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March 12,
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 12,
2007 |
GiftLaw Weekly eNewsletter -
March 12, 2007
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"No man in this
country is under the smallest obligation, moral or other, so to
arrange his legal relations to his business or to his property as to
enable the Inland Revenue to put the largest possible shovel into
his stores."
-- Lord Clyde
Public Good IRA
Rollover Introduced
On Thursday, March 9, 2007, Senator
Byron Dorgan (D-ND) joined together with Sen. Olympia Snowe (R-NE)
to introduce the Public Good IRA Rollover Act of 2007 (S.
819).
Sen. Dorgan noted, "A recent survey suggests that this
IRA rollover legislation will result in new, sizeable donations to
support charities small and large that depend on the generous gifts
of individuals. I want Congress to encourage charitable giving,
which helps charities strengthen our communities and provide
assistance to families and individuals who need it most."
A
similar bipartisan bill (H.R. 1419) was also introduced in the House
of Representatives by Rep. Earl Pomeroy (D-ND) and Rep. Wally Herger
(R-CA).
Under the proposed Public Good IRA Rollover Act of
2007, donors over age 70˝ will be able to make unlimited direct
transfers from IRA to qualified exempt charities. In addition,
donors over age 59˝ will be able to transfer IRA funds directly into
a charitable gift annuity, charitable remainder unitrust, charitable
remainder annuity trust or pooled income fund. All payments from a
life income plan would be ordinary income and the beneficiaries
would be limited to the IRA owner, or IRA owner and
spouse.
Philanthropy Caucus to Support IRA
Rollover
In an article on examiner.com, a new
philanthropy caucus is being created in the House of
Representatives. Rep. Robin Hayes (R-NC) will co-chair this
Congressional Philanthropy Caucus. He is approaching other
interested members of the House of Representatives and hopes to have
a similar caucus established in the Senate.
The announcement
came as over 390 leaders from charitable foundations throughout the
nation were on Capitol Hill. Sponsored by the Council on
Foundations, the executives met with senators, representatives and
congressional staff. A major emphasis of this effort was to educate
Congressional staff on philanthropy.
Several foundation
officials expressed a strong interest in extending and expanding the
IRA rollover. They hope that the current $100,000 cap will be
removed and that donor advised funds and supporting organizations
will be added as qualified IRA rollover
recipients.
Independent Sector Supports the IRA
Rollover
Following the introduction of the Public Good
IRA Rollover Act, Diana Aviv, President and CEO of Independent
Sector, published a statement supporting the act.
Ms. Aviv
noted, "We thank Senator Dorgan and Senator Snowe for their
commitment to extending and broadening the current IRA charitable
rollover, which allows people to make charitable contribution
directly from their IRAs without suffering adverse
consequences."
In the press release, Ms. Aviv notes that the
IRA gifts received in 2006 helped to "build cancer centers, develop
programs for counseling at-risk-youth, support housing for homeless
families, conserve wilderness areas and provide art therapy for
people with developmental disabilities."
Editor's
Note: The introduction of the Public Good IRS Rollover Act of
2007 with bipartisan support in the House and Senate is very welcome
news. The Senate bill had two sponsors and Senators Kerry, Schumer,
Smith, Lincoln and Coleman as co-sponsors. The House bill had two
sponsors and twelve co-sponsors. While the current IRA rollover
applies for 2007, it is essential to pass legislation this year in
order to extend the IRA rollover to 2008 and beyond. The Public Good
IRA Rollover Act also expands the rollover to include life income
gifts. Many individuals will benefit from the direct IRA rollover
gifts, but there also are a large number of supporters who would
like to rollover an IRA to a charitable gift annuity or remainder
trust to benefit their favorite charity.
Christie's
Appraisals, Inc. Requests New Art Appraisal Guidelines
In
a letter to the IRS, attorney Victoria Bjorklund wrote on behalf of
Christie's Appraisals, Inc. (CAI) and requested several
modifications to the IRS guidance on both qualified appraisers and
appraisal requirements.
CAI is an affiliate of Christie's,
Inc. and conducts large numbers of appraisals of art objects. During
a two-year period, Christie's 700 appraisers provided 745 written
appraisals that determined the value of 63,000 art objects to be in
excess of $3 billion.
Ms. Bjorklund notes that "CAI was
preparing industry standard Fine-Art appraisals widely accepted by
the IRS long before the USPAP standards were created." Although a
CAI appraiser may have a world-class reputation in valuing art, many
of the CAI appraisers do not meet IRS standards in Notice 2006-96
that require two years of experience and college-level coursework or
education in the field. In addition, many CAI appraisers may not
have an "appraisal designation from a recognized professional
appraiser organization."
Ms. Bjorklund asked the IRS to
recognize the existence of corporate appraisers and to change the
reference from "individual" to "person" in the applicable code,
regulations and rulings. The word "person" would include a
corporation.
She also suggests that the requirement for two
years of experience and college-level coursework should be met
collectively by a team of appraisers rather than by each individual
appraiser. Finally, she indicates that the penalties are
inappropriate in an art environment. During 2006, at least 10 art
objects sold for amounts that were double the high pre-sale
estimate. Given this uncertainty inherent in the art market, it is
extremely difficult to predict specific values.
Art valuation
is subject to unique factors. First, there is "irrational
exuberance" in which some bidders may "strongly desire a particular
artwork" and two different bidders will increase the price to
unforeseen levels. Second, there may be a sudden increase in demand
for various collections of objects because a celebrity has shown
interest in the object. Third, the economy may change in ways that
create a major art market slump, as occurred in the early
90's.
As a result, Ms. Bjorklund recommends that the "more
likely than not the proper value" standard be changed to be
"determined in good faith by the appraiser on the date of the
appraisal."
Editor's Note: The art appraisal industry
has reacted in a very strong and negative way to the IRS
requirements for two years of experience, college-level coursework
and a designation by a formal appraisal organization. The reasonable
request of art examiners who are recognized as world-experts in
their field is for some flexibility in the IRS guidelines. It seems
quite possible that some measure of clarification wll be forthcoming
from the Service.
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 - 200708087 Private Foundation May Exchange Burial
Lots -- Donor May Rest in Peace
F is an exempt organization under Sec. 501(c)(3) of
the Code and is classified as a public charity under Sec. 509(a)(1).
F's charitable purpose is to preserve and restore the history and
architecture of C, a cemetery. C is of historical importance to the
area and has been the focus of study reflecting American funeral
architecture trends from the late 19th to early 20th century. F
conducts walking tours of C complete with a biographical discussion
of the monuments and landscape. Donor ("D") donated funds to F with
the understanding that F would use the funds to purchase land from
C. Five days after receiving the funds, F purchased land from C and
maintains it as a public park ("P"). D owns several burial lots. D's
burial lots are within the boundaries of P. D proposes to exchange
his original burial lots for the replacement lots situated at
another location within P and requests a ruling that this
transaction will not jeopardize F's tax exempt status. D agrees to
obtain a qualified appraisal of both sets of burial lots, and if the
replacement lots are of greater value, pay F the difference. Under
the Code, an organization that serves a private interest, other than
incidentally, is not entitled to exemption under Sec. 501(c)(3).
Rev. Rul. 66-358 states that if a transaction will not cause any
significant change in the charitable activity of the exempt
organization, then the transaction does not cause revocation of the
organization's exempt status. Furthermore, Rev. Rul. 70-186 states
that if the benefit to the donor in connection with the exchange
will not lessen the public benefits flowing from the exempt
organization, there is no effect on its tax exempt status. The
Service ruled that so long as a qualified appraisal is obtained, and
D pays F the difference in value for the replacement lots, the
proposed transaction will not violate the private benefit
prohibition applicable to exempt organizations.
Editor's
Note: In addition to revocation of a charity's tax exempt
status, the Code also imposes an excise tax on the donor who engages
in an excess benefit transaction. The excise tax is calculated based
upon the amount of the "excess benefit." The initial excise tax
imposed upon the disqualified person is 25% of the excess benefit
with a maximum of $10,000 per person. If the transaction is not
corrected, or undone to the extent possible, an excise tax of 200%
of the amount of the excess benefit is imposed upon the
participating disqualified person.
To view the full PLR
Click
Here.
|
CASE OF THE
WEEK
Early Termination of a Charitable Lead Trust, Part 2
of 3 - In-Need Charity Desires Entire Gift
Now
Dennis Collins, Jr.
was a Gold Circle member of the local hospital. At his death, Dennis
created a 20-year charitable lead annuity trust funded with $3
million in stock. The CLAT had an annual 5% payout, or $150,000. The
$150,000 was to be distributed to the hospital for the 20-year term.
At the end of 20 years Sandy, Dennis's daughter, would receive the
trust assets.
Ten years of the twenty-year term have now
passed, and the trust has grown to $4.5 million. However, the
hospital has run into financial difficulties and needs substantial
funds now. During a discussion with their tax attorney, the hospital
learned that a charitable remainder unitrust income and remainder
beneficiary successfully "cashed out" their share prior to the
termination of the trust (See PLR 200208039). Excitedly, the
hospital wonders, based on the PLR reasoning, if they too could cash
out their entire share now instead of receiving an income stream for
another ten years.
Can the hospital elect to terminate
Dennis's CLAT early and, therefore, receive their share of the trust
immediately? If so, what is the amount that the hospital will
receive? How is that amount calculated?
To view the
solution to this Case of the Week Click
Here.
|
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.
|
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 12,
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
| |
