Attorney General Kris Mayes has filed a lawsuit against the Internal Revenue Service (IRS) subsequent to the agency’s declaration that Arizona’s family tax rebate is deemed as income, consequently making it liable for federal income taxes.
According to a statement issued by the Arizona Attorney General’s Office, the lawsuit filed on Wednesday contends that the taxation of these rebates is unlawful and diverges from the IRS’s treatment of analogous tax rebates in other states.
Mayes characterized this action as “arbitrary, capricious, and unfairly discriminatory against Arizona taxpayers.”
Rebate Modeled on IRS Guidelines
In May 2023, Arizona implemented a General Welfare Income Tax Rebate to provide financial assistance to eligible families.
According to the Attorney General’s Office, this rebate was modeled after the presumption established by previous IRS guidelines, which indicated that comparable rebates would not be subject to taxation.
Despite the departure from past practices by the IRS, confirmation of its decision in writing was not received until last week, as stated by Mayes.
The Attorney General’s Office attempted to persuade the IRS to reconsider its decisions before resorting to filing the lawsuit.
IRS Rebate Taxation Controversy
The lawsuit asserts that in February 2023, the IRS declared that rebates akin to those in Arizona, along with refunds issued by 21 other states, were not subject to federal income tax.
In addition to seeking to prevent taxation on the rebates, Mayes aims for the IRS to reimburse taxes levied on these rebates for Arizonans who have already submitted their filings.
Around 750,000 families in Arizona received approximately $250 per child in late October, capped at $750.
Attorney General Mayes stated that the IRS deemed these rebates as taxable income, a decision confirmed by the attorney general’s office late last week.
Despite efforts made by her office to persuade the IRS to reverse this decision, they were unsuccessful.
