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May 5,
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 |
May 5,
2008 |
GiftLaw Weekly eNewsletter -
May 5, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"The government
taxes you when you bring home a paycheck. It taxes you when you make
a phone call. It taxes you when you turn on a light. It taxes you
when you sell a stock. It taxes you when you fill your car with gas.
It taxes you when you ride a plane. It taxes you when you get
married. Then it taxes you when you die."
-- J.C. Watts Jr.
Washington
Praises Itself As Rebates Start
The first rebates have
now been sent electronically to qualified taxpayers. Stimulus tax
rebates will be sent first to those taxpayers who filed
electronically and will be sent out by the last two digits of the
Social Security Number. For those who made direct deposit tax
payments or filed printed returns, the rebate schedule is as
follows:
Direct Deposit
| Last Two SSN# |
Date of Direct Deposit |
| 0-20 |
May 2 |
| 21-75 |
May 9 |
| 76-99 |
May 16 |
Printed Tax
Returns
| Last Two SSN# |
Check Date |
| 0-09 |
May 16 |
| 10-18 |
May 23 |
| 19-25 |
May 30 |
| 26-38 |
June 6 |
| 39-51 |
June 13 |
| 52-63 |
June 20 |
| 64-75 |
June 27 |
| 76-87 |
July 4 |
| 88-99 |
July 11 |
Washington leaders spoke in
positive terms about the rebate. President Bush stated, "It's
obvious our economy is in a slowdown. Fortunately, we recognized the
signs early and took action. By this summer the Treasury Department
expects to have sent rebates to about 130 million American
households. These rebates will provide eligible Americans with
payments up to $600 a person, $1200 for couples, and $300 per
child."
Speaker of the House Nancy Pelosi (D-CA) commented,
"Because Congress has taken swift and bipartisan action on the
economy, we were able to observe the fact that this week America's
families will be receiving their Recovery Rebate
checks."
Finally, House Republican Leader John Boehner (R-OH)
stated, "You know, many Americans believe that Washington is broken.
I believe that this is a small step in the right direction to show
the American people that Congress can work together with the
Administration on behalf of the needs of the American
people."
IRS Relief for Stimulus Checks Sent to IRA
Accounts
In Announcement 2008-44; 2008-20 IRB 1 (30 Apr
2008), the IRS announced that it will be permissible for taxpayers
to withdraw their stimulus check if it is sent to an IRA or other
qualified retirement account.
Many taxpayers choose to have
their tax refunds distributed directly to a traditional IRA, Roth
IRA or other qualified retirement account. This distribution enables
the individual to use his or her tax refund check to cover part or
all of their annual contribution to the IRA.
However, many
taxpayers did not understand when they filed their returns that the
IRS will send their stimulus payment (usually $600 single or $1200
for a couple) to the same account. As a result, the IRS has
indicated that "An individual may withdraw from a tax-favored
account an amount less than or equal to the amount of the economic
stimulus payment directly deposited into such account."
This
permission will be effective until the taxpayer files his or her
income tax return for 2008. Normally, this will be no later than
April 15, 2009.
Editors Note: The hope of the Federal
Government is that the stimulus payments will be quickly spent. If
130 million Americans spend the stimulus payment promptly, it should
assist the recovering economy. Because the Federal Government hopes
the stimulus payments will be spent, the IRS granted permission for
penalty-free withdrawals from IRA accounts.
AMT
Relief, Tax Extenders and the IRA Rollover
There is a
continuing struggle over the Senate budget and proposed AMT relief.
House Democrats strongly advocate offsets or tax increases to pay
for AMT relief. Senate Republicans oppose these tax
increases.
On April 29, 2008, 41 Senate Republicans signed a
letter to Senate Finance Committee Chair Max Baucus (D-MT). In this
letter, the Republicans asked Sen. Baucus to extend the AMT patch
and the Tax Extenders without "raising taxes elsewhere."
The
Republicans continued, "We believe the research and experimentation
tax credit, various accelerated depreciation provisions, the energy
tax incentives, the education, charitable and other individual tax
incentives and the AMT patch are very important to American families
and to the US economy." However, they suggested that they might
filibuster the AMT and Extenders Bill (S. 2886) if the tax increases
were included.
Sen. Kent Conrad (D-ND) is Chair of the Senate
Budget Committee. This week he negotiated an agreement with
financially conservative House Democrats on the AMT patch. Under the
agreement, the Senate budget will show an assumption that the AMT
patch will be offset.
Editors Note: The Tax Extenders
Bill includes AMT relief, the IRA Charitable Rollover, and five
other provisions for enhanced charitable deductions. The enhanced
deductions cover conservation easements, gifts of food, gifts of
books and gifts of appreciated property by Subchapter S
Corporations. These provisions are highly likely to pass during the
year. However, there will be a repeat of last year's titanic
struggle over tax increases to pay for AMT relief. With the election
pending in the fall, both the House and Senate are very focused on
completing work on this legislation by the end of
June.
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 - 200816034 Endowment Shares Do Not Generate
UBTI
R is an educational
organization as described under Sec. 509(a)(1) and is the trustee
and remainder beneficiary of a number of charitable remainder trusts
(Trusts). R's endowment is diversified and invested in a portfolio
which consists of passive dividends, interest, rents and long and
short-term capital gains, but some income is debt-financed or
otherwise treated as unrelated business taxable income (UBTI). R
proposes to create a contractual right for each of the trusts for a
proportionate share in R's endowment.
Each Trust would
receive payments on its shares equal to the payout rate established
for the endowment, with payouts made at least annually or more
frequently as appropriate. The Trusts would not have any ownership
interest in the underlying assets of the endowment nor any power to
control, direct or supervise decisions made with respect to the
endowment. The Trusts would not be liable for any of the endowment
costs or expenses and would be held harmless against any liability
arising out of an action against the endowment. R sought a ruling
that the Trusts' making or receiving payments with regards to R's
endowment shares and holding or redeeming the shares will not
generate UBTI.
The Service noted that an exempt organization
which provides investment and management services on a regular basis
for a fee would ordinarily be engaged in an unrelated trade or
business subject to UBTI under Sec. 512(a)(1). However, here R is
not charging a fee or receiving income for its services to Trusts.
The fact that the investment activity is for the benefit of R and
the co-beneficiaries of the Trusts distinguishes it from a
commercial venture, which generally provides services to "others."
The Service concluded that the issuance of shares from R to the
Trusts, the making of or receipt of payments with respect to the
shares and the holding or redemption of the shares will not generate
UBTI.
Editor's Note: This ruling is similar to other
rulings permitting educational institutions to invest charitable
trusts in endowment shares. The planning point to be taken away here
is that the Service permits this arrangement based on two
assumptions: 1) the organization will not charge a management fee
and 2) the organization is the sole charitable beneficiary of each
trust invested in this manner.
To view the full PLR Click
Here.
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CASE OF THE
WEEK
A Sign of Warning on Assignments, Part
10
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) and serves as the
trustee. Ken funded his unitrust with $1 million and, over the past
ten years, it has grown to $1.5 million. The unitrust was drafted to
have a 5% payout and named a local orchestra as the charitable
remainderman. Ken did not retain the right to change charities, so
the local orchestra is a fully vested
remainderman.
Currently, the local orchestra is raising funds
for a proposed building expansion. Ken wants to give the local
orchestra a major gift for its campaign, however, Ken prefers not to
invade his stock and property holdings to satisfy the gift. Thus,
the only remaining available asset is Ken's CRUT. He knows that he
may make direct distributions from his CRUT to the local orchestra,
but he does not like the idea of decreasing the size of his trust.
(See Case Study "A Sign of Warning on Assignments, Part 5") Ken
really enjoys the increased income from his $1.5 million
CRUT.
In need of current funding, the local orchestra wonders
if it could assign its remainder interest to a third party. If so,
this could provide the orchestra with some much needed
funding.
May the local orchestra assign its remainder
interest to a third party?
To view the solution to this
Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
Gift Planning with Low AFRs
Charitable gift plan deductions change monthly as the
Sec. 7520 Applicable Federal Rate (AFR) is modified. Each month the
IRS surveys hundreds of interest rates and publishes a revenue
ruling with AFRs. The rate used for charitable deductions in Table 5
of the ruling is 120% of the Applicable Mid-Term Rate, rounded to
the nearest 2/10 of 1%.
The Applicable Federal Rates since
1989 have varied from a high of 11.6% to a low of 3.0%. The AFR for
May of 2008 is 3.2%.
How does an AFR that is near the
historic low affect charitable gift planning? The answer is that it
has major impact on many agreements. The most dramatically-affected
agreements are the charitable remainder annuity trusts, charitable
gift annuities, life estates and particularly charitable lead
trusts. Indeed, this is probably a historic opportunity to set up
charitable lead trusts with favorable AFR and investment
parameters.
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 1999-2008
Crescendo Interactive, Inc.
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| Immanuel St.
Joseph's Foundation |
May 5,
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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