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March 17, 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	March 17, 2008
GiftLaw Weekly eNewsletter - March 17, 2008 WASHINGTON HOTLINE IRS Publishes "Dirty Dozen" Tax Scams PLR THIS WEEK PLR - 200809044 Early Termination of NICRUT Not Self-Dealing CASE OF THE WEEK A Sign of Warning on Assignments, Part 3 ARTICLE OF THE MONTH Gift Policies and Guidelines
WASHINGTON HOTLINE Tax Quote of the Week "We must care for each other more and tax each other less." -- Bill Archer IRS Publishes "Dirty Dozen" Tax Scams The IRS has recently published the 2008 "Dirty Dozen" tax scams. These are the various strategies that taxpayers use to reduce taxes or to steal from other persons. Acting IRS Commissioner Linda Stiff noted, "Taxpayers should be wary of scams and promises to avoid paying taxes that seem to be too good to be true." Most of these tax schemes can lead to audits and even imprisonment. Tax preparers can also be subject to penalties and criminal prosecution. The "Dirty Dozen" tax scams are the following: Internet Trickery - Phishing. A thief sends the victim an e-mail claiming to be from the IRS and often uses the IRS web address www.irs.gov. When the victim replies with bank account numbers or credit card numbers, the thief then uses this information to charge items or withdraw funds from the victim's bank account. Economic Stimulus Scams. A thief uses an e-mail to claim that disclosure of a credit card number or bank account is necessary for the victim to receive a federal stimulus check. Frivolous Schemes. Some taxpayers claim that they no longer owe income tax because they object to military spending, that they qualify for the "Mariner's Tax Deduction" or they do not have a "fiduciary relationship" with the United States that requires payment of tax. Several tax protesters who used these arguments are now in federal "housing." Fuel Tax Credits. Farmers and ranchers who use fuel in their fields rather than on the highways may qualify for a fuel tax credit. Other taxpayers who improperly claim the credit will be subject to penalties and prosecution. Offshore Income. U. S. citizens are subject to tax on income throughout the world. Hiding income in offshore tax havens does not relieve a person from the obligation to pay tax. Abusing Roth IRAs. Some advisors claim that highly appreciated property can be transferred into Roth IRAs with only the basis counting against the IRA contribution amount. This claim is clearly incorrect and could subject a person to penalties. Zero Wages or Income. Taxpayers may claim they have zero wages or income. Some even file a "corrected" Form 1099 and report zero income. Federal law indicates that "all income from whatever source derived" is taxable. False Refund Claims. IRS Form 83 "Claim For Refund and Request For Abatement" may be filed to try to recover taxes paid previously. Corrupt Return Preparers. Some return preparers file aggressive tax returns and underpay taxes. They then claim a portion of tax refunds as their fee. Shell Corporations. Forming a domestic corporation is perfectly legal. Attempting to use it to hide income or wages is unlawful. "No Taxes Ever" Trusts. Some promoters continue to promote a "constitutional" trust or other method to claim that the individual is no longer subject to any type of federal tax. These trusts do not relieve a person of any tax obligations. Abusive Charitable Deductions. Some individuals continue to attempt to incorporate themselves as a charity and claim all of their personal living expenses are charitable. The IRS is not charitably disposed toward these strategies. Other abuses include over valuation of gifts of land or business interests and attempting to take a charitable deduction for tuition payments for children or grandchildren. Editor's Note: Some secondary, college and university programs have participated in these efforts to disguise tuition payments as charitable contributions. All educational organizations should exercise caution, particularly when creating "limited scholarship" funds that apply only to small groups or family members. $3 Trillion House Budget Approved On March 13, 2008, the House passed a budget plan by a vote of 212-207. The House budget differs in two areas from the proposed White House budget. The House budget would increase spending by an added 1% and includes approximately 2.6% in additional taxes. It also includes a one-year alternative minimum tax "AMT" patch and a revenue-neutral reserve fund for estate tax changes. Speaker of the House Nancy Pelosi (D-CA) commented on the budget and noted, "Budgets are more than just accounting documents. Budgets are statements of our national values. With this budget, the New Direction Congress is saying that we value families and their economic future. We will fight to insure that their hard work is rewarded and the American dream is renewed." Rep. Jim McCrery (R-LA) is the Ranking Republican on the House Ways and Means Committee. He commented, "With the Democrats intent on letting taxes increase by $1.2 trillion dollars over the next five years, all American taxpayers will be paying more. I hope my Democratic colleagues will realize that record-setting tax hikes, increasing spending, and ignoring the growing need for entitlement reform are not the solution, but the problem." Federal revenue was 18.8% of the gross domestic product or U. S. economy in 2007. Historically, it has been approximately 18.3% of the economy. If the 2001 and 2003 tax cuts are allowed to expire, the federal revenue could increase to 20% of the economy by 2012. Senate Budget Amendments Battle As the Senate worked on passage of the Senate budget, a number of amendments were submitted by both parties. Sen. Kent Conrad (D-ND), Chair of the Senate Budget Committee, introduced his proposed budget. He noted that there is approximately 1% increase in spending compared to the White House budget, and 2.6% increase in revenue. Sen. Conrad stated that the increased revenue "means we are able to pay debt down more." Responding to Republican claims that there is a large tax increase he concluded, "We will hear there is a $1 trillion tax increase somehow buried in this budget. There is no such thing. They made the same claims last year. There was no $1 trillion tax increase last year; there is no $1 trillion tax increase this year. I said yesterday that if I brought up the menu from the dining room downstairs and introduced it as a budget resolution, my colleagues would say there is $1 trillion tax increase because that is what they always say." Sen. Judd Gregg (R-NH) is the Ranking Republican on the Senate Budget Committee. In response to Sen. Conrad he observed, "This budget does have tax increases. Again, the chairman says it's only 2.6% on $3 trillion which is approximately $800 billion." This means that "they are going to let expire the tax rates on capital gains, dividends, estate taxes, R & D credit, energy credit, on tuition tax credit, on a whole series of items that benefit a lot of Americans. Our estimate is this tax package is going to cost the average small business an extra $4,100 a year. Small businesses are the backbone of the American job creation. This budget is a direct attack on their capacity to create jobs, with that type of a tax increase." Freeze the $3.5 Million Estate Tax Exemption? During the Senate amendments battle, Sen. Max Baucus (D-MT) introduced an amendment that passed on a 99-1 vote. His amendment would make permanent the 2001 middle-income tax cuts and extend the $3.5 million estate tax exemption. Sen. Jon Kyl (R-AZ) has negotiated for the past several years with Sen. Baucus on estate tax repeal or reform. He has favored a total repeal of the estate tax, but at times has supported a very large exemption, such as $25 million per person. He did not prevail in an effort to pass an amendment for a large exemption. Subsequently, Sen. Lindsey Graham (R-SC) introduced an amendment to expand the exemption to $5 million and lower the estate tax rate to the top income tax rate of 35%. This proposed budget amendment failed on a 52-47 vote. Editor's Note: In the ongoing battle to determine the estate tax compromise, the Democratic strategy is becoming clear. Both the House and Senate Democratic budgets now propose continuing the 2009 exemption of $3.5 million and the estate tax rate of 45%. The Republican proposed compromise is now an exemption of $5 million and estate tax rate of 35%. While there is now a good probability that the Democratic proposal to freeze the $3.5 million exemption and 45% tax rate will prevail, there is no certainty in Washington until the President signs a tax bill. Applicable Federal Rate of 3.6% for March -- Rev. Rul. 2008-11; 2008-11 IRB 1 (21 Feb. 2008) The IRS has issued the following CORRECTION NOTICE regarding the applicable federal rate for the month of March, 2008: "Rev. Rul 2008-11, which set forth the applicable federal rates and various other rates for March, 2008, contained a mistake in Table 5, the Rate under Section 7520 for March 2008. The correct percentage for the March 2008 Rate under Section 7520, in Table 5, is 3.6% not 4.0% Rev. Rul. 2008-11; 2008-11 IRB 1." 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 3.6%. 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.
PLR THIS WEEK PLR - 200809044 Early Termination of NICRUT Not Self-Dealing B and C are equal partners in N, a family limited partnership (FLP). N created a net income only charitable remainder unitrust (NICRUT) on date X. On date Y, N decided to terminate the NICRUT by selling its income interest back to the listed charitable remainder beneficiary. Because the amount left to the charity would be significantly more than N had originally anticipated, N exercised its power to add additional remainder beneficiaries to the NICRUT. N requested a ruling from the Service that the termination would not be classified as an act of self-dealing under Sec. 4741 and will not result in a taxable termination under Sec. 4945. The Service ruled that generally payments to N, and indirectly to B and C, would be an act of self-dealing in this situation. However, because N agreed to use the methodology for valuing the income interest as proposed by the Service, the termination and subsequent payout to N qualifies for the exception to self-dealing in Reg. 53.4947-1(c)(2)(i). To avoid the application of the taxable termination rules under Sec. 4945, the Service required the valuation of the income interest to be calculated in a manner that would not result in the inflation of N's income interest. One reasonable method suggested by the Service is to calculate N's income interest based on the lesser of the payout percentage listed in the trust document or the applicable federal rate (AFR) in effect as of the date of termination. N agreed to implement the calculation as proscribed by the Service. Thus, the taxable termination rules of Sec. 4945 did not apply. Editor's Note: When an income beneficiary decides to terminate his/her income interest in a NICRUT or NIMCRUT, the value of the income stream should be calculated according to the IRS method used in this letter ruling. The Crescendo calculations for the surrender of an income interest in either a NIMCRUT or NICRUT follow this method. To view the full PLR Click Here.
CASE OF THE WEEK A Sign of Warning on Assignments, Part 3 Ken Richards, 70, is a very charitable American. He consistently makes gifts each year to various causes he supports. In fact, ten years ago, Ken created a one-life charitable remainder unitrust (CRUT). The unitrust was drafted to have a 5% payout and named a local orchestra as the charitable remainderman. Ken funded his unitrust with $1 million of appreciated stock. Ken's other favorite charity is a local museum. Currently, the local museum is raising funds for a proposed expansion. Ken is financially independent now and no longer heavily relies on the CRUT income stream. In an effort to help with the current fundraising project, Ken is willing to give the local museum 100% of his remaining one-life CRUT income stream. As a result, the local museum would receive income each year and, at Ken's death, the remaining CRUT assets would pass to the local orchestra. However, Ken discovered this proposed plan was not permissible, because a CRUT may not have only charitable income and remainder beneficiaries. (See Case Study "A Sign of Warning on Assignments, Part 1.) Thinking creatively, Ken proposed an assignment of less than 100% of his one-life CRUT income stream to the local museum. For example, Ken could irrevocably assign 75% of the CRUT income stream to the local museum. As a result, each year Ken would receive 25% and the local museum would receive 75% of the CRUT payouts. May Ken assign a percentage of his one-life CRUT income stream to the local museum? What are the consequences of such an assignment? To view the solution to this Case of the Week Click Here.
ARTICLE OF THE MONTH Gift Policies and Guidelines Editor's Note: The following article is a comprehensive set of gift policies. All boards of directors should review at least annually and update gift policies. This article will serve as a form for that review and updating process. ________________________________________________ Gift Policies and Guidelines _____________________, 2008 Planned gifts are a substantial part of the philanthropic support received by ____________________ (the Foundation) to support ___________________________________. These gifts usually involve tax and other forms of financial and estate planning activities. Often a significant portion of the assets a donor owns are used to create and fund the gifts. Because of (i) the size of most planned gifts; (ii) the responsibilities the Foundation often incurs for asset management and (iii) the liabilities incurred for beneficiary payments, the Board of Directors establishes these policies and guidelines to assure that our planned gifts are a productive and positive aspect of our fundraising efforts. 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	March 17, 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