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California's Proposed Fraudulent Gift to the Ultra-Wealthy

So, before that taxpayer will become a taxpayer who itemizes their deductions, their home interest, real estate taxes, and contributions must equal or exceed $20,500. But the ultra-wealthy win big. In 2015, 8051 California taxpayers filed tax returns with ...

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If you were worried that the wealthiest California taxpayers were paying too much in Federal taxes, the Democratic dominated California State Senate apparently has been equally concerned and has proposed a "tax" law change that would allow California taxpayers to deduct 85% of their California state taxes as "contributions" in their federal income tax returns.In short form, the proposal is for California taxpayers to pay an amount equal to their California taxes to a non-profit "charity" that will in turn donate the money to the stateOf course, the California Senate has found a couple of tax professors to bless the plan and apparently the California Senate believes that neither Congress nor the Internal Revenue Service will so much as acknowledge any disagreement with this plan.Apparently the California Senate has been convinced that Shakespeare is incorrect and that "A Rose By Any Other Name" is no longer a useful expression for analyzing income tax planning ideasOf course a quick Google search will find literally hundreds of Tax Court cases that have come to other conclusionsWith all due respect to the professors who have blessed this legislation, this is the kind of idea that if proposed to me by a prospective client, I would decide that this was a client I could do withoutA "cute" idea generally is not viewed favorably in the Tax Court.The problems with the proposal are legion: (1) The Internal Revenue Service will undoubtedly contest and propose a corrected tax plus penalties on every tax return that includes a deduction for a donation to the California Excellence Fund (2) The Internal Revenue Service will undoubtedly propose penalties on any tax return preparer that signs such a tax return, (3) It is highly likely that the Administration will refuse to work with California on virtually any issue where federal help is needed, (4) There is not one dollar of benefit to the State of California, (5) the legislation does not address the reality that if passed, California 2017 estimated tax payments will disappear as the donations to the California Excellence Fund are all made on December 31th, thereby forcing California to borrow funds to keep California's government open,  (6) anyone who has spent a few minutes reviewing historical California tax data knows that virtually the only beneficiaries of this plan will be taxpayers showing federal adjusted gross income exceeding $150,000 and (7) the state would have to administer the plan, which would not be inexpensive(it is important to note here that many taxpayers with taxable income approaching $150,000 were already losing their tax deductions as the result of the alternative minimum tax.)

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