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January 14,
2008
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 |
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| Immanuel St.
Joseph's Foundation |
January 14,
2008 |
GiftLaw Weekly eNewsletter -
January 14, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"I'm putting all
my money in taxes -- it's the only thing sure to go up."
-- Anonymous
Economic Stimulus
Needed?
A conference was held on January 10, 2008 at the
Brookings Institution to discuss the economy. The gathering of
economists and business leaders examined the state of the American
economy and asked the question, "Are we close to a
recession?"
Harvard Professor Martin F. Feldstein stated,
"Although a recession is not certain, I now believe that there is
better than even chance of a recession this year." He and other
economists are concerned that several factors may create the risk of
recession.
There are three major factors that could lead to a
recession for the economy in 2008. These are as follows:
- Unemployment -- After remaining at a low level of 4.6% during
2007, unemployment now has increased to 5%. If the unemployment
rate continues to increase, it suggests that businesses are
cutting back due to reduced demand for goods and services.
- Oil Price Increases -- The price of oil touched $100 per
barrel on January 2, 2008. While it fell back to below $94 per
barrel as of the date of the publication, the world excess oil
capacity is now very small. Some economists predict that oil will
stabilize in price. But with conflict in Nigeria and the Middle
East and steady growth of Asian economies, the demand for oil and
probable price will eventually continue to rise.
- Housing and Subprime Loans -- With the collapse of the housing
bubble largely supported by subprime loans, there are now six to
nine months of unsold homes inventory in most states. Major
corporations such as Citibank, Merrill Lynch, Countrywide and
others have reported losses that exceed tens of billions of
dollars. While Michigan and Ohio have the highest rates of
foreclosure, the entire sunbelt experienced substantial home price
increases followed by the current softening of the real estate
market.
President Bush met with his advisors on January 4,
2008 to discuss stimulus options. He is likely to present options to
Congress and the nation in his State of the Union Address on January
28, 2008. He has previously advocated making the 2001 and 2003 cuts
permanent and opposes any new taxes. In describing the USA economy,
President Bush stated, "If the foundation is strong, yet indicators
are mixed, the worst thing that Congress can do is raise
taxes."
Editor's Note: Year 2008 will include both an
election and a soft economy. In this situation, Congress is nearly
certain to take action. From the standpoint of charitable
organizations and their supporters, there is a silver lining in this
cloud. The tax extenders, including the IRA charitable rollover, are
now very likely to pass. It may be the middle of 2008 before the
extenders bill passes, but most if not all of the provisions are
likely to be retroactive to January 1, 2008.
Grassley
Advocates Mandatory 5% College Endowment Payout
Sen.
Charles Grassley (R-IA) has become more vocal in recommending a 5%
minimum payout for college endowments. He issued a press release on
January 7, 2008 and stated, "Colleges are tax-exempt, and other
tax-exempt entities, such as most private foundations, have a
mandatory payout requirement of 5% a year. It's reasonable to
consider a mandatory endowment payout requirement for
colleges."
Sen. Grassley noted that total university
endowment value now is $340 billion dollars. The donations to the
endowments and income earned on the endowments are tax-exempt.
Because "American taxpayers are subsidizing that tax-exemption,"
there should be a substantial annual benefit to
students.
Sen. Grassley did speak favorably about the
decision of Harvard and Yale to make their tuition more affordable.
Both have announced greatly expanded programs to provide tuition
assistance to lower, middle and upper-income families. Sen. Grassley
stated, "Harvard has the largest endowment, and Yale has the
second-largest. It's a big deal that the two wealthiest colleges are
making tuition more affordable. They set an example for all other
well-funded schools to do the same."
Substantiation
For Combined Federal Campaign Gifts
Governmental
organizations and many businesses participate in a Combined Federal
Campaign (CFC) or a United Way campaign. Under Sec. 170(f)(17),
deductions for gifts of cash or checks are subject to new
recordkeeping requirements. Either a bank record or a written
communication from the donor is required.
For gifts of $250
or more, there must be a contemporaneous written acknowledgement.
This must indicate the amount of the gift, state whether or not
there were any goods or services provided, and if applicable,
indicate a good faith estimate of the value of any goods or services
provided in consideration for the gift. If the goods or services are
solely intangible religious benefits, then those are disregarded and
the receipt should so indicate.
For a Combined Federal
Campaign or a United Way campaign, the gifts will frequently flow
through to other qualified charitable organizations. In Notice
2008-16; 2008-4 IRB 1 (8 Jan 2008), the IRS stated that the CFC
or UW organization is permitted to issue the receipt for the
appropriate amount of the gift. The names of "flow-through" donees
should appear on the receipt. This receipt will comply with the
substantiation requirement of
Sec.170(f)(17).
Applicable Federal Rate of 4.4% for
January. Rev. Rul. 2008-4; 2008-3 IRB 1 (19 Dec.
2007)
The IRS has announced the Applicable Federal Rate
(AFR) for January of 2008. The AFR under Sec. 7520 for the month of
January will be 4.4%. The rates for December of 5.0% or November of
5.2% 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 2008, 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.
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PLR THIS
WEEK
PLR - 200744005 Disclaimer Creates Valid Estate
Charitable Deduction
Upon
Decedent's death, the residue of his estate passed to Trust. Trust
contained a provision that one-third of the trust assets were to be
distributed to X, except if X were to disclaim the property, then
the one-third share would pass to Foundation, a tax-exempt 501(c)(3)
classified as a private foundation under Sec. 509(a). X, at the time
of Decedent's death, was a director of Foundation. X disclaimed his
interest in Trust so the assets would pass to Foundation. Upon
learning of X's disclaimer, Foundation amended its bylaws to create
a segregated fund to receive the assets from Trust. The bylaws
pertaining to the segregated fund precluded X from having any
distribution or decision making control over the fund. The fund was
to be administered by a committee of disinterested parties elected
by the directors of Foundation. X would have no rights to appoint,
elect or remove any of the fund committee members. The executor of
Decedent's estate, X and Foundation requested a letter ruling
declaring that X's disclaimer was valid under Sec. 2518 and that
Decedent's estate is entitled to a charitable estate tax deduction
under Sec. 2055.
Sec. 2518(a) provides that a disclaimed
interest is treated as if it had never been transferred to the
disclaiming party for purposes of gift and estate taxes. Sec.
2518(b) states that a disclaimer is a qualified disclaimer if it is
in writing, it is received by the transferor not more than nine
months from the date of gift, the disclaiming party has not yet
received the property and the interest passes without any direction
from the party making the disclaimer. Furthermore, Treasury
Regulation Sec. 25.2518-2(d)(2) requires that if the party making
the disclaimer is also a fiduciary of the party subsequently
inheriting the interest that the fiduciary may not retain any
discretionary powers with regard to the interest. The Service ruled
that because the formalities of Sec. 2518 were met and because
Foundation amended its bylaws to comply with Treas. Reg. Sec.
25.2518-2, the disclaimer by X was valid. The Service also found
that the interest passing to Foundation entitled Decedent's estate
to a charitable deduction. The Service reasoned that because the
interest passed free and clear to a qualified 501(c)(3)
organization, the estate was able to claim and estate tax deduction
under Sec. 2055.
To view the full PLR Click
Here.
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CASE OF THE
WEEK
Peaceful Country Debt
Several years ago Mother and Father built a very
unique home on 45 acres of beautiful rolling hills and woods. Father
passed away three years ago, and Mother now solely owns the 45-acre
parcel and home.
She enjoys the peaceful country view out her
front window. However, the university adjacent to the property is
very interested in acquiring the property for eventual future
growth. Not surprisingly, Mother is concerned. She does not want a
new dormitory filled with college students in her front yard. In
fact, she enjoys the peace and protection of her lovely home in the
wooded countryside. However, at age 80, she recognizes that
eventually some planning will have to be accomplished.
After
a thorough understanding of Mother's needs and desires, a wonderful
four part solution was suggested which incorporated an outright
sale, a unitrust, a gift annuity and a gift of a remainder interest
in a home. (See Case Study "Peace in the Countryside" for a full
explanation.) This solution seemed like the perfect fit until
Mother's attorney, Paul Weiss, discovered that Mother has a $20,000
loan against the rear 20-acre parcel. The rear 20-acre parcel of
land was to be transferred into a charitable remainder
unitrust.
Paul learned that apparently, prior to Father's
death, Mother and Father took out a small loan at the local bank in
order to do some simple improvements upon the land. The $20,000 debt
was very modest in comparison to the $1 million fair market value,
so Mother did not think it was an important issue. Paul believes
otherwise.
Is the $20,000 debt on the rear 20-acre parcel a
problem? If so, what solutions can Paul suggest? What are the rules
governing encumbered property and unitrusts?
To view the
solution to this Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
"Green" Unitrusts
On December 19, 2007, President Bush signed the
Energy Independence and Security Act (H.R. 6). This energy act
included several provisions. The most notable is a required increase
in auto fuel mileage to 35-mile-per-gallon fuel efficiency by the
year 2020. However, it also strongly supports increased production
of bio-fuels. The Renewable Fuels Standard increases greatly the
requirements for use of renewable fuels in motor vehicles. By 2008,
there must be nine billion gallons of renewable fuel each year, and
that number increases to 36 billion gallons by 2022.
With a
goal of 36 billion gallons per year of bio-fuels, the farm belt is
nearly certain to be planted to the fence lines. It seems very
probable that the agricultural economy will be entering another
"Golden Age" and there is no foreseeable end in sight. With the
growing demand for energy by our nation and the ability to convert
farm products to ethanol, it is highly probable that both crop
quantity and crop prices will be very positive during the coming
decades.
Crops are a type of tangible personal property that
may be used to fund a charitable remainder unitrust. Crops are
generally inventory for the farmer, and thus would usually produce
ordinary income when sold. In order to bypass this ordinary income,
the farmer could transfer the crops into a charitable remainder
unitrust.
To view the full Article of the Month Click
Here.
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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 1999-2008
Crescendo Interactive, Inc.
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| Immanuel St.
Joseph's Foundation |
January 14,
2008 |
| |
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
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