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January 12, 2009 Dear Professional Advisor, Greetings from Immanuel St. Joseph's Foundation. I am pleased to share with you the latest news from Washington, tax law updates, PLRs, Case Studies and timely articles. We provide this weekly eNewsletter and web site to our professional advisor friends as a complimentary service. Please feel free to call me at 507-385-2932 if I can run a proposal or be of assistance to you. Cordially yours, Bob Weiss Immanuel St. Joseph's Foundation 1125 Mulberry St. Mankato, MN 56001

Immanuel St. Joseph's Foundation	January 12, 2009
GiftLaw Weekly eNewsletter - January 12, 2009 WASHINGTON HOTLINE Tax Revenue Drops -- Deficit Now $1.2 Trillion PLR THIS WEEK PLR - 200901023 Transfer to Charitable Trust Qualifies for Gift and Estate Tax Deductions CASE OF THE WEEK Living on the Edge, Part 5 ARTICLE OF THE MONTH Increasing Payment Lead Trust
WASHINGTON HOTLINE Tax Quote of the Week "There is no such thing as a good tax." -- Winston Churchill Tax Revenue Drops -- Deficit Now $1.2 Trillion Each year the Congressional Budget Office (CBO) projects total federal government revenue from income taxes. On the economic outlook that was published on January 7, 2009, the CBO reviewed the probable course of the U.S. economy for 2009. Based on the assumption that the economy will contract 2.2% in 2009, CBO projects that there will be 7.5% lower tax revenue. The total taxes collected from individuals are estimated to be $1.06 trillion. Normally, the federal government collects total taxes from all sources equal to approximately 18% of the Gross Domestic Product (GDP). However, due to the economy, estimated tax collection amount will be 16.5% of GDP. This is the lowest tax revenue as a percent of the economy since 1959. With the lower tax receipts and current budgeted expenditures, the deficit is now projected to be $1.2 trillion. This deficit will be a peacetime record of 8.3% of GDP. Congress and President-elect Obama are discussing an additional stimulus bill of up to $800 billion over two years. When the final stimulus bill is passed, the deficit is projected be over $1.5 trillion. Editor's Note: At some point in the future the USA will need to pay for this deficit. The fight in Washington will be how to pay for the mounting deficit in future years. Stimulus Bill Slowdown With the economy in recession, President-elect Barack Obama indicated to Congress that he would like to sign a substantial stimulus bill immediately after his inauguration on January 20, 2009. Congress initially attempted to pursue passage of a stimulus bill by January 20, but now recognizes that the timeline will slip. Majority Leader Steny Hoyer (D-MD) stated to reporters on January 7, "I think we were somewhat unrealistic, given the complexity, that we could pass this in these two weeks." Speaker Nancy Pelosi (D-CA) also recognized that the legislation is too complicated and too massive to pass in such a short time. However, she also continued, "We must pass an economic recovery and jobs package no later than mid-February, in my view." House Republicans are concerned that the rush to pass the bill will lead to excessive or unwise government spending. Republican Leader John Boehner (R-OH) indicated, "We want to put people back to work, we want to make sure that we maintain the jobs that are there -- but we also have to be worried about who is going to pay the bill here. Our kids and grandkids are already buried under a mountain of debt and I do believe we've got to be very careful in balancing the needs of the economy today with the amount of debt we are going to leave our kids." In addition to the expenditures for infrastructure and other state priorities, the stimulus plan will include a substantial tax relief section. President-elect Obama has proposed a refundable tax credit of $500 per person. This is designed to offset the costs of Social Security and Medicare tax for individuals. Stimulus bill tax provisions may also include provisions to encourage employment. In a press release on January 5, 2009, Sen. Charles Grassley (R-IA) cautioned, "Tax relief can work well to boost the economy if it is done right. It's tricky to make sure the relief is big enough to make a dent in our huge economy and done in a way that stimulates growth. This time, I'll be looking for as many taxpayers as possible to get tax relief." Sen. Grassley and Senate Finance Chair Max Baucus (D-MT) will both be very involved in the design of the stimulus bill tax provisions. IRS Fact Sheet on 2008 Returns Each year, the IRS releases a fact sheet that explains the tax changes affecting tax returns. This FS-2009-1 Treasury Release explains the major changes that are important for completing a 2008 IRS form 1040. The major changes for tax year 2008 include the following: 1. Economic stimulus -- Payments under the economic stimulus plan ($600 for most persons) are not taxable. Some taxpayers who did not receive the payment may claim a "Recovery Rebate Credit" on their return. 2. Alternative minimum tax exemption -- The exemption for 2008 is $69,950 married or $46,200 single. The AMT exemptions phase out with higher incomes. 3. Renewed tax breaks -- The legislation renewing tax breaks permitted deduction of state and local sales tax, the educators' supplies deduction, tuition and fees deduction and various energy credits. 4. Standard deductions -- For married couples, the standard deduction is $10,900. Single persons may deduct $5,450. There are additional standard deductions for blind persons or seniors. There is also a new added standard deduction of $500 per person for state or local real estate taxes. 5. First time homebuyer credit -- An interest-free loan of $7,500 for a first time homebuyer is deducted in the first year and then repaid over 15 years. 6. Standard mileage -- For January 1 - June 30, 2008, business mileage is 50.5 cents per mile and medical mileage is 19 cents per mile. For July 1 - December 31, 2008, business mileage is 58.5 cents per mile and medical mileage is 27 cents per mile. The charitable mileage rate remains 14 cents per mile. 7. Personal exemption -- The exemption for an individual or for a qualified dependent for 2008 is $3,500. 8. Earned income tax credits -- A refundable credit for lower income persons will depend upon the number of qualifying children. Persons with two or more qualifying children receive $4,824; with one child the EITC is $2,917; the base EITC with no children is $438. 9. No capital gains tax for lower incomes -- Individuals in the 10% or 15% bracket have a capital gains rate that was reduced from 5% in 2007 to 0% in 2008. This 0% capital gain rate is available up to taxable incomes of $65,100 for married persons or $32,550 for single persons. 10. Kiddie tax -- A child with investment income over $1,800 will pay tax at the parents' rate if the child is under age 18 or is a student under age 24. The kiddie tax does not apply if over half of total income is earned by the child. Applicable Federal Rate of 2.4% for January -- Rev. Rul. 2009-1; 2009-2 IRB 1 (18 Dec. 2008) The IRS has announced the Applicable Federal Rate (AFR) for January of 2009. The AFR under Sec. 7520 for the month of January will be 2.4%. The rates for December of 3.4% or November of 3.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2009, pooled income funds in existence less than three tax years must use a 4.8% deemed rate of return. Federal rates are available by clicking here.
PLR THIS WEEK PLR - 200901023 Transfer to Charitable Trust Qualifies for Gift and Estate Tax Deductions T created Trust to "manage, conserve and distribute" her deceased husband's artwork. The trustee of Trust would make the artwork available for display in public and private institutions in the United States and Country A. Trust would also make loans and grants to charitable organizations and individuals to further artistic performance and other cultural activities. Trust is organized under the laws of Country B. The articles of incorporation declare that Trust is to operate for purposes "exclusively charitable in law." Grants are to be made on a non-discriminatory basis with procedures approved in advance by the Internal Revenue Service. The articles of incorporation provide that no earnings will inure to shareholders or individuals. The articles also prohibit acts of self-dealing under Sec. 4941, retaining excess business holdings under Sec. 4943 and intervening in political campaigns. T will fund Trust with $X amount and at her death contribute H's artwork irrevocably. Trust does not intend to seek tax-exempt status under Sec. 501(c)(3). T requested that the gifts made to Trust qualify for charitable gift and estate tax deductions under Secs. 2522 and 2055, respectively. Sec. 508(d)(2) provides that no deduction is allowed for gifts made to (A) a private foundation or trust described in Sec. 4947 or (B) an organization that is not treated as an organization exempt from tax under 501(c)(3) by operation of Sec. 508(a). Sec. 508(a) states that an organization must actively apply for Sec. 501(c)(3) status in order to be tax-exempt. The Service ruled that Trust was not a trust described in Sec. 508(d)(2)(B). Under § 1.508-2(b)(1)(viii), contributions to a charitable trust described in § 4947(a)(1) are not subject to this rule. If Trust is a trust described in § 4947(a)(1), contributions to Trust will be deductible regardless of when or whether Trust applies for recognition of exemption under § 501(c)(3). Citing various tax court cases and revenue procedures, the Service found that Trust is described in § 4947(a)(1) because (a) it is a trust; (b) Trust will not be exempt from tax under 501(a); (c) all of Trust's assets will be devoted to charitable purposes; and (d) as discussed below, a gift tax charitable deduction under § 2522(a) and an estate tax charitable deduction under § 2055(a) will be allowed for the transfers to Trust. To view the full PLR Click Here.
CASE OF THE WEEK Living on the Edge, Part 5 Rhea Jones, 75, lives in a beautiful coastal town in northern California. Rhea's home occupies three magnificent acres of bluff property that overlooks the crashing waves of the Pacific. Since her home sits just steps away from the dramatic cliffs, Rhea frequently jokes to her friends about her "living on the edge" lifestyle. John, Rhea's husband of 50 years, built the custom home 10 years ago. It was truly the realization of a lifelong dream of John and Rhea. Unfortunately, John passed away unexpectedly five years ago. Now, Rhea lives alone in the large home. Nevertheless, Rhea is looking forward to spending her remaining days in this lovely home. Not surprisingly, she frequently plays host to her children, grandchildren and friends. Rhea is an active philanthropist. In fact, she spends three days a week volunteering with local charities. While very wealthy and philanthropic, Rhea makes only modest yearly gifts. However, she intends to make a substantial bequest upon her death. Specifically, Rhea plans on distributing her entire estate to her children and grandchildren, except for her cliff-side home. Rhea's will provides that the home passes to John and Rhea's favorite charity upon her death. The home is worth $3 million. However, at a recent estate planning presentation, Rhea discovered the benefits of a gift of a remainder interest in a personal residence. In particular, she liked the potential significant tax savings and the home's avoidance of the probate process. Also, because the gift is irrevocable, the local charity would recognize and honor Rhea for her generous gift at the annual fund raising gala. Of course, Rhea would retain the right to live in her home for the rest of her life, which is an absolute requirement to any potential gift arrangement. Rhea is very excited about this gift arrangement, but she has many questions. Before she commits to the gift plan, she wants to address several issues. In order to compute the charitable income tax deduction, Rhea is required to determine the estimated useful life of her home. How does she do this? Are there some rules regarding this determination? What are the four basic options to make this determination? To view the solution to this Case of the Week Click Here.
ARTICLE OF THE MONTH Increasing Payment Lead Trust A charitable lead annuity trust (CLAT) may have increasing payments. In Rev. Proc. 2007-45, IRB 2007-29 (16 Jul 2007), the Service approved the concept. Under 02 Annotations for Paragraph 2, Payment of Annuity Amount, the IRS stated in Section 4, "Alternatively, the governing instrument of a CLAT may provide for an annuity amount that is initially stated as a fixed dollar or fixed percentage amount but increases during the annuity period, provided that the value of the annuity amount is ascertainable at the time the trust is funded." With increased volatility in stock markets, there are persuasive economic reasons for a CLAT with increasing annuity payouts. Annuity trust remainder recipients benefit from the difference between the applicable federal rate and the actual economic return. If the applicable federal rate is fairly low at 4% or 5%, and the trust assets are able to produce total return of 8% or 9%, then the family benefit is increasing by 4% or 5% each year. This benefit is particularly helpful if there is an economic downturn in the early years of the trust. The favorable benefit for family with a fixed annuity is that growth can compound and significantly increase the distribution to family. However, if there is a fixed annuity payout and an economic downturn in the early years of the trust, then most, and in some cases all, of the principal of the trust is used to make the annuity payment. To view the full Article of the Month Click Here.
Note: Case studies, articles, commentary and other materials in the GiftLaw system are included solely as educational information. Articles and editorial comments are offered as an educational service to friends of this organization, and may not always reflect our official position on any issue. Since case studies or articles may not always reflect the current AFR or tax law, it may be necessary to run any illustration with a current version of Crescendo to obtain updated information. If professional services are required, all persons shall consult with their qualified professional advisors. Tax Quotes are courtesy of Jeffery L. Yablon, Washington, D.C. © Copyright 1999-2009 Crescendo Interactive, Inc.
Immanuel St. Joseph's Foundation	January 12, 2009

Thank you for your interest in gift planning. To access any of this updated GiftLaw information, please select our web page by clicking here. Cordially yours, Bob Weiss Immanuel St. Joseph's Foundation