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March 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 |
March 5,
2007 |
GiftLaw Weekly eNewsletter -
March 5, 2007
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"Where there is
at least a general suspicion of much unnecessary expense, and great
misapplication of the public revenue, the laws which guard it are
little respected."
-- Adam Smith
Public Good IRA
Rollover Act of 2007
Plans are under way to introduce the
Public
Good IRA Rollover Act of 2007 in March. The IRA Rollover bill
was originally introduced by Sen. Byron Dorgan (D-ND) in 2004 and
led to the passage of a direct gifts IRA rollover up to $100,000 per
year for 2006 and 2007. Thousands of IRA owners over age 70˝ have
already used the IRA charitable rollover to support favorite
charities with a direct IRA gift.
Sen. Dorgan, Sen. Olympia
Snowe (R-ME), Rep. Earl Pomeroy (D-ND) and Rep. Wally Herger (R-CA)
are seeking co-sponsors in the Senate and the House for the Public
Good IRA Rollover Act. Under the bill, there will be an unlimited
IRA rollover for direct gifts for IRA owners over age 70˝. There
also is a deferred gifts IRA rollover for IRA owners over age 59˝.
The deferred gifts include one or two-life gift annuities,
unitrusts, annuity trusts and pooled income funds.
A
coalition of Independent Sector, the National Committee on Planned
Giving, the Rollover Rangers and many friends of philanthropy are
supporting the IRA rollover. Nonprofits are asked to join a letter
of support for the IRA rollover. Independent Sector has made the
letter and a convenient Internet "sign-up" available at
www.independentsector.org/programs/gr/IRArollover.html.
Rep.
Pomeroy and Rep. Herger sent a "Colleague to Colleague" letter this
week to all House members seeking co-sponsors for the Public Good
IRA Rollover Act.
Rep. Pomeroy and Rep. Herger Request House IRA
Rollover Co-Sponsors
Congress of the United
States
February 27, 2007
Cosponsor the Public Good IRA
Rollover Act of 2007
Dear Colleague:
In
the coming weeks, we will introduce the "Public Good IRA Rollover
Act." Our bill would encourage greater donations to charities by
allowing Americans to make contributions tax-free from their
Individual Retirement Accounts (IRAs). We ask you to support this
legislation that would enrich lives in our communities by providing
much-needed resources to charities.
Over the last thirty
years, IRAs have encouraged American workers to save for retirement.
For many, their savings have grown substantially and today they may
find themselves with more assets in their IRAs than they need to
meet their retirement goals. In August, a limited IRA Charitable
Rollover was signed into law. Americans are a generous people and
early reports attest to the increased willingness to donate to
charities with funds from IRAs. In fact, this incentive has
encouraged thousands of Americans over age 70 1/2 to donate funds
from IRAs to charitable organizations. Since passage into law,
taxpayers donated more than $50 million through the IRA Charitable
Rollover. Unfortunately, this ability will expire at the end of
2007.
The Public Good IRA Rollover Act would continue to
clear away complications for retirees who would otherwise have to
pay taxes on IRA withdrawals and then claim a tax deduction for
their donation. Older Americans, who do not itemize their tax
deductions, would not lose the tax benefit provided by IRA
Charitable Rollover because our bill would make it permanent.
Furthermore, we would expand the incentive for donating to charities
by permitting IRA owners starting at age 59 1/2 to use IRA funds to
support charities without having to pay taxes. The bill would also
allow Americans to contribute more money to a broader range of
charities.
The "Public Good IRA Rollover Act" is a simple
piece of legislation that gives older Americans a straightforward
way to give something back to society while providing much needed
funding for churches, hospitals, museums, schools, and social
service organizations in our communities. We invite you to join us
as cosponsors of this bill. Please have your staff call Diane Oakley
(Pomeroy) at 5-2611 or Dan MacLean (Herger) at 5-3076 to add your
name as a cosponsor.
Sincerely,
Earl Pomeroy
Member
of Congress
Wally Herger
Member of
Congress
IRS Requires Charitable Insurance Contract
Reports
The initial Senate bill that eventually was
included in the Pension Protection Act of 2006 (PPA 2006) would have
created a 100% excise tax on financed charitable life insurance
plans (CHOLI). In effect, it would have eliminated the plans. In the
final version of PPA 2006, the 100% excise tax provision was
dropped, but there is a requirement for two years (August 17, 2006
to August 17, 2008) that charities involved in insurance plans
report the plans to the IRS. The exempt organization that acquires
an insurance contract involved in an insurance pool transaction will
be required to report that acquisition to the Treasury Department.
Sec. 6050V(c). Failure to report applicable insurance contracts will
result in penalties under Sec. 6721 and Sec.
6724(d)(1)(B)(iv).
In Notice 2007-24; 2007-12 IRB 1 (23 Feb
2007), the Service announced Forms 8921 and 8922 for CHOLI reporting
purposes. The reporting is required when an "applicable exempt
organization" acquires "a direct or indirect interest" in a pool of
insurance contracts. An "applicable insurance contract" occurs if
"both an applicable exempt organization and a person other than an
applicable exempt organization have directly or indirectly held an
interest."
There are exceptions for insurance contracts if
the nonprofit's sole interest in the contract is as a named
beneficiary or for independent insurable interest by the original
insured. These exceptions are intended to permit an irrevocable gift
of a policy to charity or a revocable charitable beneficiary
designation by the insured.
Form 8921 requires the
following:
- Information on the transaction itself, including information
about the applicable exempt organization, other participants in
the transaction and the cash flows associated with the
transaction.
- Assignment of a unique structured transaction identifier (STI)
to each transaction.
- A description of the allocation formulas, interest rates and
other terms that govern the financial arrangement.
- Copies of contracts covering the relationships between the
nonprofit and other persons.
Form 8922 is used for
multiple insurance policies in one transaction and requires the
following:
- Information on the insurance contracts, the issuers and the
insured individuals.
- Disclosure of the Form 8921 structured transaction identifier
(STI).
- Copy of the applicable insurance contract.
Treasury
will use Forms 8921 and 8922 as part of a two year study of CHOLI to
be released in 2009. The study will consider "whether these
activities are consistent with the tax-exempt status" of nonprofits
and "whether such arrangements are or may be used to improperly
shelter income from tax."
Editor's Note: Treasury and
Congress clearly are concerned about CHOLI. As explained in the
Article of the Month for March on charitable life insurance, there
are multiple reasons why nonprofits may decide to avoid financed
life insurance plans.
Applicable Federal Rate of 5.8%
for March. Rev. Rul. 2007-15; 2007-11 IRB 1 (16 Feb.
2007)
The IRS has announced the Applicable Federal Rate
(AFR) for March of 2007. The AFR under Sec. 7520 for the month of
March will be 5.8%. The rates for February of 5.6% or January of
5.6% 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 - 200708088 Private Foundation Asset
Transfer
A incorporated Y
and Z, recognized as two private foundations (PFs) under Sec.
509(a). A has two sets of grandchildren, the B grandchildren and the
C grandchildren. Currently A, one B and one C grandchild control PF
Y. A's B and C grandchildren have different charitable goals, so A
proposes that PF Y transfer one-half of its assets, comprised of
corporate stocks and bonds, to PF Z. After the transfer, A and the B
grandchildren will control PF Y and A and the C grandchildren will
control PF Z. PF Y and PF Z request a ruling as to the impact of the
proposed transfer on either foundation's exempt status and whether
any excise taxes will be levied upon the transfer. The IRS ruled
that the proposed transfer was not a termination of Y's private
foundation status, since Y states that it will continue its
charitable activities and does not intend to terminate. Because PF Z
is exempt under Sec. 501(c)(3), the transfer of PF Y's assets to PF
Z will constitute a distribution for a charitable purpose and will
not adversely affect the exempt status of PF Y or PF Z. The transfer
will not be treated as investment income, an act of self-dealing, a
jeopardizing investment or a taxable expenditure within the meanings
of Secs. 4940-4945. In addition, Y's payment of reasonable expenses
incurred in connection with the transfer will not be treated as an
act of self-dealing under Sec. 4941 or a taxable expenditure under
Sec. 4945.
Editor's Note: Private foundations are
subject to increasingly greater oversight and stricter operational
constraints. In part, this is due to a presumption that it is easier
to circumvent the rules that apply to charitable activities when a
charity is controlled by a family or small group of people as
opposed to those charities that are in the public light and/or
funded by a broad group of public donors who may keep the charity
accountable for its activity and use of money.
As evidenced
by this PLR, a private foundation needs to act cautiously to avoid
sanctions, excise taxes and ultimately revocation of its exempt
status.
To view the full PLR Click
Here.
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CASE OF THE
WEEK
Early Termination of a Charitable Lead Trust, Part 1
of 3 - Impatient CLAT Beneficiary Wants Inheritance
Now
Sandy Collins, 45, is
a corporate attorney for a mid-sized law firm in downtown Cityville.
Sandy comes from a very wealthy and charitable family. In fact, her
late father, Dennis Collins, Jr., was a Gold Circle member of the
local hospital, university and museum. At his death, Dennis created
a 20-year charitable lead annuity trust that he funded with $3
million of stocks. The CLAT had an annual 5% payout, or $150,000.
The $150,000 was distributed among the three charities for the
20-year term. Upon the CLAT termination, Sandy was the sole
remainder beneficiary.
Ten years of the twenty-year term have
now passed, and the trust has grown to $4.5 million. However, Sandy
has grown impatient and does not want to wait another ten years for
her inheritance. She has a very large mortgage, three children in
private school and could really use her inheritance
now.
During a discussion with a tax attorney within the same
firm, Sandy learned that a charitable remainder unitrust beneficiary
successfully "cashed out" their share prior to the termination of
the trust (See PLR 200208039). Excitedly, Sandy wonders, based on
the PLR reasoning, if she too could cash out her share now instead
of waiting another ten years.
Can Sandy elect to terminate
her father's CLAT early and, therefore, receive her share of the
trust principal immediately? If so, what is the amount that Sandy
will receive? How is that amount calculated?
To view the
solution to this Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
Charitable Life Insurance
(CHOLI)
Insurance
Gifts
Many individuals own life insurance at some time in
their lives. A life insurance policy may provide peace of mind,
financial liquidity, investment diversification or an inheritance
for loved ones. As an individual's situation changes over time,
however, the life insurance policy may no longer be needed for its
original purpose. Individuals with philanthropic intent may decide
to make a charitable contribution of the life insurance
policy.
Viatical settlements involve the sale of life
insurance policies for lump sum cash payments. In a viatical
settlement transaction, a person with a terminal illness assigns his
or her life insurance policy to a viatical settlement company in
exchange for a percentage of the policy's face value.
While a
charity could receive an appreciated insurance contract as a gift
and then transfer that policy to a life settlement company, there is
another option that is being heavily marketed. This option is for
the charity to purchase the policy on a senior person with borrowed
funds, and then transfer policies to investors in the life
settlement company.
Many charities have received proposals
from life underwriters, sometimes supported by major banks, that
suggest the charity has a "hidden asset." The charity typically has
10 to 15 trustees, most of whom are in their 70's. The insurability
of this group of trustees is called the hidden asset of the charity.
Frequently, the life underwriter suggests a financed
charity-owned-life-insurance plan (CHOLI).
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 |
March 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
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