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Mayes sues IRS to block federal taxes on Arizona Families Rebate program

Attorney General Kris Mayes is suing the IRS to prevent it from taxing a state-issued income tax rebate for Arizona families.

Roughly 750,000 families benefited from the Arizona Families Rebate program, enacted as part of the state’s 2023 budget. It provided rebates of $250 for any child younger than 17 and $100 for older dependents.

Capped at $750 per family, the rebate is exempt from state taxes. 

But in January, the IRS announced those rebates were subject to federal income taxes.

In her complaint, Mayes cites similar rebates awarded in other states in 2022 that the IRS determined weren’t taxable. 

"The federal government's decision to tax these rebates is unfair and unlawful — and I will do everything I can to ensure the tax relief provided to Arizonans by their state government remains in the pockets of Arizona taxpayers, as intended,” Mayes said in a statement.

Mayes previously sent a letter to IRS Commissioner Daniel Werfel last month, what she described as a “good faith” effort to convince the IRS to reverse its decision.

Arizonans have until an April 15 deadline to file their federal returns. As part of her lawsuit, Mayes is asking a judge to order the IRS to refund any taxes it's already levied on those state-issued rebates.

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Ben Giles is a senior editor at KJZZ.