|
February 18,
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 |
| |
| Immanuel St.
Joseph's Foundation |
February 18,
2008 |
GiftLaw Weekly eNewsletter -
February 18, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
We have come to
love income tax laws so much that we have chosen to have a lot of
them. They are:
(1) Basic federal income tax
(2) Federal
corporate alternative minimum tax
(3) Federal individual
alternative minimum tax
(4) Federal computation of earnings and
profits for dividends
(5) State income taxes, departing in
various ways from the federal rules
(6) State minimum taxes,
departing in various ways from the federal rules
(7) City income
and minimum taxes, departing in various ways from both the federal
and the state rules
The resulting loss of efficiency in our
economy and cost of private sector compliance are
staggering.
-- Gordon D.
Henderson
President Signs Stimulus
Bill
Following unusually rapid action by Congress in
passing the $151 billion Economic Stimulus Act of 2008, President
Bush signed the bill. He indicated that the bill is a favorable
"piece of legislation" and the rapid assistance for middle-income
Americans reflects the principles of both parties.
The rebate
bill will send a minimum check of $300 to Social Security
recipients, disabled veterans and US taxpayers. Most of the 130
million beneficiaries will receive a check for $600 (single) or
$1,200 (married). An additional payment of $300 for each dependent
child is also available.
House Ways and Means Chair Charles
Rangel (D-NY) spoke approvingly of the stimulus plan. However, he
also suggested that more stimulus legislation may be needed. He
stated, "I want to point out that we are not sending these tax
rebates to lower-income families out of compassion or because they
cannot afford to put a roof over their heads or food on their
tables. This stimulus package is targeted to lower-income folks
because their economic situation dictates that they have no choice
but to spend the rebate check and purchase goods and services to
spur our economy."
Editor's Note: The IRS will begin
sending rebate checks in May. For the 20 million Social Security
recipients and disabled veterans, there may be a challenge in
receiving the check. The IRS will send checks to those persons who
have filed IRS Form 1040. A married couple with income below $18,550
or single person with income under $10,050 is not required to file
and many lower-income persons do not file IRS Form 1040. Even though
there is no tax due, you will need to file in order to receive a
rebate. The IRS will assist lower-income taxpayers through the
Volunteer Income Tax Assistance Program (1-800-829-1040). There also
is assistance through the AARP Tax Aide program
(1-888-227-7669).
Warning to Payday Lenders--Don't
Charge Rebate Recipients 190% Interest
Approximately 130
million rebate checks will be sent out to Americans during the next
several months. The $300 minimum, $600 (single) or $1,200 (married)
checks are similar to other tax rebate checks.
Sen. Charles
Grassley (R-IA) and Sen. Charles Schumer (D-NY) recently sent a
letter to payday lenders and tax preparation companies. Both
organizations provide "Refund Anticipation Loans"
(RAL's).
Sen. Grassley cautioned, "Taxpayers should
understand that refund anticipation loans are just that -- loans. As
loans, they can carry very high interest charges that make them a
very bad deal for the taxpayer."
In their letter to payday
lenders, Sen. Grassley and Sen. Schumer offered an example of a
family with three children that is expecting a $2,100 check in June.
If the family were to accept a check for "$1,600 in April in
exchange for the $2,100 check two months later," the "annualized
interest rate is 190%."
Sen. Grassley and Schumer warned
payday lenders and tax preparation companies not to abuse the
process by charging outrageous interest rates to individuals for an
advance on their tax rebate check.
Filing for 2007
Mortgage Relief
The Mortgage Forgiveness Debt Relief Act
of 2007 was enacted December 20th of last year. It allows taxpayers
to receive debt relief without federal income taxes for years 2007,
2008 or 2009.
There are several requirements. The loan
balance must be less than $2 million. If there was a refinance, the
refinance must not have exceeded the prior mortgage. A principal
residence qualifies, but a second home or rental home does not
qualify.
If a bank has forgiven indebtedness, then the lender
will send a Form 1099-C to the borrower. After receiving the Form
1099-C, the borrower must complete IRS Form 982 to qualify for debt
relief.
Because of the very late passage of the tax
legislation in December, IRS printed forms were not updated with the
latest information. IRS computers and software are still in the
process of being updated. All taxpayers should insure that they
obtain online updates of their tax preparation software with all of
the latest information before filing 2007 tax
returns.
Senate Republicans Propose Estate Tax
Compromise
Now that the Economic Stimulus Act of 2008 has
been signed, several senators and representatives suggest that a
second more comprehensive stimulus bill should be passed by the
middle of 2008. Chairperson Kay Bailey Hutchison (R-TX) of the
Senate Republican Policy Committee recently published a list of
recommendations for that legislation.
As might be expected,
Senate Republicans support extension of the 2001/2003 tax rates.
They prefer retaining the 15% rate for dividends and long-term
capital gains and lowering the corporate tax rate from 35% to 25%.
In addition to indexing capital gains and other business provisions,
they also address a potential estate tax
compromise.
Recognizing that outright repeal of the estate
tax is now politically unlikely, Sen. Hutchison suggests, "Congress
should look toward a compromise." The Senate Republicans propose a
compromise with a $5 million exemption per person and an estate tax
rate of 15%.
Editor's Note: After years of
negotiation, Republican and Democrat positions are finally growing
closer. Several Democrat Senators have suggested freezing the 2009
estate exemption and tax rate. This would produce an exemption of
$3.5 million per person with an estate tax rate of 45%. The
Republicans previously had discussed a $5 million exemption and 15%
tax rate, and the Senate Policy Committee publication now clearly
advocates that position.
While the final outcome is still
uncertain, it now seems probable that a $3.5 million exemption
represents the low side and $5 million is the upper boundary of the
probable estate tax compromise. The result for individuals with
large estates is that they now are recognizing a high probability of
an estate tax problem. With low applicable federal rates during
2008, there is an understandable renewed interest in zero estate tax
plans through charitable lead trusts.
Applicable
Federal Rate of 4.2% for February -- Rev. Rul. 2008-9; 2008-5 IRB 1
(17 Jan. 2008)
The IRS has announced the Applicable
Federal Rate (AFR) for February of 2008. The AFR under Section 7520
for the month of February will be 4.2%. The rates for January of
4.4% or December of 5.0% 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.
|
PLR THIS
WEEK
PLR - 200747001 CLAT is a Completed Gift with No
Excess Business Holdings
Spouses H and W propose to create a charitable lead
annuity trust (CLAT) to pay to a qualified public charity a fixed
percent annually for the lesser of five years or the death of the
second spouse. Upon the CRAT'S termination, the trustee has
discretion to distribute assets to a charitable organization, with
any remaining assets to be distributed to the then living heirs of H
and W. Parties have requested a ruling as to whether the funding of
the trust will constitute a completed gift for federal gift tax
purposes and whether the trust will not have excess business
holdings under Sec. 4943.
The Service ruled that H and W's
transfers of corporate stock to fund the CLAT will constitute a
completed gift under Reg. 25.2511-2(b) because the trust will be
irrevocable and H and W have retained no interest or reversion. The
annuity payable will be a guaranteed annuity interest within the
meaning of Sec. 2522(c)(2)(B) and Reg. 25.2522(c)-3(c)(2)(vi),
qualifying H and W for gift tax charitable deductions under Sec.
2522(a) and income tax charitable deductions under Sec.
170(f)(2)(B). Since H and W have not retained any interest in the
trust, no portion of the value of the assets transferred to the CRAT
will be includible in their estates.
Under Sec. 4943A(c)(2),
the trust's "permitted holdings" are 20% of the voting stock of the
business reduced by the percentage of voting stock owned by
disqualified persons. H and W are disqualified persons as
substantial contributors. Since H and W own more than 20% of the
corporation's stock, the permitted holdings of the CRAT are zero.
However, the Sec. 4943 tax is inapplicable during the five year
period beginning with the date on which the CRAT acquires stock of
the corporation. During this time period, the stock is deemed to be
owned not by the trust, but by disqualified persons. Since the trust
will terminate on the lesser of five years or the second spouse's
death, it will terminate before it is deemed to have excess business
holdings. Therefore, no tax will apply under Sec.
4943.
To view the full PLR Click
Here.
|
CASE OF THE
WEEK
Son's Intentions Paved with Gold, Part
4
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.)
In addition,
another component of the plan involves the potential sale of the
home to Son after Mother's death. Specifically, Son enters into an
option agreement with the university. It is a contingent agreement
that permits Son to purchase the home from the university. This
transaction is not an act of self-dealing (See Case Study "Son's
Intentions Paved with Gold, Part 1.") so naturally, it is part of
the final plan.
However, Son wants an additional option
contract with Mother's unitrust. Specifically, Mother's unitrust
will receive the 20-acre rear parcel that the university intends to
develop. In the event the university does not develop the land
itself, Son wants the right to purchase back the "family land" from
the unitrust. However, Son's potential transaction with Mother's
unitrust is a prohibited act of self-dealing. (See Case Study "Son's
Intentions Paved with Gold, Part 2.") Accordingly, the university
and Mother's advisors strongly discourage such a transaction. Never
liking to hear he cannot do something, Son retains his own
counsel.
Despite the prohibition on self-dealing, may Son
nevertheless purchase the 20-acre rear parcel from the unitrust?
What types of penalties may be imposed on Son?
To view
the solution to this Case of the Week Click
Here.
|
ARTICLE OF THE
MONTH
Tax Extenders and the IRA
Rollover
Each year for the
past decade there have been a number of provisions that are passed
for a one or two year period. In November of 2007, H.R. 3996, The
Temporary Tax Relief of 2007 (TTRA 2007), included 31 tax extenders.
The bill passed the House, but did not pass in the Senate. The House
Democrats and Senate Republicans were deadlocked over the desire of
House Democrats to offset or create tax increases for the AMT Relief
Bill. As a result, the tax extenders were not passed during
2007.
Because the 31 extenders include 13 benefits for
individuals and 18 benefits for business taxpayers, they are very
popular. It is likely that there would be near unanimous support for
a bill with just the tax extenders.
However, since the tax
extenders are popular they are frequently used as the engine to try
to pull other legislative cars through to passage. As a result, the
tax extenders frequently have been delayed due to conflicts over
other legislation.
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 1999-2008
Crescendo Interactive, Inc.
|
| Immanuel St.
Joseph's Foundation |
February 18,
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
| |
