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January 29,
2007
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 29,
2007 |
GiftLaw Weekly eNewsletter -
January 29, 2007
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"The legal right
of a taxpayer to decrease the amount of what otherwise would be his
taxes, or altogether avoid them, by means which the law permits,
cannot be doubted."
-- George Sutherland
President
Bush Proposes Standard Healthcare Deduction
In his State
of the Union Address on January 23, 2007, President Bush proposed a
major change in taxation of health insurance. The majority of
Americans receive health insurance through their employer, and the
cost of the insurance is deductible to the employer. However, some
Americans are self-employed or work for small businesses and must
pay for health insurance from after-tax income.
President
Bush proposed a significant change starting in 2009.
Employer-provided health insurance would not be deductible, but
there would be a $7,500 standard healthcare deduction per person, or
$15,000 per family.
President Bush stated, "Tonight, I
propose two new initiatives to help more Americans afford their own
insurance. First, I propose a standard tax deduction for health
insurance that will be like the standard tax deduction for
dependents. Families with health insurance will pay no income or
payroll taxes on $15,000 of their income. Single Americans with
health insurance will pay no income or payroll taxes on $7,500 of
their income."
The estimated cost of health insurance for a
family plan in 2009 is an average of $13,600. The majority of
Americans would receive a modest additional deduction, since the
$15,000 ($7,500 for single persons) deduction would be reduced by
the cost of employer-provided insurance. However, some individuals
with expensive health plans could actually pay tax on the excess
value over $15,000 of an employer-provided plan.
The
administration estimates that 3 million individuals who currently
are not purchasing insurance would acquire health insurance with the
new plan.
Editor's Note: The proposed standard
insurance deduction is designed to be revenue neutral over 10 years.
That is, most individuals would pay less tax, but some with
expensive healthcare plans may actually pay more tax. The
significant aspect of "revenue-neutral" for charitable planners is
that it now appears all major tax provisions in 2007 will have to
meet that standard. This means that extending the IRA Rollover into
2008 and beyond will most likely occur only in a bill where there
are other offsets or revenue-raisers. Given the uncertainty about
extending the IRA rollover after 2007, IRA owners will want to give
serious consideration to making a substantial IRA Rollover
charitable gift during 2007.
Congress Responds to
"Flaw in Healthcare Policy"
Both Democratic and
Republican leaders of Congress responded to the President's
healthcare proposal. Sen. Max Baucus (D-MT) is the Chair of the
Senate Finance Committee. He responded cautiously, "The President is
right to recognize that we have to start reforming healthcare now or
risk Americans' lives and the loss of economic competitiveness. I
plan to review his ideas carefully. To get traction, his proposals
need to meet two tests: getting new health coverage to people who
have none, and better coverage to those who don't have
enough."
Rep. Charles Rangel (D-NY) is Chair of the House
Ways and Means Committee. He noted, "I appreciate the President's
visit tonight, but he really should have done more to reach out to
Democrats before his speech to see if we can come together, rather
than simply exchange policies and press releases."
Sen.
Charles Grassley (R-IA) is the Ranking Member on the Senate Finance
Committee. He indicated, "I also appreciate President Bush's
leadership in putting forward a plan to help more Americans get
health insurance. There's no one-size-fits-all solution to the
uninsured problem because people are underinsured for a lot of
different reasons. The President has correctly identified a flaw in
healthcare policy. Similar workers are treated very differently,
depending on their employers' choice to provide or forgo health
coverage."
Finally, Rep. Jim McCrery (R-LA) supported
President Bush and stated, "I think the President's proposal to
extend tax incentives for health insurance to people who work for
small businesses or are self-employed is a bold and creative
approach to a complex problem."
Appraisers Criticize
New Rules
The Pension Protection Act of 2006 created new
requirements for both appraisers and qualified appraisals. The
qualified appraisers must generally meet four specific requirements.
These are:
- Follow generally accepted appraisal standards.
- Appraiser designated by a recognized professional appraisal
organization.
- Appraiser with minimum education and experience.
- Appraiser has verifiable education and experience with the
type of property.
Several appraisers from national
organizations have expressed concern about the application of these
guidelines. In Notice 2006-96 the IRS stated that these requirements
apply for real property appraisals after October 19, 2006 and other
appraisals on returns filed after February 16, 2007. As a result,
the updated rules will be applicable to most tax returns for year
2006.
In a letter to the Internal Revenue Service, Walter
Miller, CEO of the College for Appraisers of Cypress, CA indicated
general support for the designation requirement. However, Mr. Miller
noted that "the language requiring two years' experience should be
modified." Especially for gifts of tangible personalty such as "art,
glass to good costume jewelry to very pricey costume jewelry to
estate jewelry," the two year requirement should be waved.
Accountants, engineers, nurses and other professionals are deemed
qualified immediately upon graduation. The two year requirement may
make it difficult to find qualified appraisers for tangible personal
property.
Mr. Bill Garber, Director of Government Affairs for
the Appraisal Institute, also commented on the requirements. He
generally approves of the concept requiring designation of
professional appraisers by qualified organizations. However, Mr.
Garber notes that there could logically be some additional
requirements in the regulations. He suggests that "appraisals of
conservation easements and historic preservation easements are
complicated assignments, and generally outside the scope of an
appraiser who only carries such a [basic] license."
Mr.
Garber recommends that these complex appraisals require a "General
Certification in accordance with the Real Property Appraiser
Classification Criteria promulgated by the Appraiser Qualification
Board of the Appraisal Foundation."
Finally, Gregg Kobel,
President of the National Auto Auction Association (NAAA) suggests
that there are no formal courses in determining the value of used
automobiles. He observed that the experience of many members of NAAA
should be a sufficient qualification to conduct appraisals. Even
though a person may not have a specific "credential," he or she may
have appraised "thousands of vehicles" and learned appropriate
values and methods through practical experience.
IRS
Online Charitable Education
The IRS has joined the online
Internet education movement with a new web site. The
www.stayexempt.org site is a very good online education
program.
The web site includes five different modules to
assist in educating the staff of charitable organizations. The five
modules cover the basic principles of the following topics:
- Tax-exempt status.
- Unrelated business income.
- Employment issues for workers.
- Filing the annual Form 990.
- Required disclosures when requested by donors and other
persons.
The five modules use audio and graphic characters
to illustrate the concepts in each area. There is no cost and the
program may be reviewed again to ensure that a staff person fully
understands each area.
Applicable Federal Rate of 5.6%
for February. Rev. Rul. 2007-9; 2007-6 IRB 1 (18 Jan.
2007)
The IRS has announced the Applicable Federal Rate
(AFR) for February of 2007. The AFR under Sec. 7520 for the month of
February will be 5.6%. The rates for January of 5.6% or December of
5.8% 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 2007, 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 - 200614030 Capital Fund Does Not Jeopardize
Exempt Status
SO is
tax-exempt under Sec. 501(c)(3) of the Code and classified as a
supporting organization under Sec. 509(a)(3). SO supports NPF, a
tax-exempt community college classified under Secs. 509(a)(1) and
170(b)(1)(A)(ii). NPF is located in an economically depressed area.
As a result of high unemployment and a lack of highly qualified
college graduates, NPF has had trouble maintaining, much less
expanding, its educational programs. To assist NPF and combat the
high rate of unemployment, SO proposed to fund a high technology and
innovation center on NPF's behalf. The innovation center will
advance student learning by providing an "incubator" service
designed to transfer business and technology ideas from the
classroom to laboratories for exploration and eventually,
implementation. NPF hopes to attract business to the area as the
pool of highly qualified and ingenuitive students increases. SO
plans to support NPF by creating a pre-seed capital fund. The fund
is to be used to match dollar-for-dollar monies raised by student
innovators on new business or technology ideas. The pre-seed fund
will be invested in technology and business corporations of the
nature reflected by NPF's proposed educational center. SO requested
three rulings from the Service: that the funding of a pre-seed
capital fund not jeopardize its exempt status under Sec. 501(c)(3);
contributing to the funding of the pre-seed capital fund will not
jeopardize the community college's status as a non-private
foundation under Sec. 509(a)(3) of the Code; and contributions made
to SO are deductible charitable contributions under Sec. 170 of the
Code. The Service ruled that the funding of the pre-seed fund is
directly related to the promotion of higher learning and economic
development and is necessary to fulfill NPF's educational mission
and, therefore, will not endanger the tax-exempt status of either
organization. Furthermore, contributions made to SO will be
deductible by taxpayers under Sec. 170 of the
Code.
Editor's Note: The investments of the pre-seed
fund are directed at encouraging technology development and not for
creating a profit for either SO or NPF. While the investments may
result in growth of the fund, the fund will only be used for the
directed purpose and not for any other purpose of either
organization. Should the funds be available for another purpose, the
Service's position may have been different. Advancing the exempt
purpose of the organization must always be the goal of fundraising
and investments. Investments unrelated to an organization's exempt
purpose can endanger the organization's exempt status.
To
view the full PLR Click
Here.
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CASE OF THE
WEEK
Refund Due for Termination of "Single" Status - Part 3
of 3
Steve Reid, 80,
retired fifteen years ago after working most of his life as a
product manager for a Fortune 500 company. Steve, a widower, decided
to move into a retirement community in south Florida. The retirement
community required an entrance fee of $50,000 from all new
residents. However, the fee would be refunded over time using an
amortized schedule. Soon after moving into the retirement community,
Steve fell in love with another local resident, Eva, who was 80.
After two years of courting, Steve and Eva married. Now Steve plans
to move into Eva's suite, because her suite has a much better view
of the lake than Steve's suite. As a result of the marriage and
move, the retirement community will refund the remaining $40,000
balance to Steve. At present, Steve and Eva have an estate worth
$250,000 and they do not have any need for refund.
Is there a
way Steve could save for a "rainy day" and ensure that the
retirement community receives a substantial gift from his estate?
What benefits would Steve and Eva receive from such a plan? What are
the potential drawbacks?
To view the solution to this
Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
Donor Advised Funds After PPA
2006
One option for a
donor who wants to make a gift to charity, does not want to create a
private foundation and does not want to pick the charities who will
receive the funds right now, but instead wants to distribute them
over time, is a donor advised fund (DAF). A DAF is an account that a
donor establishes within a public charity - often a community
foundation. When a donor makes contributions to the DAF, the donor
must give complete control over the donated funds to the public
charity. As a result, a donor gets a current income tax deduction
for the full amount of the contribution to the DAF. Despite the fact
that the donor relinquishes control over the donated funds, the
unique aspect of a DAF is that the donor can remain involved by
making non-binding recommendations to the public charity as to
investment policy and DAF distributions. As a result, the donor is
able to fulfill his or her philanthropic goals in a flexible,
tax-favored and cost-effective way.
Sec. 4966 creates a
comprehensive set of rules for DAFs. The DAF definition,
distributions, donors, disqualified persons and deductible donations
are all specified.
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 1999-2007
Crescendo Interactive, Inc.
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| Immanuel St.
Joseph's Foundation |
January 29,
2007 |
| |
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
| |
