We Cannot Disobey Federal Law Just Because We Don’t Like Who Is President

The following letter was published in this week’s issue of the Gazette.

To the editor:
In the May 24/30 issue of the Gazette, I wrote a letter outlining why the Croton proposed Local Law 5 and proposed Resolution were illegal. None of the Board chose to respond directly, but rather once again Mr. Masur in his capacity as Chairman of the Croton Democratic Village Committee was the one to defend the actions taken by the Croton Board of Trustees (The Gazette, week of May 31/June 6).

Mr. Masur quotes me as saying that the trustees were “pitching a tax avoidance scheme which is both illegal and creates liability for residents and the municipality itself.” Mr. Masur then goes on to object on the basis that “This was the foundational premise of Mr. Steinberg’s lengthy letter to the editor, despite the fact that, as he well knows, no such proposal was ever voted on by the trustees.”


Mr. Masur is blatantly misleading in quoting me because he omits the word preceding the sentence fragment. My actual full quote can be found at paragraph 4 of my letter: “Along with other municipalities in New York, New Jersey, and California, the Village of Croton-on-Hudson is considering pitching a tax avoidance scheme….”

By omitting the first clause of the sentence, and in particular the “considering” language, Mr. Masur alters my statement and then criticizes me for a position which I did not express. I made it clear that there were proposed schemes in 3 states as well as in Croton. My objection is to the underlying scheme, and that applies wherever it is proposed.

The Village of Croton Board of Trustees has now had 3 meetings on this proposed Local Law, and according to statements made by the Village Attorney will be spending more taxpayer time attending a meeting in White Plains on June 8.

Mr. Masur says that we should not be “impugning the motives of others.” I disagree. When a motive is improper, it should be impugned.

Mr. Masur states that New York State legislature “had already chosen to . . . increase the deductibility of New York State homeowners’ taxes.” At least with this false statement, Mr. Masur is more candid than the Village Attorney; she states that the Village is not making any representations as to deductibility. Of course, Albany cannot change the federal tax code (much as Mr. Masur may wish it were possible), which is why the Village Attorney and Board of Trustees act as though Croton will not be making any representations as to deductibility.

Mr. Masur says that we should not be “impugning the motives of others.” I disagree. When a motive is improper, it should be impugned.

The motive in this case is improper. The May 14 work session is online, and I urge residents to view that and make their own decisions. May 14 was the second of the 3 Board meetings to date regarding this scheme, and at you should pay particular attention to the video at 1:42 where the Village Attorney and the Village Manager agree that “the IRS is never going to allow the deduction.” 

There is then discussion from Trustee Gallelli about how there will be a “bureaucratic nightmare” for the village years down the road if the IRS disallows the deduction, and the Village Attorney and Village Manager reassure Ms. Gallelli that all is well because there will be no refunds issued and there is laughter from around the table.

After having a good laugh, the Village Attorney makes the most offensive statement of the night, saying “what the IRS does has nothing to do with this village.” (video at 1:45).

This statement is false, but even assuming that it was true—what does it say about our Board of Trustees and Village Attorney when their primary focus is on how to avoid liability for themselves when the IRS will go after residents who fall for this tax scam?

Village Engineer Dan O’Connor was not laughing, and interjected (video at 1:46) that “you could be hurting the residents” and expressed concern about residents incurring penalties. 

When the Village Engineer is the only participant whose priority is the welfare of Croton residents, I would suggest to Mr. Masur that says something about the motives of those at the conference table whose focus was on state and national priorities and not Croton priorities.

Trustee Murtaugh’s sole contribution to the discussion was to obfuscate on the most important question of whether the charitable foundations set up by the Village of Croton-on-Hudson were going to disclose a quid pro quo (QPQ) on the receipt given to residents. Mr. Murtaugh sought to muddy the waters by saying that “when you give to the Red Cross, not all of it goes to the primary purpose of what you’re giving” (video at 1:48). I am not even sure what that statement means, but I do know that it has nothing to do with whether as a matter of federal law the Red Cross would be obligated to make a QPQ disclosure.

So yes, Mr. Masur: when Mr. Murtaugh refused to answer a simple question from a meeting participant about whether or not a QPQ is going to be disclosed on the receipt issued by the Village’s “charitable” foundation, I do question the motives of Mr. Murtaugh. 

Contrary to what Mr. Murtaugh and the Village Attorney would have you believe, the IRS has specific requirements for donations which involve a QPQ. As I discussed in my original Gazette letter, if your property tax bill is more than $78.94 then 95 percent of that tax bill would be more than $75.

Since $75 in QPQ triggers specific IRS disclosure requirements, this is a valid question. Certainly Mr. Murtaugh can take the position that the QPQ is zero dollars, but Mr. Murtaugh’s attempted deflection at the May 19 meeting suggests that he is acknowledging there is a QPQ.

Apart from the threshold matter of whether failure to disclose the 95% QPQ puts Croton taxpayers in jeopardy of IRS audits and penalties, there is a liability question for the municipality itself. If the village’s “charitable fund” fails to comply with the rules, it is the “charitable fund” that is liable. This is because the IRS regulation regarding QPQ places the onus on the charitable organization to make not only disclosure of the existence of a QPQ but also to assign a specific dollar value to that QPQ.

It is because of the disclosure and valuation burden being placed on the recipient charity that the Village Attorney’s assurances of no municipal liability are misleading if not false. Technically the Village Attorney is correct insofar as any failure to disclose the QPQ would result in liability to the “charitable reserve fund” which presumably would be a legally distinct entity from the municipal corporation. But at the end of the day, this will just result in a roundabout route at the conclusion of which we the taxpayers of Croton will be footing the bill.

Mr. Murtaugh tries to draw attention away from the QPQ. Instead, he changes the subject to the use of monies by the recipient charity. But this is a completely different matter from what is written on the receipt given to the donor by the charity. 

If Mr. Murtaugh wants to challenge the legality of long-standing IRS regulations regarding disclosure of QPQ by the receiving charity, that is fine. But at least give a direct answer to a direct question—especially when that direct question goes to the key threshold issue.

A village employee then asks if the village would be doing something illegal, and the Village Attorney responds (video at 1:48): “No, all we’re doing is giving them a piece of paper that says that they have paid this much money into this charitable fund. We are not saying that yes it’s deductible on your federal taxes.”

Once again, a simple question about QPQ disclosure is deflected by conflating it with a different issue.

I can appreciate that the attorney is looking to protect the interests of her client (the Board of Trustees). But who is looking out for the interests of the people of Croton?

The first clause of the Village Attorney’s statement is hugely significant for Croton taxpayers. She is artfully saying that there will be no QPQ disclosure, despite the fact that we all know a QPQ exists, and that the QPQ amounts to a whopping 95 percent of the “charitable donation.”

Mr. Masur, how is that not fraud?

The second part of the Village Attorney’s statement should be a warning to taxpayers. Everyone around that conference table knew that this scheme is illegal. Even before they could hold a public hearing on the proposed Local Law, the attorney for the Board of Trustees was already putting caveats out. 

I can appreciate that the attorney is looking to protect the interests of her client (the Board of Trustees). But who is looking out for the interests of the people of Croton?

Nobody addressed the matter of QPQ disclosure requirements under IRS rules, although by this point some work session participants expressed that only 5% (the surcharge amount) would be considered as a charitable contribution. My question for Mr. Masur is: if that is true, why does the Board of Trustees and the Village Attorney say that the charitable receipt will merely state the amount given and not disclose the QPQ?

The fact that there is now video evidence of the Board of Trustees discussing that only 5% would be deductible is going to be a serious problem for Croton if they follow the May 14 guidance of the Village Attorney and only state the gross contribution amount.

After the May 14 session, the Board of Trustees held a regular session on May 21, at which there was discussion of a “guidance document” issued by the NY Dept of State and Dept. of Taxation & Finance. The actual document was quoted from at the May 21 session and relied upon by the Village Attorney, although I cannot find it as part of the meeting backup documents online.

That May 21 meeting video is online, and at 5:37 the Village Attorney says that the “guidance document” directs the Village of Croton to “affirmatively state that no goods or services were given in exchange for the donation.” 

With mastery of understatement, the Village Attorney declares: “That’s also a problem.”

At very least, the “guidance document” puts the matter squarely in front of the Croton Board of Trustees. Although they refused to deal with the central issue on May 21, at some point they will have to publicly take a stance if they continue to push this foolish scheme.

On June 8, there will be a pep rally in White Plains, convened by NY State and hosted by George Latimer to rally the troops in support of this scheme. I don’t see what possible use of taxpayer resources can be justified by spending the day at what is an attempt to persuade elected officials to entice their residents to be test subjects in this battle against the Trump-directed IRS.

At the May 14 work session, Trustee Horowitz expressed concern that taxpayers would have difficulty understanding this scheme. The response from Trustee Gallelli was that the residents “don’t need to know all of the complexity of what’s happening” (video at 1:53).

I disagree with Ms. Gallelli on that point. Taxpayers of Croton do need to know the complexity, because if the Board of Trustees adopts proposed Local Law 5, taxpayers who fall for the scheme are the ones who will be audited, not Ms. Gallelli.

Mr. Masur concluded his Gazette letter by saying that we should not make “inaccurate claims.” On that point, Mr. Masur and I are in wholehearted agreement.

I have yet to see any elected official in any NY jurisdiction say that they are willing to personally expose themselves by taking such a “charitable” deduction on their own federal return. It is true that officials such as Pelham Village Mayor Volpe have expressed interest in standing up to the IRS, but if you read his quote in LoHud, Mr. Volpe says he would participate “as the mayor.” That is code for saying that he will fight the IRS by using municipal money.

How about participating as an individual taxpayer: Is Mr. Pugh willing to deduct his 2018 Croton property taxes on his federal return and tell the IRS that his property taxes are a “charitable donation”? 

We cannot disobey federal law just because we don’t like who is President.

There is nothing which the June 8 sales pitch is going to present which will change the facts that existed back in October 2010 when the IRS issued the advice memorandum which I referenced in my original Gazette letter. In 2010, the IRS was under the direction of President Obama. I would remind Mr. Masur that Mr. Obama was and remains a Democrat. 

The same IRS rules regarding claiming property taxes as a “charitable contribution” in a Democrat administration also apply in a Republican administration. We cannot disobey federal law just because we don’t like who is President.

In an article about the “charitable” property tax plan being pushed by Albany, LoHud explains that Governor Cuomo “has made New York’s fight against the Trump tax plan a centerpiece of his 2018 agenda.” As a party boss, Chairman Masur has a duty to place the interest of Party paramount over other interests, and I can respect that the Chairman is doing his job. 

Although the Board of Trustees is composed of Party members, their motive as trustees should be to do what is best for Croton residents. I hope that after the June 8 political grandstanding is done and the Board of Trustees takes this matter up for the fourth time, the focus of discussion will turn to the question of what is best for the residents of Croton and not what is best for the national Party.

Paul Steinberg