Senate Leader Kevin de León is a good guy, but he’s working on a bad idea.
Unless California is trying to break the Guinness World Record for tax evasion, it’s hard to see what will be accomplished by the plan put forward by de León to get around the new federal tax law’s limitation on the deduction for state and local taxes.
“This is legal,” de León insisted told the Los Angeles Daily News, and he could be right, right now. But there is plenty of evidence to suggest that he won’t be right for very long.
The plan, now introduced in the state Senate as Senate Bill 227, would create something called the California Excellence Fund within the state’s General Fund, and if taxpayers chose to make donations to that special fund, they would receive a credit against their state income tax liability equal to the amount of their donation.
The state would end up with the same amount of revenue, but the taxpayer would be better off because donations to the California Excellence Fund would be considered charitable contributions, deductible on federal tax returns. This would get around the new $10,000 limit on the deduction for state taxes.
The IRS will no doubt challenge this, and anyone stupid enough to try this will end up in the quagmire known as federal tax court.