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February 25,
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 |
February 25,
2008 |
GiftLaw Weekly eNewsletter -
February 25, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"Taxes are paid
in the sweat of every man who labors. If those taxes are excessive,
they are reflected in idle factories, tax-sold farms and in hordes
of hungry people, tramping the streets and seeking jobs in
vain."
-- Franklin D. Roosevelt
IRS
Posts Q&A On Stimulus Checks
The Economic Stimulus
Act of 2008 will result in tax rebate checks for 130 million
American households. In response to an avalanche of questions about
the rebate checks, the IRS has posted a question and answer section
on www.irs.gov.
A
summary of key questions and answers follows:
Q. Do I need to
file a 2007 tax return to receive a check?
A. Yes. Even if
you have low income and pay no tax, it will be necessary to file a
return. There will be special IRS filing instructions for low-income
workers, Social Security recipients, railroad retirees and disabled
veterans. These individuals may file a simplified tax return in
order to receive a rebate check.
Q. How do I qualify for a
check?
A. Most taxpayers will qualify by paying income tax.
However, if you have $3,000 of qualified income, you will also
receive a check. In addition, qualifying children under age 17 will
enable you to receive an additional $300 per child.
Q. How is
my rebate payment calculated?
A. There is generally a five
part process.
1. Net tax liability over $600 (single) or $1,200
(married) -- a full $600 or $1,200 check.
2. No income tax but
$3,000 of qualifying income or government benefits -- $300
check.
3. Income tax between $300 and $600 -- check for tax
amount.
4. Qualifying child under age 17 -- add $300 per
child.
5. Income over $75,000 (single) or $150,000 (joint) --
reduce check by 5% of excess. Q. Could you give one or
two specific tax rebate examples?
A. Mary Jones is a single
person with income of $80,000. She pays more than $600 in tax and,
therefore, starts with a $600 amount. This is reduced by 5% of the
$5,000 excess over $75,000 or $250. Her rebate check is
$350.
A. Al and Jane Lee have children ages ten and eight and
$160,000 in adjusted gross income (AGI). Their payout amount starts
with the basic $1,200 rebate amount plus $600 for the two children
for a total of $1,800. However, they are subject to the phaseout for
the $10,000 in excess of $150,000 AGI. The $10,000 excess multiplied
by 5% is $500. The net check will be $1,300.
Q. I file using
an individual tax payer identification number (ITIN). Will I get a
rebate?
A. No. You must file using a Social Security number.
In addition, a qualifying child must also have a Social Security
number for you to receive an extra $300 rebate.
Q. May I have
the rebate check direct deposited to my bank?
A. If you
selected the direct deposit option with your 2007 tax return, the
rebate check will be sent by direct deposit. If you did not request
direct deposit on your return, you will receive a paper
check.
Q. When should I plan to receive my rebate
check?
A. The rebate checks will start in May. It may take
six to eight weeks for the IRS to process all 130 million
checks.
Economic Stimulus Business Tax
Benefits
The IRS issued IR-2008-22 on February 21, 2008
to explain the business tax benefits in the Economic Stimulus Act of
2008. The two major benefits are a 50% special depreciation similar
to "bonus" depreciation in prior years and an expensing limit of
$250,000.
The 50% bonus depreciation is applicable for
property placed in service during 2008. The IRS will create a new
Form 4562-FY for reporting this special depreciation
allowance.
Property qualifying for expensing is typically
equipment or other tangible personal property used for business
purposes. The previous 2008 expensing limit of $128,000 has been
modified to $250,000 for Sec. 179 property. If Sec. 179 property
exceeds $800,000 for 2008, the expensing amount is
reduced.
The increased expensing amount does not change the
$25,000 expense limit for sports utility
vehicles.
Strident IRS Tax Patent
Hearing
On Feb. 21, 2008, the IRS conducted a hearing on
proposed regulations that will make tax patent transactions
reportable under Sec. 6011. There were two categories of speakers at
the hearing -- those who strongly support regulation of tax patents
and those who stridently oppose such regulation.
The
supporters of regulation included Dennis Drapkin, Co-Chair of the
ABA Tax Section on Tax Patents, and Kevin Thomason representing the
State Bar of Texas Section of Taxation. Mr. Drapkin strongly
supported the IRS proposal. He noted, "There is a fundamental need
for this information." In his view, tax patents could increase the
complexity of the tax system and potentially could lead to abuse by
taxpayers.
Mr. Thomason indicated that the tax patents could
lead to a new category of tax shelters. These tax patents would be
harmful to the self-assessment aspect of the entire system of
taxation. He also urged Congress to approve a bill that bans tax
patents.
The advocates for tax patents represent either
intellectual property organizations or entities that are currently
pursuing tax patents. A representative of the ABA Section on
Intellectual Property, Robert Lindefjeld, suggested that the IRS
wait for action by Congress. He noted, "Tax regulations are not an
effective vehicle. Leave policy making to Congress." He also
expressed concern that tax patents would make development of tax
software extremely difficult.
Bradley Forrest represented the
American Intellectual Property Law Association. He expressed concern
that proposed IRS regulations making tax patents reportable
transactions would create administrative problems for tax
planning.
Several other attorneys representing entities that
are pursing tax patents emphasized the importance of the patent
system in protecting intellectual property. In their view, the
actions to regulate tax patents could affect general business method
patents.
Editor's Note: Congress has not yet moved
forward with the tax patent legislation. Major tax organizations
such as the ABA and AICPA continue to strongly advocate for passage
of legislation to minimize potential tax abuse by banning tax
patents.
Applicable Federal Rate of 4.0% for March --
Rev. Rul. 2008-11; 2008-11 IRB 1 (21 Feb. 2008)
The IRS
has announced the Applicable Federal Rate (AFR) for March of 2008.
The AFR under Section 7520 for the month of March will be 4.0%. The
rates for February of 4.2% or January of 4.4% 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 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 - 200802024 Surrender of Income Interest in a CRT
Results in a Charitable Deduction
Taxpayers created two charitable remainder unitrusts
(CRUTs) on Date X. Later, Taxpayers proposed to surrender their
respective interests in the CRUTs to the charitable beneficiary
named in both CRUT documents. Taxpayers obtained permission from
their state's attorney general to accelerate the charitable interest
and Taxpayer's income interest to the named charitable beneficiary.
Taxpayers then sought a letter ruling from the Service stating that
the proposed termination of the CRUTs would qualify for a charitable
income and gift tax deductions in the year the CRUTs are
surrendered.
The Service ruled that Taxpayer's case is
analogous to the situation discussed in Rev. Rul. 86-60, 1986-1 C.B.
302. There, Donor created a charitable remainder annuity trust
(CRAT) in year one. Four years later, Donor sought to make a gift of
his/her income interest in the CRAT to the remainder beneficiary.
The Service ruled that the gift was a deductible interest under Sec.
170. The Service, therefore, granted Taxpayer's claim for a
charitable income tax deduction in the present case. The Service
likewise cited the same Revenue Ruling to grant Taxpayers a gift tax
deduction for the interest passing to charity. The Service noted "
the transfers to the charitable remainder beneficiary qualify for
the gift tax charitable deduction under § 2522 because, following
the transfers, [the donors] did not retain any interest in the trust
and, at no time, had [the donors] made a transfer of an interest in
the trust for a private purpose."
Editor's Note: The
surrender of an income interest in a CRTs is becoming more common. A
donor may wish to make a gift of their income interest when the
value of the trust is in rapid decline or because the gift has a
zero cost attached. It is important for donors to remember that a
qualified appraisal of the gifted income interest is required if the
value exceeds $5,000 in order to substantiate the deduction. In
addition, the income interest is considered an appreciated asset
and, thus, deductible up to 30% of the donor's AGI for gifts to
public charities (20% for gifts to private
foundations).
To view the full PLR Click
Here.
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CASE OF THE
WEEK
Son's Intentions Paved with Gold, Part
5
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 that
incorporated an outright sale, a unitrust, a gift annuity and a gift
of a remainder interest in her home. (See Case Study "Peace in the
Countryside" for a full explanation.)
One part of the plan
involved Mother's 20-acre rear parcel of land. Specifically,
Mother's unitrust would receive the 20-acre rear parcel, which the
university intends on eventually developing. To generate the
necessary trust income, the university would purchase the land from
the trust with a 7% interest-only note. After the payment of the 6%
unitrust payout each year and trust expenses, the trust would
accumulate any excess income.
Son is the sole owner of Bank
Co. Wanting the very best for Mother, Son desires to provide trust
and banking services to Mother's unitrust. Son knows Bank Co. would
provide excellent services at very reasonable prices. Fortunately,
after reviewing the applicable tax rules, Son and Bank Co. may
provide trust and banking services to Mother's unitrust without
violating the self-dealing rules. (See Case Study "Son's Intentions
Paved with Gold, Part 3" for a full explanation.)
With that
hurdle cleared, Son now wonders whether there are any investment
restrictions or prohibitions in the tax code unique to charitable
remainder trusts? If so, should Son and Bank Co. nevertheless serve
as trustee for Mother's unitrust?
To view the solution to
this Case of the Week Click
Here.
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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.
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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 |
February 25,
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
| |
