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February 5,
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 |
February 5,
2007 |
GiftLaw Weekly eNewsletter -
February 5, 2007
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"Over and over
again courts have said that there is nothing sinister in so
arranging one's affairs as to keep taxes as low as possible.
Everybody does so, rich or poor; and all do right, for nobody owes
any public duty to pay more than the law demands."
-- Learned Hand
President Bush
Proposes Balanced Budget Without Tax Increases
On January
30, 2007, President Bush traveled to Peoria, Illinois for a speech
at the Caterpillar Plant. President Bush took the opportunity to
drive a D10 Caterpillar tractor. His driving reportedly scattered
the assembled press who scrambled out of the path of the massive
tractor. After stopping the D10, President Bush spoke to the
assembled employees.
He noted that low taxes, capital gains
and dividends tax cuts and the research and development tax credit
had been helpful to Caterpillar. In addition, he stated that half of
the production of the company is shipped overseas and new trade
agreements have opened many markets to exports.
However, he
also discussed the budget. President Bush stated, "It's one thing to
stand up here and say we don't need to increase your taxes, we can
set priorities and balance the budget; so next Tuesday I'm going to
do just that. I am going to submit a budget for Congress to look at
that shows how we can balance the budget in five years and keep your
taxes low."
Democrat leaders of the House and Senate
responded with a letter to President Bush. The letter from Senate
Majority Leader Harry Reid (D-NV), Speaker Nancy Pelosi (D-CA),
Senate Budget Committee Chair Kent Conrad (D-ND) and House Budget
Committee Chairman John Pratt (D-SC) set forth four specific
principles. The Democrat suggested budget principles should include
the following:
- Realistic cost projections - The budget should include costs
such as the war in Iraq and the cost of modifying the Alternative
Minimum Tax (AMT).
- Realistic long and short-term deficits - The budget should not
overestimate the short term deficit to make the results look good.
It should also reflect the long term deficits that will require
hard choices.
- Adequate budget detail - Prior budgets have included
short-term details and then assumed longer-term savings without
explaining how the savings could occur.
- Sustained fiscal discipline - The budgets will necessarily
need to make choices that are not always popular with the public.
Democrat leaders observed, "Your upcoming budget provides
both Congress and the Administration with an important opportunity
to begin a dialog on budget priorities and fiscal discipline that is
open and transparent. We hope you will seize this opportunity, and
insure that your budget complies with these basic
principles."
Tax and Minimum Wage Bill Passes
Senate
Democrat leaders of the House and Senate note that
one of their main priorities is to pass an increase in the minimum
wage. The minimum wage has not been changed for 10 years. The
Democrats propose to increase the minimum wage from $5.15 per hour
to $7.25 per hour over the next two years.
On February 1,
2007, the Senate voted 94-3 to pass a bill that combined the minimum
wage increase with approximately $8 billion in tax incentives to
small businesses. Sen. Harry Reid (D-NV) supported the bill and
stated, "In less than one month, Democrats in both the House and
Senate have kept up yet another one of their promises to move
America in a new direction and we will continue to do so. For the
first time in 10 years, Congress voted in a bipartisan fashion to
increase the minimum wage."
Senate Finance Chair Max Baucus,
(D-MT) stated, "We worked together in the Senate to get results, and
in the process helped both minimum wage workers and the small
businesses that employ them."
The minimum wage bill included
offsets strongly supported by Sen. Charles Grassley (R-IA), ranking
Republican on the Senate Finance Committee. He noted, "We enacted
small business tax relief the last time we raised the minimum wage
under President Clinton. Small businesses have created most jobs
over the last decade. The combination of a wage increase plus tax
relief works. Employment is high and we need to keep it that
way."
"Tax Gap" Reaches $290 Billion
House
and Senate leaders have for several years sought to find ways to
close the "tax gap" and collect more tax. An estimated $290 to $345
billion dollars is not collected even though these taxes are legally
owed. Sen. Max Baucus (D-MT) and Charles Grassley (R-IA) recently
held a meeting with IRS Commissioner Mark W. Everson and his staff
to discuss the tax gap.
Sen. Baucus noted, "I wanted the
facts about the tax gap from the people charged with closing it. The
cash currently falling into the tax gap is needed to fund a fiscally
responsible government. We'll work on legislative solutions in the
Finance Committee, but at the end of the day it's the IRS's
responsibility to collect the taxes owed through a balance of
services, enforcement and information technology."
Sen.
Grassley continued, "The tax gap isn't new. In spite of the IRS's
efforts to improve taxpayer compliance, the rate of voluntary,
timely payment has ranged from around 81% to around 84% over the
past 30 years."
The meeting covered four potential ways to
address the tax gap. IRS tax staff suggested these steps:
- Simplify the tax code;
- Provide more resources to the IRS;
- Help the IRS to make their computers work correctly;
- Enact more taxpayer information reporting.
Editor's
Note: The tax gap will continue to be pursued, but it is going
to be difficult to collect large amounts of additional revenue
solely through the tax gap. Sen. Baucus and Sen. Grassley have been
seeking to close the tax gap for several years. However, if there
are "tax-gap-closing" changes that raise revenue, then the offsets
could be very helpful in passing favorable charitable
legislation.
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 - 200650026 Private Foundation Grants Not Taxable
Expenditures
M is an
organization recognized under Sec. 501(c)(3) of the Code and is
further classified as a private foundation within the meaning of
sec. 509(a). M awards scholarships to recipients for their initial
academic year that may continue for a maximum of four years
contingent upon maintaining a certain grade point average and status
as a full-time student. The scholarships pay for tuition, books and
fees. Nominees for the scholarships are submitted by private high
schools to M's board of directors. Each board member must disclose
any relationship with any scholarship candidate and refrain from
participating in the award process where he or she would derive a
private benefit if one candidate is selected over another.
Furthermore, no scholarships may be awarded to any member of the
family of M's board of directors, M's creators or any other
disqualified person as defined in Sec. 4946(a) of the
Code.
Section 501(c)(3) of the Code provides for the
exemption from federal income tax of organizations operated
exclusively for charitable, scientific or educational purposes as
long as no part of the net earnings inures to the benefit of any
private shareholder or individual. However, Sec. 4945(a)-(b) of the
Code imposes an excise tax on expenditures defined as taxable
expenditures. A "taxable expenditure" means any amount paid or
incurred by a private foundation as a grant to an individual for
travel, study or other similar purposes unless the grant is awarded
on an objective basis pursuant to a procedure approved in advance by
the Secretary. The grant-making procedure will be approved if the
private foundation can demonstrate that the procedure includes an
objective selection process, the procedure is reasonably calculated
to result in performance by grantees of activities that the grants
are intended to finance, and the foundation plans to obtain reports
to determine whether the grantees have performed the activities the
grants are intended to finance.
The Service ruled that since
M is aiding students attending private high schools, its scholarship
program would be a charitable activity of advancing education.
Furthermore, M's procedures comply with the requirements of the Code
because the procedures include an objective selection process, the
recipients must be enrolled in a degree program to receive the grant
so that the award results in the performance of the activities M
intends to finance and lastly, M will satisfy the report requirement
by paying its scholarship grants directly to the private high
schools. The Service also noted that M also investigates and seeks
recovery of any misuse of the grants.
To view the full
PLR Click
Here.
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CASE OF THE
WEEK
The Cowboy Oilman - Part 1 of 4 "IRA to
Charity"
Jack Cobb, 77, is
a self-made man. Deserted by his parents at a young age, Jack grew
up in a boys' home and on the streets. At the age of 17, he moved to
Texas to chase oil and women. With his street smarts and gritty
determination, Jack made millions in the oil business as an arrogant
and risk-taking maverick. His fortune with women, however, was not
nearly as successful. In fact, Jack was married - and divorced -
four times. To this day, Jack still claims it was "all their fault"
and remains bitter toward his ex-wives. Yet, he continues to date
and currently has several "girlfriends." Also, Jack has six
children, but unfortunately he does not have any ongoing
relationship with them. He contends that his children are all
spoiled and ungrateful because he gave them too much growing up.
More likely, Jack's poor relationships stem from the lack of any
family structure growing up and the minimal amount of support given
to him as a child.
Jack does have one love though - his love
for the boys' home that raised him. It is the one and only good
memory from his childhood. It was his only family as a child. As a
result, he has publicly supported the boys' home throughout his
entire life and privately supported many of the people who touched
his life while there.
Although his hours are nominal, Jack
continues to draw a salary of $100,000+ as CEO and President of his
company. Jack's estate of $11 million consists of a $5 million
closely-held C corporation, a $2.5 million ranch, a $3 million IRA
and $500,000 in personal property (i.e., Cadillac, art
collection, antique gun collection, jewelry, etc.). Jack intends to
leave his entire estate to the boys' home at his death. However, he
would like to also make a major contribution now so he can see the
effects of his gift.
Jack wants to know which assets he
should give now and which assets he should give at death. Jack also
wants to know how to structure his gifts in order to make the best
tax-wise decisions.
To view the solution to this Case of
the Week Click
Here.
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ARTICLE OF THE
MONTH
Supporting Organizations After PPA
2006
If a donor wants to
make a significant gift, wants to remain involved with the use or
investment of the gifted funds and wants the tax advantages of
donating to a public charity rather than a private foundation, a
supporting organization (SO) is an excellent option. As its name
suggests, an SO supports another public charity. Sec. 509(a)(3)(A).
An SO must distribute money to, perform the functions of or carry
out the purposes of one or more public charities. The public charity
that an SO supports is commonly referred to as a "supported
organization" and must be designated by name, purpose or class
(except that a Type III SO, as discussed below, must designate by
name the organization(s) it supports). In addition to the
requirements discussed below, an SO must satisfy the organizational
and operational tests applicable to all charities.
Supporting
organizations (SOs) are public charities that provide assistance or
support to a Sec. 501(c)(3) charity. A "Type I" supporting
organization is controlled by the parent charity, usually through
election of a majority of the board of directors by the parent. A
"Type II" SO is a brother-sister organization with a majority of the
board serving both the publicly supported and the supporting
organizations. A "Type III" SO is operated "in connection with" the
parent charity. It must meet a "responsiveness" test and "integral
part" test.
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 1999-2007
Crescendo Interactive, Inc.
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| Immanuel St.
Joseph's Foundation |
February 5,
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
| |
