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February 16,
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 |
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| Immanuel St.
Joseph's Foundation |
February 16,
2009 |
GiftLaw Weekly eNewsletter -
February 16, 2009
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"The physical
power to get the money does not seem to me a test of the right to
tax. Might does not make right even in taxation."
-- Robert H. Jackson
Stimulus
Mega-Bill Nears Passage
At publication time, the American
Recovery and Reinvestment Act of 2009 was nearing a final vote. The
House passed the bill on a 246-183 largely party-line vote. The
Senate was expected to vote on the bill late Friday evening.
President Obama hopes to have the completed bill on his desk for
signature on February 16, 2009. The President's Day holiday is
expected to be a good opportunity for signing the largest stimulus
bill in the history of the nation.
Chair of the House Ways
and Means Committee Rep. Charles Rangel (D-NY) and Chair of Senate
Finance Max Baucus (D-MT) issued a joint release on the tax
provisions of the stimulus. In the press release, they indicated
that the bill "will create millions of jobs for American workers,
cut taxes for families and businesses and revive the nation's
struggling economy." Sen. Baucus continued, "The policies in this
final legislation are solid compromises that should work to stop the
country's economic slide and put the nation on sure
footing."
Chairman Rangel noted that the "pain felt by
American families and businesses" will be eased by the stimulus
bill. He observes, "The American economy is in intensive care and
every day we delay this care, every day we postpone this injection
of tax relief, health benefits and investment in renewable energy
and critical infrastructure projects, is one more day that families
and businesses will struggle before we can recover."
The
stimulus bill passed with no Republican support in the House and
three Republicans supporting the bill in the Senate. Republican
Leader Mitch McConnell (R-KY) explained why Republican Senators and
Representatives are not supporting the bill. He noted, "This bill
was meant to be a stimulus that was timely, targeted and temporary.
Unfortunately, it's appears to be none of the above."
Sen.
McConnell indicated that he understands the attempt by Democratic
leaders to "strengthen the economy and create jobs," but that he
questions the "wisdom of these efforts." Sen. McConnell points out
that the deficit for the first four months of this fiscal year is
$569 billion, approximately $500 billion more than the deficit last
year. With a deficit "nearly $500 billion more than the same period
last year, you don't have to be Suze Orman to know this isn't
sustainable."
Who Won and Who Lost in Stimulus
Bill
Both individuals and businesses will receive
substantial benefits under the stimulus bill. There are at least a
dozen major benefits for specific categories. Most of the tax
benefits will provide widespread relief to millions of Americans.
Congress hopes that this tax relief will encourage expenditures that
lead to an economic recovery.
Stimulus Bill
Winners
- Workers -- The "Making Work Pay" tax credit will
provide a refund of up to 6.2% of income. The credit is limited to
$400 for individuals or $800 for working families. It is phased
out for taxpayers with incomes over $75,000 ($150,000 for married
couples).
- Social Security Recipients -- A $250 payment will be
made to Social Security recipients, railroad retirement
beneficiaries or disabled veterans receiving benefits.
- Retired State Employees -- A payment of $250 is
mandated for retired government employees not receiving Social
Security benefits.
- Large Families -- Families with modest incomes and
three or more children will receive a larger earned income tax
credit (EITC) of 45% of the first $12,570 of earned
income.
- Children -- The refundable tax credit for children will
be 15% of earned income over $3,000, rather than the prior floor
of $8,500. This will increase refunds of child credits for
individuals who typically are not paying federal income
tax.
- College Students -- An "American Opportunity" tax
credit of 100% of the first $2,000 and 25% of the next $2,000 of
tuition and related expenses will help college students with a
total $2,500 potential benefit. The credit is 40%
refundable.
- Students With 529 Plans -- Students whose parents have
funded a Sec. 529 plan may withdraw funds tax-free for qualified
education expenses, such as tuition, room and board. Computers are
now a qualified education expense under the 529 rules.
- First-Time Home Buyers -- Previously, there has been an
interest-free loan equal to 10% of purchase price up to $7,500 for
first-time home buyers. Those who purchase homes after January 1,
2009 can benefit from a tax credit of $8,000, with no required
repayment. The home must be retained for a minimum of three
years.
- Car Buyers -- Those who purchase new cars, light
trucks, recreational vehicles and motorcycles during 2009 may
deduct state and local sales and excise taxes.
- Unemployment Recipients -- The federal unemployment
benefits will be tax-free up to $2,400 for 2009.
- Higher-Income Americans -- The 2009 alternative minimum
tax (AMT) exemption amount will be $70,950 for joint filers and
$46,700 for individuals.
- Business Owners -- Bonus depreciation will increase
deductions for new equipment. Small business expensing will be
continued at $250,000, and businesses with revenue under $15
million per year may benefit from a five-year carryback of net
operating losses.
Stimulus Bill Losers
- VA Construction --The $2 billion initially authorized
by the Senate for construction was removed.
- Military Construction -- The House's $3.75 billion
proposal was reduced to $1.45 billion for all services.
- FBI -- The Senate's allocation of $475 million was
removed.
- Banks -- Those banks that acquire other banks with
losses will have greater difficulty in using the losses to offset
new income.
Editor's Note: If the bill does pass
and the President signs it on President's Day, the government will
move quickly to borrow the funds and commence projects to restore
the economy.
New Low-Interest Rate IRS
Tables
Under Sec. 7520, the Department of Treasury is
required to publish valuation tables at least every ten years. The
current IRS Publications 1457, 1458 and 1459 apply for valuations
after April 30, 1999. As required by Sec. 7520, the IRS will be
publishing new tables using the year 2000 census data for valuations
after April 30, 2009.
However, because the existing tables
cover Applicable Federal Rates (AFRs) from 2.2% to 22% and the
current AFR is 2.0%, Treasury has published supplemental tables in
Notice
2009-18; 2009-10 IRB 1 (11 Feb 2009). The new tables include
factors for AFRs of 0.2% to 2.0%.
The supplemental tables
include a one life deduction factor under Table S, a term of one to
sixty years under Table B, term adjustment factors for beginning of
period payments under Table J, end of period payment adjustments
under Table K, unitrust term remainder factors under Table D and
unitrust period adjustment factors under Table
F.
Applicable Federal Rate of 2.0% for February --
Rev. Rul. 2009-5; 2009-6 IRB 1 (16 Jan. 2008)
The IRS has
announced the Applicable Federal Rate (AFR) for February of 2009.
The AFR under Sec. 7520 for the month of February will be 2.0%. The
rates for January of 2.4% or December of 3.4% 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.
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PLR THIS
WEEK
PLR - 200906008 Trust Qualifies for Charitable
Deduction
Trust is an
irrevocable trust with A as the primary beneficiary. The provisions
of Trust provide A with a lifetime limited power of appointment to
order the distribution of all or any portion of the trust assets to
one or more charitable organizations. A has every intention of
exercising this power upon receipt of a favorable letter ruling from
the Service. Specifically, Trust requested a ruling that the
distribution from Trust would qualify Trust for a charitable income
tax deduction under Sec. 642(c).
Sec. 642(c)(1) provides that
a trust is allowed an income tax deduction for gifts made, without
limitation, pursuant to the terms of the trust provisions for a
purpose specified in Sec. 170(c). Treasury Reg. 1.642(c)-1(a)(1)
provides that any part of the gross income of a trust which,
according to the trust terms, is paid to a charitable organization
for a purpose designated under Sec. 170(c) shall give rise to a
deduction in lieu of the limited charitable contribution deduction
authorized by Sec. 170(a). Because Trust is making a gift authorized
by the terms of the governing instrument for a purpose described in
Sec. 170(c), the Service allowed the deduction, provided that the
other requirements of Sec. 642 are met.
To view the full
PLR Click
Here.
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CASE OF THE
WEEK
Seeing Double with U.S. Savings Bonds, Part
4
Bill Bonds is a retired
construction worker. While still an avid home improvement
enthusiast, Bill hung up his hard hat after 40 years in the
business. During his working years, Bill invested in several
different places, such as an IRA and a deferred commercial annuity.
Bill also purchased U.S. savings bonds.
Specifically, Bill
bought U.S. Series EE savings bonds 20 years ago for $5,000. The
face value of the bonds was $10,000. Bill's bonds have reached the
original maturity date - 20 years from the bond's issue date. He
knows he has several options with respect to the savings bonds.
However, Bill does not know what he should do next. For instance, he
can redeem the savings bonds, continue to hold them or convert them.
Bill also wants to discuss the charitable giving options, if any,
with respect to the savings bonds.
Bill decides he wants to
give his savings bonds to a local charity. However, the savings
bonds are issued in his name. Therefore, he wonders if it is
possible to transfer ownership of the savings bonds to charity. Can
he reissue the savings bonds in a charity's name? What are the tax
consequences?
To view the solution to this Case of the
Week Click
Here.
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ARTICLE OF THE
MONTH
Should Charities Promote Gift Annuities in
2009?
Bursting
Bubbles
2008 was a challenging year. The housing bubble
built up during 2005 through 2007 and burst with a great explosion
in 2008. Over five million homeowners held high-risk
loans.
Most of the new loans were bundled together by
government-sponsored-entities Fannie Mae and Freddie Mac and sold to
financial companies as collateralized debt obligations (CDOs).
Creative financiers then sliced and diced the CDOs into structured
investment vehicles (SIVs) and sold them worldwide to investors.
Investors were reassured because the risk of default was insured
through credit default swaps (CDSs) from blue chip insurance
companies that included American International Group
(AIG).
However, bubbles all eventually burst. According to
the Case-Shiller home price index, between July of 2006 and November
of 2008, the average value of a home declined 25%. When the housing
prices declined, many homeowners with high-risk loans were in
serious trouble. Mortgage defaults and home foreclosures quickly
followed.
Financial firms and the Federal Reserve compounded
the problem. The Federal Reserve held the federal funds rate at 1%
for too many months following the 2002 recession. With money flowing
freely for loans, both financial firms and consumers acquired far
too much debt.
Financial investment firms obtained permission
from the Securities and Exchange Commission in 2005 to increase
their leverage from 10 to 1 to over 30 to 1. They went on a spending
spree and purchased billions of dollars worth of CDOs from Freddie
Mac and Fannie Mae. "Rest easy" was the slogan, because the CDOs
were insured through CDSs and therefore the high leverage was
"safe."
When Lehman Brothers went bankrupt in 2008, its
leverage was 34 to 1. The assumption of the financial community was
that blue chip companies like American International Group (AIG)
through credit default swaps (CDS), would be able to insure the
mortgage securities. However, when the bubble burst, AIG was
overwhelmed with the magnitude of the losses.
In response to
the bursting of the housing and leveraged debt bubbles, the federal
government nationalized Fannie Mae and Freddie Mac and essentially
took control of AIG. A $700 billion Troubled Asset Recovery Plan
(TARP) was passed by Congress and billions of dollars were quickly
transferred to the banking industry to shore up weak
capitalization.
As the economy struggles forward in 2009,
unemployment claims are increasing and housing starts are at the
lowest level recorded. Economists hope that there will be a recovery
in the second half of 2009. Even if there is an economic recovery,
the gross domestic product (GDP) may end up in the negative column
for 2009.
When the bubbles burst in October of 2008, all
equities markets crashed. The equities market indices remain at
levels down over 40% from the peak in October of 2007.
Given
this unique economic environment with perhaps the most serious
recession in seven decades, should charities be interested in
issuing gift annuities? And will donors be interested in purchasing
gift annuities at the American Council on Gift Annuities (ACGA)
rates effective February 1, 2009?
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 1999-2009
Crescendo Interactive, Inc.
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| Immanuel St.
Joseph's Foundation |
February 16,
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
| |
