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April 28,
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 |
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| Immanuel St.
Joseph's Foundation |
April 28,
2008 |
GiftLaw Weekly eNewsletter -
April 28, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"When a new
source of taxation is found it never means, in practice, that an old
source is abandoned. It merely means that the politicians have two
ways of milking the taxpayer where they had only one
before."
-- H. L. Mencken
Still Time to
File for a Stimulus Check
April 15th has passed, but the
IRS published a letter this week and reminded retirees, disabled
veterans and others who normally do not file that they may still
file and receive their 2008 stimulus check.
So long as a
person has $3,000 in qualifying income, he or she should file the
simplified Form 1040A. IRS Commissioner Doug Shulman noted, "Don't
worry if you did not file a return by April 15. If you meet the
criteria, you are still eligible for a stimulus payment. The quicker
you file, the quicker you will get your payment." He urged all
individuals and especially charitable organizations to share this
information with lower-income persons who could file and be
qualified to receive a stimulus payment up to $600 ($1,200 if
married).
The $3,000 in qualifying income could include
Social Security benefits for retirement, disability or survivor
payments. It does not include Supplemental Security Income (SSI).
Qualifying veterans benefits include disability compensation,
disability pension and survivor payments. Railroad retirement
payments also may qualify.
All who file need to have their
own Social Security numbers, including a Social Security number of a
dependent child under age 17 who qualifies for a $300 additional
payment.
For individuals who need help, log on to www.irs.gov
and click on "Contact IRS" to locate a center nearby. Taxpayers with
income of $40,000 or less qualify for free assistance from the
nearest IRS center.
No Estate Inclusion with Grantor
Super-Trust Power
In Rev.
Rul. 2008-22; 2008-16 IRB 796 (21 Apr 2008), the IRS approved
the use of a Sec. 675(4) power to substitute assets of equivalent
value for the corpus of an irrevocable trust. When this substitution
power is exercisable in a nonfiduciary capacity, it creates grantor
trust status. It is frequently used for various types of irrevocable
trusts, including defective grantor trusts and lead
supertrusts.
A common goal of the trust grantor is that the
trust will be a grantor trust for income tax purposes, but will not
be included in the estate under either Sec. 2036 or Sec. 2038. In
this ruling, the service illustrated the typical use of the power by
assuming that "D" created an irrevocable inter-vivos trust for his
or her decedents. T is the trustee and D is prohibited from serving
as trustee. However, D retains a power that may be exercised in a
nonfiduciary capacity to substitute property of equivalent value for
property in the trust. Under local trust law, the trustee has a
fiduciary obligation to ensure that the properties exchanged are of
equal value.
Sec. 2036(a)(1) could require inclusion of
assets if D retains a right to possession or enjoyment of the
property, or under Sec. 2036(a)(2) a right to control the persons
who enjoy the property. Under Sec. 2038(a)(1), the assets could be
included in D's estate if D retains a power to amend, revoke or
terminate the enjoyment of the property by another
person.
Because the nonfiduciary power to substitute assets
is required to be exercised in a manner that the "transfers into the
trust" are "equivalent in value to the assets" received, and because
the trustee has a fiduciary obligation to ensure that equal value is
received, there is no inclusion in D's gross estate under Sec. 2036
or Sec. 2038.
Alternate Estate Valuation Date Proposed
Regs Attack Discounts
In REG-112196-07
(24 APR 2008), the IRS published proposed regulations on alternate
valuation dates. The proposed regulations specifically target
potential actions by an executor that could create valuation
discounts.
Estate assets are generally valued under Sec.
2031(a). However, under Sec. 2032(a) the assets may be valued "as of
the date that is six months after the decedent's death."
In
Kohler
v. Commissioner, T.C. Memo. 2006-152, the Tax Court considered a
request by the estate for alternate valuation and for recognition of
discounts. The discounts were due to a corporate reorganization of
the Kohler Company two months after the demise of Mr. Kohler. The
reorganization resulted in discounts that reduced the estate tax.
The IRS did not acquiesce in the Kohler Tax Court decision approving
the discounts.
The new IRS proposed regulations include
several examples that deny discounts for actions by the executor.
Alternate valuation dates may be elected, but reductions in estate
value are permitted if they are solely "due to market
conditions."
Several examples illustrate the application of
the principle. In Example I, D owns common stock and it is valued at
$50x at date of death. Two months after date of death, the estate is
involved in a tax-free reorganization of the corporation that
creates discounts for lack of marketability and lack of control of
$20x. These discounts are not considered in determining the value
for alternate valuation purposes.
Similarly, other examples
refer to strategies to create minority interests to obtain a
minority interest discount or circumstances in which there are
undivided interests in real property. Actions by executors to create
discounts for either lack of marketability or minority interests
will generally be disregarded.
Applicable Federal Rate
of 3.2% for May -- Rev. Rul. 2008-24; 2008-18 IRB 1 (18 Apr.
2008)
The IRS has announced the Applicable Federal Rate
(AFR) for May of 2008. The AFR under Sec. 7520 for the month of May
will be 3.2%. The rates for April of 3.4% or March of 3.6% 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 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.
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PLR THIS
WEEK
PLR - 200813023 50-50 Unitrust
Approved
Grantor proposed
a standard payout unitrust (CRUT). The payout is to be paid 50% to
Grantor and 50% to Grantor and/or any other charitable organization
the trustee deems appropriate. Grantor retains the right to change
the charitable remainderman. Section 3.2 of the proposed trust
appoints an initial special trustee and lists potential successor
trustees should Grantor remove the initial special trustee. Grantor
or a related or subordinate party may not serve as special
trustee.
While the Service under Rev. Proc. 2007-3, 2007-1
I.R.B. 114 will not usually issue CRT rulings, some of the proposed
provisions for discretionary payouts or the retained right to remove
the special trustee are unique. Therefore, the Service noted that
under Sec. 1.664-3(a)(3)(ii) of the Treasury Regulations, a trust
does not qualify as a CRT if a right over income causes the person
to be treated as the owner of the trust.
Sec. 674(a) provides
that the Grantor to a trust is considered the owner of a trust if
income from the trust may be distributed by the Grantor or a
non-adverse party without the consent of an adverse party. Sec.
674(c) provides that subsection (a) does not apply to a sprinkling
power exercisable only by an independent trustee. The Service noted
that trust terms gave only the special trustee the discretion to
sprinkle 50% of payouts to the Grantor or listed charities.
Therefore, the Service ruled that the proposed payout terms would
not disqualify the Grantor's CRUT. Finally, because the donor may
not serve as special trustee, the trust is not a grantor trust
disqualified under Sec. 664.
To view the full PLR Click
Here.
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CASE OF THE
WEEK
A Sign of Warning on Assignments, Part
9
Ken Richards, 70, is a
very charitable American. He consistently makes gifts each year to
various causes he supports. In fact, 10 years ago Ken created a
one-life Charitable Remainder Unitrust (CRUT) and serves as the
trustee. 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, and his unitrust grew
greatly over the past 10 years. Accordingly, Ken's unitrust payments
get larger each year. Not surprisingly, Ken is very happy with his
unitrust.
Unfortunately, Ken does not have the same luck with
his business dealings. One such example relates to a business
venture with his son, Jason. At Jason's urging, Ken contributed
$100,000 of "seed money" for the opening of a beach bar and grill.
After six months of lackluster performance and another $60,000 of
investment, the beach bar and grill closed its doors. Although the
business is gone, the creditors are not. In fact, Jason and Ken
still owe creditor's approximately $150,000.
Sadly, the
majority of Ken's financial liquidity is now gone, i.e.
$160,000 of seed money. As a result, Ken's only significant asset is
his home. Jason is equally without substantial financial resources.
Nevertheless, the creditors are getting restless and have threatened
litigation. Fearful of the creditors' threats, Ken wonders if he can
assign $150,000 of his unitrust principal to satisfy the creditors'
claims. At this point, Ken just wants to put his entire beach bar
and grill troubles behind him.
Ken discovered it was not
permissible to satisfy the creditor's claims directly from the
CRUT's assets. (See "A Sign of Warning on Assignments, Part 8")
Consequently, Ken wonders if the creditors can attach his future
CRUT income stream? If so, this may satisfy Ken's outstanding
financial liability and relieve Ken of the creditors' threats,
letters and phone calls.
May the creditors attach Ken's
future income stream in the CRUT?
To view the solution to
this Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
The New Form 990: Changes that Matter to Your
Organization
In June of
2007, the Internal Revenue Service published for public comment a
revised Form 990. Following a flurry of comments from charities,
legal counsel and accountants, the IRS redrafted Form 990 and
offered it for public inspection. In response to the comments it
received, the IRS made substantial changes. What follows is a basic
description of the most relevant changes to the draft Form
990.
The Service will phase-in the required use of the new
Form 990 between 2007 and 2010. For tax year 2008, a filing charity
may use the old Form 990EZ if the organization has gross receipts of
less than $1 million and total assets of not more than $2.5 million.
In tax year 2009 those limits fall to $500,000 and $1.25 million
respectively. Year 2010 will be the final year an organization may
submit the old Form 990, but even then it will be limited to those
organizations with gross receipts of less $200,000 and total assets
of not more than $500,000. For tax years following 2010,
organizations with gross receipts of less than $50,000 must file
Form 990-N, widely known as the 990 postcard. Organizations with
gross receipts exceeding $50,000 will be required to file the newly
drafted Form 990.
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.
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| Immanuel St.
Joseph's Foundation |
April 28,
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
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