on state and local tax deductions. Officials in high tax states have said that this provision unfairly impacts their residents.
A number of states have tried to circumvent this new provision. One way states have tried to do this is by offering state and local tax credits for donations made to charitable funds set up by state governments to fund state programs. In June, the IRS issued rules that prohibit this kind of workaround. The lawsuit filed says that the IRS rules prohibiting these programs violates current law. It states that the IRS rule is arbitrary and outside of the agency's authority.
Stay tuned as this lawsuit makes its way through the court system.