|
April 2,
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 |
| |
| Immanuel St.
Joseph's Foundation |
April 2,
2007 |
GiftLaw Weekly eNewsletter -
April 2, 2007
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"We have a tax
code that favors those with the best accountants."
-- Shane Keats
Tax Freedom Day
For 2007 is April 30
Each year the Tax Foundation reports
"Tax Freedom Day." The Foundation estimates an Ameican's tax
payments for federal, state and local taxes. During 2007 the typical
American will work 120 days from January 1 to April 30 to pay taxes
at all levels.
Scott Hodge, President of the Tax Foundation,
reports that taxes remain the most expensive item in many Americans'
annual budgets. The 120 days for taxes compare with 105 days to pay
for food, clothing and housing expenses.
While taxes are the
largest part of Americans' expenditures, they are not the most
rapidly growing. Medical care has increased from 29 days in 1982 to
52 days in 2007. Partly from taxes, due to fund Medicare and
Medicaid.
President Bush and Sen. Kyl Open to Estate
Tax Compromise
During the past year Sen. Jon Kyl (R-AZ)
and Sen. Max Baucus (D-MT) have been negotiating over a potential
compromise on the estate tax. Sen. Kyl initially proposed a total
repeal of the tax, but by 2006 was advocating a 15% tax rate and a
$25 million exemption. Sen. Baucus and other Democratic senators
have generally supported an estate tax compromise. Several
Democratic senators support making the 2009 estate tax exemption of
$3.5 million with a 45% estate tax rate permanent.
On March
23, 2007 Sen. Kyl issued a press release that discussed his latest
proposed compromise. He had just offered an amendment to the Senate
budget resolution that "would have provided budget authority to
protect families, family farms, and small businesses by raising the
death tax exemption to $5 million and reducing the maximum death tax
rate to no more than 35%."
Although the amendment failed on a
party-line vote, Sen. Kyl stated, "In an age where home prices have
soared and more workers are enrolled in 401K and other retirement
plans, many estates will be subject to the death
tax."
President Bush is also open to an estate tax
compromise. In a speech to the National Cattlemen's Beef Association
in Washington he noted, "Now, you'll hear people say, we don't want
to give tax relief to the billionaires. Okay, fine. But let's put a
bill on the President's desk that respects the ranchers of the
United States of America, and the farmers and the small-business
owners, and I'll sign it."
Editor's Note: The
protracted and complex negotiations over the estate tax compromise
may be nearing an end. It has been six years since the 2001 tax act
increased estate exemptions and scheduled the repeal of estate tax
for 2010. With the Democratic solution of a $3.5 million exemption
with a 45% tax rate and the Republican proposal for a $5 million
exemption with a 35% tax rate, compromise now seems
possible.
Art Advisory Panel Increases Estate Values
and Reduces Charitable Deductions
Each year a panel of
art valuation experts meets to review art appraisals for both
charitable deduction and estate tax purposes. The 2006 Art Advisory
Panel meetings were chaired by Ms. Karen E. Carolan, IRS Chief of
Art Appraisal Services.
The Service selected 124 cases for
review with a claimed value of $219,199,100. The average charitable
contribution for artwork was $124,250 on the selected items. The Art
Advisory Panel recommended a 57% reduction in charitable deduction
value for these items.
The average valuation for estate art
was $134,122. The Art Advisory Panel recommended a 95% increase in
estate valuation for these items.
For art objects valued over
$20,000, the appraisal is required to be included with IRS Form 8283
and the tax return. Of the appraisals reviewed, 38% were accepted,
61% were adjusted and 1% was sent to staff for further
review.
The Panel also reviewed a number of estate cases. In
eight estates with taxpayer value of $7,503,000 and Panel value of
$14,105,000, the Panel adjusted total value to $12,455,000. In
twelve other cases involving art of Africa and the Americas, Far
Eastern and Asian art, prints and furniture, the claimed estate
values were $85,737,597 white charitable values were $3,381,670.
Half of the claimed values were accepted, and there were adjustments
of $38,942,454 on the remaining cases.
Applicable
Federal Rate of 5.6% for April. Rev. Rul. 2007-23; 2007-15 IRB 1 (16
Mar. 2007)
The IRS has announced the Applicable Federal
Rate (AFR) for April of 2007. The AFR under Sec. 7520 for the month
of April will be 5.6%. The rates for March of 5.8% or February 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.
|
PLR THIS
WEEK
PLR - 200616036 Government Unit Affiliate Exempt From
Filing Form 990
Three
counties of State S (S) created, through an intergovernmental
agreement, G. G provides workforce development, job training and
general employment services to the citizens of the three counties in
S. G requested a ruling that it was not required to file Form
990.
While Sec. 501 exempts certain organizations from paying
income tax, Sec. 6033 generally requires the tax-exempt organization
to file an annual information return. Sec. 6033(a)(2)(A) contains an
exception from filing where the Secretary determines that a filing
is not necessary to the efficient administration of the tax laws.
Rev. Proc. 95-48 states that government units and affiliates of
government units are exempt from filing. Under Sec. 4.02 of the Rev
Proc., an organization is treated as a governmental unit if: (1) it
has a ruling from the Service stating that it is exempt under Sec.
115, it is entitled to receive deductible contributions under Sec.
170(c)(1) or it is a wholly owned instrumentality of a state or
political subdivision thereof; or (2) the organization meets the
requirements of Sec. 4.02(b) of Rev. Proc. 95-48. Under Sec.
4.02(b), an organization need not file if it is operated or
controlled by a government unit, the organization contains two or
more of the "affiliation factors" listed in Sec. 4.03 and the
exemption from filing is not necessary to the efficient
administration of the internal revenue laws. The Service previously
determined that G is a tax-exempt entity under Sec. 501(c)(3) of the
Code. G is classified as a publicly supported organization under
Secs. 509(a)(1) and 170(b)(1)(A)(vi). G's board of directors are
appointed by the county commissioners of the three creating
counties. Financial support for G is provided by grants made by the
U.S. Department of Labor. All of G's expenses must be authorized by
the three controlling county commissioners. Therefore, the Service
found that G is exempt from filing Form 990 because it qualifies
under Sec. 4.02 of Rev. Proc. 95-48.
To view the full PLR
Click
Here.
|
CASE OF THE
WEEK
Charitable Contributions of Real Property (but Without
the Real Problems) Part 2 of 3
Diane Plant, 60, is a real estate broker and a savvy
investor. Over the past twenty years, Diane has made a fortune
investing in undeveloped commercial property. She generally will
seek out and buy land on the outer limits of potentially high growth
areas. Once the growth expands to her property, Diane will lease the
land to incoming businesses, such as grocery stores and gas
stations. This strategy has been wonderfully rewarding and
successful. However, Diane is now nearing retirement and wants to
transition out of her career. Therefore, she has decided to start
selling her land holdings over the next 10 years. Diane realizes the
sale of her investments will produce a very large capital gains tax.
Therefore, she would be very interested in options which would
reduce her upcoming tax liability.
At a recent tax planning
seminar, Diane learned about charitable remainder trusts. She
discovered the creation of a charitable remainder trust could
produce a generous charitable deduction, increase her income and
bypass capital gains. Diane is excited about this idea. She could
greatly reduce her taxes and substantially help her favorite
charity. She contacts her favorite charity about her intentions. In
fact, she has the perfect property in mind to give. It is a two-acre
lot in the heart of the city that has been used as a gas station for
the past 15 years. It is worth approximately $500,000. The charity
is very excited about the size of Diane's generosity. However,
because the charity typically serves as trustee of CRTs if it is the
remainderman, the charity is worried about the potential liability
(i.e. environmental problems) associated with accepting the
property.
How can Diane contribute the land to her favorite
charity, yet provide liability protection for the charity? Is there
a way for her to "stretch" her charitable deduction out for more
than the usual carryforward of 5 years?
To view the
solution to this Case of the Week Click
Here.
|
ARTICLE OF THE
MONTH
Active Businesses Transferred to
Unitrusts
A common
challenge for owners of ongoing businesses who would like to use a
charitable trust is that the business may not be held in a
charitable trust. Charitable trusts are exempt from tax under Sec.
501(a) and Sec. 508(e). They also are subject to the private
foundation rules on self-dealing, excess business holdings and
taxable expenditures. Sec. 4947(a)(2).
Charities and
charitable trusts are normally tax exempt. However, if they are
regularly conducting a trade or business that is not substantially
related to the exercise of their exempt purpose, they are subject to
unrelated business income tax. Sec. 513(a). Since a charitable trust
will never be able to claim that an active trade or business is
related to its exempt purpose, the transfer of an operating business
to a charitable remainder trust results in unrelated business
income. See Newhall v. Commissioner.
However, there are
exceptions to the unrelated business rules. Among the various
exceptions are the receipt of rent from real property and the
payment of royalties and lease returns. These exceptions require the
payouts to be fixed. If the payments are dependent upon earnings and
profits, then the trust is in effect a partner and again subject to
UBI. Sec. 512(c).
If an active trade or business is involved,
transfer of these assets to a CRT could subject the unitrust to a
100% excise tax on the UBI. Sec. 664(c)(2)(A). While the tax may not
be large if the asset is sold quickly, many grantors prefer to avoid
the tax on UBI.
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.
|
| Immanuel St.
Joseph's Foundation |
April 2,
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
| |
