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June 9,
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 |
June 9,
2008 |
GiftLaw Weekly eNewsletter -
June 9, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"Taxes grow
without rain."
-- Old Proverb
Senator Conrad
Promises Balanced Budget by 2012
On June 4, 2008, the
Senate and House passed the federal budget for fiscal year 2009. The
President proposed a budget of $3.04 trillion. The Democratic budget
was approximately 1% more, or $3.07 trillion.
Sen. Kent
Conrad (D-ND), Chair of the Senate Budget Committee, released budget
projections for the next five years. These projections show reduced
tax deficits with a proposed balanced budget by 2012. The new budget
"extends the middle-class tax relief, provides for marriage penalty
relief, the extension of the child tax credit," the 10% bracket and
AMT relief.
Under the proposed budget, federal spending
declines from 20.8% of the U.S. economy this year to 19.1% in 2012
and 2013. The House-Senate budget projects 2.9% increased revenue
over the White House proposal. Sen. Conrad believes that the
additional 3% budget amount can be obtained by "aggressively going
after the tax gap."
Editor's Note: Fortunately, the
extension of the IRA rollover is included in the budget. In
addition, the conference report for the budget indicates that the
future budgets could "extend enhanced charitable giving from
individual retirement accounts, including life-income gifts." This
small but very important part of a massive federal document suggests
that it is probable the IRA rollover with the $100,000 limit will be
extended, and it is possible that a future expansion may include IRA
rollovers to life-income gifts.
Will The Budget Raise
Your 2009 Taxes?
Predictably, Republican and Democratic
senators and representatives weighed in on the impact of the budget
on a typical American taxpayer. Sen. Conrad as Chair of the Senate
Budget Committee was very positive. He stated, "We have passed a
fiscally responsible budget today. This plan provides tax relief for
the middle class. It makes critical investments in energy, education
and infrastructure."
His observations were echoed by Speaker
Nancy Pelosi (D-CA). She supported the budget by commenting, "This
budget is fiscally responsible; it reduces the deficit and returns
the nation's budget to balance in 2012. It is morally balanced
because it meets our obligation to defend our country and care for
our veterans while also strengthening America's economy and creating
jobs."
Senate and House Republicans held a substantially
different opinion. The Ranking Republican on the Senate Budget
Committee, Sen. Judd Gregg (R-NH), responded that the budget
"includes the largest tax increase in history, passes the $1
trillion mark in annual discretionary spending, and continues to
ignore the present issue of $66 trillion in unfunded entitlement
obligations we will otherwise pass on to our children."
In
estimating the potential impact on American taxpayers if the tax
reductions of 2001 and 2003 are not extended, he commented, "For
average Americans, this budget means that 43 million families with
children will owe $2,300 more in taxes; 18 million seniors will owe
$2,200 more; 27 million small business-owners will owe $4,100 more;
and 7.8 million low-income workers will be added back to the tax
rolls."
Tax Extenders With IRA Rollover Nearing Senate
Vote - Please Help!
Senate Finance Committee Chair Max
Baucus (D-MT) plans to use the House extenders bill as a model for a
bill to be presented to the Senate the week of June 9,
2008.
Due to the shortage of time, Sen. Baucus and Sen.
Charles Grassley (R-IA) met with other Senators and are preparing
the actual legislation. It will skip the usual markup at the Senate
Finance Committee level and be presented directly to the full
Senate.
The Senate bill will include tax extenders such as
the IRA rollover and other charitable provisions, and several
offsets similar to the House tax increases that are designed to pay
for the tax extenders. Sen. Baucus indicated he had not yet decided
whether to include AMT relief in the bill.
A major concern is
that 41 Senate Republicans sent a letter in April to Senator Baucus
that argued against tax offsets to pay for the extenders. It is
uncertain what action the senators will take or whether they would
filibuster against the bill next week if it includes tax increases
to pay for these tax extenders.
Editor's Note: If you
support the IRA charitable rollover, it would be most helpful for
you to contact the senator from your state by Tuesday, June 10,
2008. For a list of senators and email addresses, go to www.senate.gov
and click on "Senators." The email should be similar to the
following. "Dear Senator ___________: I strongly urge you to support
the Tax Extenders bill with the IRA charitable rollover for current
and life-income gifts. The IRA charitable rollover is very helpful
for all charities in our state."
While it is difficult to
predict the outcome of the "battle over tax offsets," the entire
Senate would like to finish its legislative work early so that there
will be time for election campaigns this fall. Hopefully, the House
and Senate can pass the Tax Extenders bill before the July
recess.
Estate Tax Freeze Proposed In 2009
Budget
In the budget passed on June 4, 2008, Sen. Max
Baucus included an important estate tax provision.
Sen.
Baucus has been the chief Democratic negotiator for the past seven
years on the potential compromise on estate tax reform. In a news
release, Sen. Baucus described this budget estate tax provision with
the following statement, "The amendment also provides an extension
of 2009 estate tax law, including rate and exemption levels. This
will stop a 2011 spike in estate tax rates and protect tens of
thousands of Americans from paying the estate tax at all. Baucus
favors the full repeal of the estate."
If the estate tax
freeze is enacted by legislation during 2009, then the budget
proposal suggests that the $3.5 million exemption and the 45% estate
tax rate will be effective for 2009-2013.
Editor's
Note: While the budget does not bind the Senate and there will
still need to be legislation in 2009, each step toward freezing the
estate tax rates makes it more difficult for other options to be
passed. Since the funding for the provisions in the 2009 budget is
now set, a change to a different exemption or rate will under the
"pay go" rules require either a tax increase elsewhere or a
reduction in funding of other programs. Given the financial pressure
on the budget, it will be very difficult to find the funds and
modify the estate tax provisions after
2009.
Applicable Federal Rate of 3.8% for June -- Rev.
Rul. 2008-28; 2008-22 IRB 1 (19 May 2008)
The IRS has
announced the Applicable Federal Rate (AFR) for June of 2008. The
AFR under Sec. 7520 for the month of June will be 3.8%. The rates
for May of 3.2% or April of 3.4% 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.
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PLR THIS
WEEK
PLR - 200821036 Fund Contribution and
Repurchase
Taxpayer (T)
owns common voting shares in holding company X, individually and
through T's own grantor-trust. T's family members also own common
voting shares in X. T is one of X's board of directors, and none of
T's family members are directors of X. Additionally, T serves as
trustee of Z, a trust holding assets for T's spouse during the
spouse's lifetime and, if T survives the spouse, then for T's
lifetime as well. T contributed the individually held shares in X
and plans to contribute the rest of the shares to a donor-advised
fund ("Fund") under Sec. 4966(d)(2), which will be a separately
identified perpetual fund within Y, a Sec. 170(c)(2) organization.
The Fund advisors will be T and T's family. They may advise Y in
making grants from the Fund for charitable purposes but Y is not
bound by the advisors' suggestions and Y has absolute discretion to
accept or reject them in whole or in part. Z will be able to
purchase the shares from the Y. T seeks a ruling that contributions
of any of T's shares to the Fund will not be treated as a sale if Z
then buys those shares from Y, excluding the shares from T's gross
income.
Gross income includes all income from whatever source
derived under Sec. 61, but a Tax Court found that the mere
anticipation or expectation of the receipt of income is not a fixed
right to income. Rauenhorst v. Comm'r, 119 T.C. 157,164
(2002). In Palmer v. Comm'r, 62 T.C. 684 (1974), aff'd on
other grounds, 523 F.2d 1308 (8th Cir. 1975), acq.,
1978-1 C.B. 2, a contribution of closely held stock to a private
foundation followed by a redemption was not treated as a sale
because the foundation was not legally obligated to redeem the
stock, even though the taxpayer had voting control over both the
corporation and the foundation. The Service stated it would treat
stock redemptions as income under similar facts to those in
Palmer only if the donee is legally obligated to surrender
the shares for redemption. The Service ruled that T's contribution
of shares to the Fund will not be treated as a sale if Z purchases
the shares from Y because Y has sole discretion and is not under any
legal obligation to sell the shares.
To view the full PLR
Click
Here.
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CASE OF THE
WEEK
Marketing Ideas During Soft Markets and Dropping
Interest Rates, Part 5 - Life Estate and Deferred Gift Annuity
Combination
Harold Henry,
77, is a very generous American. He is the stereotypical major donor
that charities love to find. Coming from a wealthy and philanthropic
background, Harold has given approximately $15 million to national
and local charities over his lifetime. In addition, he currently
sits on the boards of several charities and loves his role as a
volunteer and donor.
With a $20 million estate, Harold's
estate plan is very comprehensive and reviewed annually. Not
surprisingly, Harold is always contemplating new gifts and tax-wise
planning. In fact, during the past two years, Harold has been
tinkering with the idea of giving the remainder interest in his $2
million Seattle home to one of his favorite charities. Harold loved
the idea and the income and estate tax benefits associated with the
gift. However, due to his busy schedule, he just has not found the
time to complete the gift.
Fortunately, Harold's attorney,
Stan Sutton, was aware of his gift intentions. Accordingly, Stan
noticed the dropping applicable federal rates (AFR) this year and
advised Harold that now may be the time to make the
gift.
What advantage is there for making a gift of a
remainder interest in a home during dropping interest rates? What
window of opportunity exists for completing this gift? How much can
Harold save by completing this gift now? Although very wealthy,
Harold has anxiety over the current state of the economy. Therefore,
Harold asks if there is any way to receive income, should the need
arise?
To view the solution to this Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
Avoiding the Boats, Cars and Vacations
Disaster
What is the basic
purpose of inheritance? Most parents will respond that the purpose
of an inheritance is to help the child "become a better person."
Let's listen into a discussion between an advisor and John and Mary
Parent as they discuss an inheritance plan for their three
children.
Advisor: John and Mary, how do you feel
about the way your children are progressing in
life?
John: Well, all three children are doing fine.
They have all finished their education and are working. We know that
they will be making a good contribution to society in some
manner.
Mary: Yes, they are all working. We've tried
to teach them good principles and that they should be honest and
caring persons.
Advisor: Do both of you think that it
is good for them to have jobs and to eventually buy a house and
acquire some savings?
John: Yes, they should have jobs
and they should be responsible citizens.
Advisor: But
with an inheritance you have the opportunity to give them additional
security.
Mary: Yes, we think that is important. We
recognize that we have been fortunate over the years to have
acquired substantial resources, and we do want to help
them.
Advisor: Have you thought about the difference
between giving principal or giving income? I find that many people
in your situation have been careful and built up their estate. They
have substantial resources. And frequently they leave a substantial
inheritance outright to the children. Have you seen examples of
parents who have done that?
John: We certainly have.
An uncle of mine passed away and left the estate to two children.
One of them did fine. But the other spent his entire inheritance in
18 months.
When he was asked what happened to the inheritance
he replied, "Well, I spent most of it on boats, cars and
vacations -- and I wasted the rest!"
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 |
June 9,
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
| |
