Two House Republicans and one Democrat from Arizona wrote to IRS Commissioner Daniel Werfel asking the agency to reconsider its decision to subject the Arizona Families Tax Rebate Program to federal income taxation.
Representatives David Schweikert, R-Ariz., Juan Ciscomani, R-Ariz., and Greg Stanton, D-Ariz., sent the letter Wednesday.
“We urge the IRS to reconsider its determination and provide expedited relief to compliant Arizonan taxpayers who have already filed their 2023 tax returns,” the three wrote.
More than 700,000 Arizona taxpayers were eligible to receive a one-time tax rebate as the state continues to recover from historic inflation levels that placed severe financial strain on families across the state, according to the representatives’ news release.
“The country is poorer now than it was three years ago, and Arizonans are no different, facing the brunt of financial pressure with supermarket prices now nearly 25% higher than in January 2020, for example,” the letter says. “State officials acted in good faith with the reasonably available information to provide more than 700,000 households with much-needed relief from price increases on everyday goods and services.”
Tax rebates enacted by 21 states were determined to be tax exempt in guidance issued by the IRS in February 2023, Schweikert, Ciscomani, and Stanton wrote. Though Arizona’s tax rebate wasn’t signed into law for another three months, the IRS extended its decision to make the rebate taxable past the period when the state issued payments, according to the letter.
“In December 2023, the IRS relayed its decision orally through a video meeting, providing no written explanation until February 15, 2024, eighteen days after the start of tax season, and only in response to a letter from the Arizona Attorney General challenging the decision,” the letter says.
Arizona taxpayers are estimated to owe $20.8 million in extra federal taxes due to the IRS’ inconsistent rationale in failing to specify the factual and legal basis for the 21 states’ rebates and payments that were deemed nontaxable in 2022, according to the representatives.
“The inconsistency and delay in communication have resulted in undue financial strain on Arizonans,” the letter says.