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April 13,
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 |
April 13,
2009 |
GiftLaw Weekly eNewsletter -
April 13, 2009
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"Don't tax you.
Don't tax me. Tax the companies across the sea."
-- Dan Rostenkowski
IRS
"Convenient Tax Payment" Options
As the April 15, 2009
tax deadline approaches, the IRS has published IR-2009-39 (9 Apr
2009), to remind taxpayers about the helpful ways in which the IRS
makes it easy to pay taxes.
Extensions. A taxpayer who
is unable to complete his or her return by April 15 may request an
extension of time by submitting IRS Form 1040. Normally, the
extension is approved for a period of six months. However, the IRS
notes that "an extension of time to file is not an extension of time
to pay." Even if the extension of time is granted, taxpayers are
required to estimate and pay the appropriate amount of tax by April
15.
There is an exception for members of the military who are
serving in combat zones (Iraq and Afghanistan). They can defer
filing until 180 days after departing the combat
zone.
eFiling. The electronic filing and payment
options are understandably a high priority for the IRS. An
increasing percentage of taxpayers file electronically each
year.
ePayments. On the IRS website, www.IRS.gov,
there are new explanations of the methods for making electronic
payments. By selecting "Online Services" and "Pay Electronically
Using the Electronic Federal Tax Payment System (EFTPS), Electronic
Funds Withdrawal or Credit Card" link, the Electronic Payment
Options Home Page is displayed.
This page indicates several
methods for electronic payments. The electronic payments can be
completed through your bank or with a debt or credit card. They can
be initiated over the Internet or even with a phone once the system
has been established. Please refer to the Electronic Payment Options
page for detailed information.
Installment Payments. A
few taxpayers may not be able to make their full payment by April
15th and may request an installment payment plan. Taxpayers who owe
less than $25,000 may use the "Online Payment Agreement"
application. The IRS charge for an installment agreement is $105 for
a regular agreement, $52 for a deduction from your tax account or
$43 for low-income persons.
The IRS cautions that with an
installment agreement, the taxpayer will pay interest on the amount
owed and any applicable penalties.
Should Newspapers
Become Charities?
The printed newspaper industry is in
turmoil. Not only is the industry facing the economic recession, but
there is strong competition from the Internet. Ad revenue for print
newspapers declined by approximately 25% during 2008, according to a
study by Barclay's Capital. Major newspapers in Chicago, Los Angeles
and Philadelphia are in bankruptcy court.
As a result, Sen.
Benjamin Cardin (D-MD) has introduced the "Newspaper Revitalization
Act." It would permit newspapers to operate as Sec. 501(c)(3)
charities.
The bill would permit newspapers to receive
deductible charitable gifts. A nonprofit newspaper would be similar
to charities assisting those in need in our society. In addition,
the advertising revenue received by the newspaper would not be
unrelated business taxable income. Therefore, the newspaper would
not pay tax on its revenue.
Several news commentators have
pointed out a major problem with the "newspaper as charity" concept.
Charities are not permitted to intervene in political campaigns. The
IRS published rulings last year prior to the November campaign to
emphasize that charities were not permitted to intervene on behalf
of a specific candidate. However, most newspapers do exactly the
opposite -- they endorse specific candidates for office and explain
in detail the reasons for their preferences.
If a newspaper
were a charity, it could be significantly limited in its First
Amendment exercise of the right to comment on political
elections.
Editor's Note: The challenges facing the
print media reflect the fact that over 80% of the general population
and at least 50% of retired persons are now Internet users. These
seniors have now expressed a strong Interest in receiving news and
other information over the internet.
Senate Comments
on the 2010 Federal Budget
The Senate passed the budget
for fiscal year 2010 by a vote of 55 to 43 and then departed from
Washington for a period of two weeks.
A key amendment on the
Senate budget was the estate tax change proposed by Sen. Blanche
Lincoln (D-AR) and Jon Kyl (R-AZ). By a paper-thin margin of 51 to
48, the Senate passed a proposal to expand the estate exemption from
$3.5 million to $5 million and to reduce the estate tax rate from
45% to 35%.
However, Assistant Majority Leader Sen. Dick
Durbin (D-IL) immediately proposed an amendment that also passed.
His Amendment has now been published and may limit the prospects for
modification of the estate tax. Under the Durbin amendment, an
increase of the exemption over $3.5 million or a reduction of the
estate tax rate below 45% may be passed if estate tax relief
supporters also reduce taxes by an equal amount for "Americans
earning less than $100,000 per year." The nature of the tax
reductions is not specified.
Editor's Note: The budget
of $3.5 trillion now proceeds to a conference committee. With the
economy in recession, the anticipated deficit of $1.2 trillion for
next year is likely to pass. However, Sen. Kent Conrad (D-ND) issued
a press release on the budget resolution and noted, "As President
Obama himself has indicated, this year's budget is just the
beginning and much more will be needed to address the nation's
long-term fiscal imbalance." Sen. Conrad is clearly planning to take
the lead in the very contentious coming debates on how much to raise
taxes and where to reduce spending.
Applicable Federal
Rate of 2.6% for April -- Rev. Rul. 2009-10; 2009-14 IRB 1 (18 Mar.
2009)
The IRS has announced the Applicable Federal Rate
(AFR) for April of 2009. The AFR under Sec. 7520 for the month of
April will be 2.6%. The rates for March of 2.4% or February of 2.0%
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 - 200912036 CRT Early Termination Not
Self-Dealing
B and C
established a net-income-plus-makeup charitable remainder unitrust
(NIMCRUT), A, to pay for the lives of B, C, D and E. Payments are to
be distributed first to B and C for their joint lives and the
survivor, and then to D and E in equal shares until the death of the
survivor. Upon termination of A, after the death of the survivor of
D and E, the trust assets of A are to be distributed to charity, F,
a qualifying Sec. 501(c)(3) organization. B, D and E executed
agreements transferring their interests to C. C desires to terminate
A by selling her income interest to the charitable remainderman, F,
for an amount equal to the present value of the income interest of
each party in A. The value will be calculated using the discount
rate in effect under Sec. 7520 at the termination date and the
methodology described in Reg. 1.664-4. A seeks a ruling that early
termination of A will not constitute self-dealing under Sec. 4941
and that early termination will not result in Sec. 507 termination
tax.
The Service ruled that early termination of A will not
constitute an act of self-dealing under Sec. 4941 even though C is
both the trustee and a donor to A. The Service also ruled that early
termination will not result in a Sec. 507 termination tax.
Charitable remainder trustees are prohibited from Sec. 4941
self-dealing acts, which covers any direct or indirect transaction
with a disqualified person. C is a disqualified person under Sec.
4946 as a donor to A. The early termination and distributions to C
and F equal to the actuarial value of their interests is treated as
a constructive sale or exchange between parties under Rev. Rul.
69-486. But the distributions are not self-dealing because an
exception applies. Reg. 53.4947-1(c)(2)(i) provides that payments
made to an income beneficiary are not self-dealing if the interest
distributed equals the actuarial value of the income interest and
takes into account the net-income provisions of the
trust.
Sec. 4947(a)(2) and Sec. 507 apply to split-interest
trusts only. The Service reasoned that this transaction will vest
both the income and remainder interests in the remainder
beneficiary. Therefore, no split-interest exists such that Sec.
4947(a)(2) and Sec. 507 would apply.
To view the full PLR
Click
Here.
|
CASE OF THE
WEEK
Exit Strategies for Real Estate Investors, Part
1
Karl Hendricks was a man
with a golden touch. Throughout his life, it seemed every investment
idea that he touched turn to gold. By far, Karl was most successful
with real estate investments. It was definitely his
passion.
Amazingly, Karl continued to buy and sell real
estate at the age of 85. For instance, about three months ago, Karl
discovered a great investment property. It was a "fixer-upper"
commercial building in a great area. While other nearby buildings
sold for over $2 million, the seller needed to sell quickly and was
asking just $1 million.
The condition of the building turned
many buyers away. It was being sold "as-is." But Karl was not
deterred. He could see great potential with the building and knew it
would not take much to get it to market condition. Therefore, Karl
swooped in, bought the building for $1 million and instantly hired
contractors to refurbish the place.
After three months of
hard work refurbishing the building, the place looked like new! In
the end, Karl invested $250,000 in the building bringing his total
investment in the property to $1.25 million. One month after the
completion of the work, Karl was contacted informally by a company
that expressed an interest in the building - a $2 million interest!
This was no surprise to Karl. He knew the building was another great
buy.
There was one downside to the idea of selling, however.
Karl held the property only four months which meant the gain from
the sale would be short-term capital gain. In other words, the
applicable tax rate would be 35%, not 15%. Karl cringed at the
thought of paying 1/3 of his gain to the government. At the same
time, Karl knew the real estate market could change directions in
the next year. So, although Karl wanted the 15% tax rate, Karl did
not want to risk holding the property another eight
months.
Can Karl sell the building and bypass the tax on the
sale of the property? Karl wants to reinvest the full sale proceeds
in an income-producing investment. Is this possible?
To
view the solution to this Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
Grantor Lead Trusts - Down Market
Bonanza
Even with the soft
economy, many professionals and business owners will have
substantial incomes in 2009 and 2010. Because the markets are now
down over 40% from the peak, they also may hold stocks with market
value below their cost basis. The "high income and loss stocks"
combination opens the door to the excellent income tax savings of
the pre-1969 grantor lead trust.
Prior to 1969, it was
possible to create a charitable lead trust and receive a deduction
for both income and gift taxes. Because the total tax savings
produced a gift that under 1969 tax rates actually saved more in
taxes than the transfer to charity, this was a tax bonanza that
Congress inevitably was forced to change.
One of the 1969
changes was the passage of Sec. 170(f)(2). If a donor receives an
income tax deduction for the present value of a lead trust income
stream to charity, then the donor must report and pay tax on the
income distributed to charity for the term of the lead trust. In
effect, the donor receives a deduction in year one, but has taxable
income during the term of the lead trust. With the tax payments in
future years, part of the initial savings is "given back" to the IRS
during the term of the lead trust.
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 1999-2009
Crescendo Interactive, Inc.
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| Immanuel St.
Joseph's Foundation |
April 13,
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
| |
