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March 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 |
March 16,
2009 |
GiftLaw Weekly eNewsletter -
March 16, 2009
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"I thought at
first that the power of taxation [given in the new Federal
Constitution] might have been limited. A little reflection soon
convinced me it ought not to be."
-- Thomas Jefferson
Hearings
Promised on Charitable Deduction Cap
House Ways and Means
Chair Charles Rangel (D-NY) indicated that he will hold hearings on
the Obama administration's proposal to limit the value of charitable
deductions for high-income taxpayers.
President Obama's
proposed fiscal year 2010 budget includes a new provision that will
limit tax savings from itemized deductions to 28%. Under current
law, a donor in the 35% bracket can save $35 in taxes with every
gift of $100. But if the law is changed, only a portion of
charitable gifts will be deductible for taxpayers in the 35% bracket
in 2010 or in the 39.6% bracket in 2011.
Chairman Rangel
indicated that he is "deeply concerned" about this provision. He
suggested that the limit of charitable deduction tax savings to 28%
rather than the higher bracket amount might discourage major
donors.
Senate Budget Chair Kent Conrad (D-ND) also noted
that the itemized deduction limit was being informally discussed and
criticized by many senators. With the number of senators who are
upset over various provisions in the proposed Obama budget, Sen.
Conrad suggests that he may not be able to "pass a budget" under the
circumstances.
Sen. Conrad hopes to pass a budget resolution
in early April, but notes that some senators may oppose both the cap
on itemized deductions and a proposed new energy tax called "cap and
trade." Given the magnitude of these changes (together they
represent a $1 trillion tax increase), it may be difficult to reach
his April deadline.
Republicans also expressed unhappiness
about the charitable deduction cap. Senate Leader Mitch McConnell
(R-KY) stated, "A new tax related to charitable giving would punish
the very organizations Americans depend on more and more during
times of distress. One study suggests that the President's new tax
on charitable giving could cost U.S. charities and educational
organizations up to $9 billion a year -- money that presumably will
be redirected to the 250,000 new government workers the budget is
expected to create."
Editor's Note: If the top tax
rates do indeed increase to 36% and 39.6% by 2011, the combination
of both increased taxes and reduced charitable deductions would be a
double blow to higher-income Americans and to charitable
organizations. The comments of key members of the House and Senate
reflect the urgent concern within the philanthropic community about
the need to preserve charitable giving in the midst of a very
difficult economy.
Sen. Baucus Plans Healthcare Reform
Bill by June
Sen. Max Baucus (D-MT) is Chair of the
Senate Finance Committee and a primary supporter of health care
reform in 2009.
In response to a statement by President Obama
on February 24 that, "Health care reform cannot wait, it must not
wait, and it will not wait for another year," Sen. Baucus indicated,
"I could not agree more with our President. Our next big objective
is health care reform. Comprehensive health reform is no longer
simply an option. It's an imperative."
Sen. Baucus has held
11 hearings on health care reform. At a hearing on March 10, 2009,
Dr. Peter Orszag, Director of the Office of Management and Budget,
discussed the plan by President Obama to reform health care. He
indicated that a failure to reform health care "is a fiscal
trajectory that will lead to a fiscal crisis over time."
Sen.
Baucus and Ranking Member Charles Grassley (R-IA) have set up a
schedule for health care reform. Their plan is to mark-up the
Comprehensive Health Care Reform Act in June and "put a health care
bill on the President's desk this year."
At the hearing with
Dr. Orszag, Sen. Grassley suggested four principles for health care
reform. These are as follows:
1. Reform should be done
through the regular Senate order and in a "fiscally responsible
manner."
2. Health care costs must be brought under control
while providing affordable coverage to 45 million
uninsured.
3. The promise of President Obama that "if you
like the coverage you have you can keep it" must be kept.
4.
Decisions on health care must be made by "two people -- the patient
and their doctor."
Where to Spend $646 Billion from
Cap and Trade?
Members attending a meeting of the House
Ways and Means Income Security and Family Support Subcommittee
discussed the options for use of the proposed "climate revenues"
under the Obama budget plan. President Obama proposes to conduct
government auctions for the permits to emit carbon. Electric
utilities, energy companies and manufacturers would bid for the
permits which then could be bought and sold on a public market. The
projected revenue from the "cap and trade" permits is $646 billion
over 10 years.
If electric generating companies, oil
companies and manufacturers are required to pay for the permits to
emit carbon gases, then it is expected there would be a 15%
reduction in total emissions of carbon dioxide. However, the costs
will be passed on to consumers through higher electric and gasoline
prices.
The committee considered four options for use of the
anticipated revenue of $646 billion. These are as
follows:
1. Rate cuts -- Income tax rates could be
reduced, but this would primarily benefit higher-income
persons.
2. Make Work Pay credit -- A $400 per person
or $800 per couple credit is part of the $797 billion stimulus bill.
This credit could be funded through cap and trade and would assist
all working Americans.
3. Earned income tax credits --
Many American families with lower incomes receive the earned income
tax credit. Allocating cap and trade revenues to these families
would benefit lower-income persons.
4. Universal
rebate -- The method that some Members of Congress feel is
fairest is to have a universal rebate. Everyone will pay for the
higher electric and gas costs so the advocates of a universal rebate
suggest that the fairest method is to return the revenue as a rebate
to each person.
Sen. Kent Conrad (D-ND) will be required to
make decisions as part of the development of the budget for 2010. He
suggested that reducing the purchase of foreign oil "has got to be
the centerpiece of anything we do on energy." While he did not
specifically choose one of the above options, Sen. Conrad suggested
that the cap and trade revenues may be used to support his
preference for energy independence
expenditures.
Applicable Federal Rate of 2.4% for
March -- Rev. Rul. 2009-8; 2009-10 IRB 1 (19 Feb.
2009)
The IRS has announced the Applicable Federal Rate
(AFR) for March of 2009. The AFR under Sect. 7520 for the month of
March will be 2.4%. The rates for February of 2.0% or January of
2.4% 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 - 200909071 Grants Are Not Taxable
Expenditures
P, a private
foundation, conducted a study on intergenerational poverty and
determined that early childhood education is the best means to break
the cycle of poverty. P desires to create a grant making program
that would award scholarships to individuals so they may attend
high-quality teacher training programs at a college level. The
grants will assist in defraying the cost of tuition and books to
eligible students. Grants will be awarded by an independent
committee. No employee of P or any other disqualified party will be
eligible for the scholarships. Once awarded, the scholarship will be
paid directly to the higher education facility. The participating
facilities will agree in advance to use the funds only to defray the
cost of attendance of the awardees. P will maintain records of the
scholarships as required by Reg. 53.4945-4(c)(6). P seeks a ruling
on the classification of the grants for tax purposes.
The
Service ruled that the grants will not be classified as "taxable
expenditures." Sec. 4945(a) imposes a tax on "taxable expenditures"
of private foundations. Sec. 4945(d)(3) defines "taxable
expenditure" as any amount paid by a private foundation as a grant
for travel, study or similar purposes unless the grant satisfies the
requirements of subsection (g). 4945(g) provides that a grant will
not be classified as a taxable expenditure so long as it is awarded
on a non-discriminatory basis pursuant to procedures approved in
advance. The procedures must demonstrate that: the grant constitutes
a scholarship used to study at an educational institution described
in Sec. 170(b)(1)(A)(ii); the grant constitutes a prize under Sec.
74(b); and the purpose of the grant is to achieve a specific
objective. The Service reasoned that because the grants will be
awarded only to eligible awardees from an objective committee based
on pre-approved, non-discriminatory procedures and records will be
maintained by P, there is no violation of 4945(d)(3).
To
view the full PLR Click
Here.
|
CASE OF THE
WEEK
Seeing Double with U.S. Savings Bonds, Part
8
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 $50,000. The
face value of the bonds was $100,000. Bill's bonds have reached the
original maturity date - 20 years from the bonds' 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 is a longtime
supporter of his local university. Therefore, he decides he wants to
make a gift to the university upon his death. He also wants to
provide for his only son, Jack. Therefore, he wonders if it is
possible to benefit both the university and Jack with his $100,000
of savings bonds. If possible, what are the tax consequences of such
a plan?
To view the solution to this Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
IRA Unitrusts with a $3.5 Million
Exemption
President Obama
and the Democrat leaders of the Senate have suggested that the
estate exemption should remain at $3.5 million, with the estate tax
rate fixed at 45%. This year the Senate Finance Committee under the
leadership of Sen. Max Baucus (D-MT) will address the estate tax
issue.
While Republican leaders still prefer a large
exemption, the potential for compromise exists because if the
present law were not changed, the estate tax repeal in 2010 would be
followed by a reinstatement of the $1 million estate exemption in
2011. Therefore, a compromise is quite possible.
With the
estate exemption increase to $3.5 million, less than ˝ of one
percent of estates will be taxable. In the past years, counsel have
been reluctant to fund testamentary unitrusts for persons with
taxable estates due to the need to pay the estate tax from other
estate assets. The IRS has taken the position that the Sec. 691(c)
IRD income tax deduction for prior estate tax payouts does not flow
through the unitrust to the income recipient. While some
commentators question the validity of the IRS position, most counsel
are reluctant to contest this position.
However, with the
$3.5 million estate exemption and the charitable deduction from the
unitrust, it is usually possible to create a unitrust in conjunction
with a zero estate tax plan. This plan is well suited to both the
inheritance goals and the tax reduction goals of most IRA owners.
Because 99.5% or more of estates are not taxable, the door is opened
to "Give It Twice" testamentary unitrusts funded with
IRAs.
To use this plan, the IRA owner may create a unitrust
during life for one-life plus a term of years or a unitrust for his
or her life and the lives of the children. The designated
beneficiary of the IRA is changed to the trustee of the unitrust.
When the owner passes away, the trust for the term of years or for
lives is then funded.
While the unitrust may be a
testamentary trust in either a will or a living trust, it is much
easier to create the lifetime trust for one life plus a term of
years and then change the IRA beneficiary designation to the trustee
of that trust. The living unitrust may be unfunded in some states
(California and others) or it may require nominal funding but no
administration. Check the applicable state law for funding
requirements.
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 |
March 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
| |
