WASHINGTON — When New Jersey and other states sought to set up charitable funds last year to get around the Republican tax law’s cap on deducting state and local taxes, the Internal Revenue Service decided to weigh in.

But the IRS action — and its proposal to not to allow most of the tax benefits of those charitable funds even as it previously approved such accounts to allow taxpayer subsidies of private schools — came only after top officials of President Donald Trump’s administration intervened in the decision, according to a report by the Treasury inspector general for tax administration.

The paper trail led to the office of Treasury Secretary Stephen Mnuchin, whose department last August proposed limiting the total amount that could be claimed if taxpayers donated to a charitable fund in lieu of paying state and local taxes, the report said.

That’s a procedure that the IRS does not usually follow, according to an unredacted copy of the report released by the House Ways and Means Committee. The original document did not have the flow chart showing Mnuchin’s office got involved.

The regular review process would be to have a final review by the assistant treasury secretary for tax policy, the report said. In this case, it went all the way to Mnuchin’s office for a final decision.

“Calling it expanded reviews does seem to be outside the norm to me,” said Rep. Mikie Sherrill, D-11th Dist. “It does speak to a higher involvement of Treasury in directing the review and seems to be, from my viewpoint, targeting New Jersey."

Still, the inspector general’s report called the process “reasonable” and made no recommendations.

The report said 11 million taxpayers would be affected by the cap, based on 2017 returns.

In proposing the rule, Mnuchin acknowledged that the savings from a $10,000 deduction cap was used to pay for the larger tax cut, which studies showed primarily benefitted corporations and the wealthy. It affected New Jersey and other high-tax states that send billions of dollars more to Washington than they received in services.

New Jersey taxpayers sent $21.3 billion more to Washington in 2017, second only to New York’s $35.6 billion, according to the most recent report from the State University of New York’s Rockefeller Institute of Government.

Meanwhile, the average state and local deduction for Garden State residents in 2015 was $17,850, according to the Pew Charitable Trusts. According to the Government Finance Officers Association, 86 percent of the 44.3 million taxpayers who used the tax break in 2015 earned $200,000 or less.

The proposed IRS rule hasn’t sat well with New Jersey officials. Gov. Phil Murphy said last fall that the state would “fight back tooth and nail.”

“For decades now, the IRS has given a thumbs up to these charitable funds in 33 states,” said Rep. Josh Gottheimer, D-5th Dist. "Now that Jersey and other states want to cut taxes for our residents, the IRS suddenly wants to reverse decades of precedent and court cases. This just reinforces the validity of our charitable tax cut plan and legislation.”

The state also has joined others in suing the Trump administration over the deduction cap. saying it infringed on their “sovereign authority to determine their own taxation and fiscal policies.”

U.S. Sen. Robert Menendez, D-N.J., temporarily held up the nomination of Michael Desmond as IRS chief counsel before he was confirmed by the Senate on Wednesday. Both Menendez and U.S. Sen. Cory Booker, D-N.J., voted against him.

“Make no mistake, President Trump, his administration, and the IRS have it out for New Jersey,” Menendez said on the Senate floor. “Mr. Desmond would be the arbiter of how the IRS would interpret important tax issues affecting New Jersey. And I remain unconvinced that he will give New Jersey fair treatment under the tax code."

Menendez and Rep. Bill Pascrell Jr., D-9th Dist., New Jersey’s members of the congressional tax-writing committees, have introduced legislation to restore the entire federal deduction for state and local taxes by returning the top tax rate, paid only by the wealthiest taxpayers, to 39.6 percent, the level it was at prior to the GOP tax law.

Murphy, New York Gov. Andrew Cuomo and other state chief executives, calling themselves the Governors Coalition for Tax Fairness, announced a new lobbying campaign in favor of the bill.

Trump has expressed a willingness to revisit the issue, but the chairman of the Senate Finance Committee, Republican Chuck Grassley of Iowa, has rejected the idea. Iowa got $3.5 billion more from Washington in 2017 than its residents paid in federal taxes.

Jonathan D. Salant may be reached at jsalant@njadvancemedia.com. Follow him on Twitter @JDSalant or on Facebook. Find NJ.com Politics on Facebook.