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June 16,
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 16,
2008 |
GiftLaw Weekly eNewsletter -
June 16, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"We contend that
for a nation to try to tax itself into prosperity is like a man
standing in a bucket trying to lift himself up by its
handle."
-- Winston Churchill
Senate in
"Kabuki Dance"
Ranking member of the Senate Finance
Committee Charles Grassley (R-IA) described the Senate proceedings
this week as a "Kabuki Dance".
A Kabuki Dance is defined by
Wikipedia.org as "an activity or drama carried out in real life in a
predictable or stylized fashion, reminiscent of the Kabuki style of
Japanese stage play." Sen. Grassley is suggesting that the Senate
controversy over the tax extenders is similar to a Japanese dance
that will lead to a known ending. He predicts that there will be a
tax extenders bill passed by "late July."
The Senate Kabuki
Dance started this week with a rejection of the tax extenders bill
proposed by Sen. Max Baucus (D-MT). The Chair of the Senate Finance
Committee proposed the Renewable Energy and Job Creation Act of
2008. The bill failed to gain the 60 votes needed to pass on June 8,
2008. 44 Republican senators opposed the bill because it included
tax offsets. Minority leader Sen. Mitch McConnell (R-KY) is the
Minority Leader and stated, "We don't believe philosophically that
in order to extend existing tax policy you should use that as an
excuse to raise taxes on others."
Sen. Max Baucus was clearly
upset with the vote. He noted that 300 major companies have now
urged the Senate to accept the offset compromise and pass the
Research and Development tax credit. A letter from the 300 companies
indicated that failure to pass the tax extenders by July will have
"significant negative" impact on the economy.
Sen. Baucus
exclaimed, "American businesses are calling on Congress to boost
alternative energy jobs and technologies and [enact] important tax
incentives to facilitate business innovation and improve business
operations. American business leaders are rightly concerned about
their competitiveness in the global marketplace if Congress doesn't
act now."
Editor's Note: Sen. Baucus is preparing a
new version of the bill. It is expected that there will be another
vote on tax extenders legislation within a week. If Sen. Grassley,
who has a very perceptive understanding of the Senate, is correct,
the tax extenders legislation and the included IRA charitable
rollover may be passed in late July.
Energy and Tax
Relief Act of 2008
Sen. Max Baucus has released a
description of the Energy Independence and Tax Relief Act of 2008 to
be submitted to the Senate this week. The bill combines energy
provisions, alternative minimum tax (AMT) relief, individual
provisions and business provisions.
The energy provisions
include solar credits, fuel cell credits, residential credits and
carbon mitigation provisions. Fuel production would be enhanced
through a new allowance for cellulosic alcohol, expanded biodiesel
production, electric vehicle credits and an alternative refueling
station credit. Energy conservation credits will be available for
commercial buildings and related equipment.
The AMT credit
would be expanded to $46,200 (single) or $69,950 (married filing
jointly).
Individual extenders include a deduction for state
and local sales taxes, the qualified tuition deduction and the $250
teacher educational expense deduction. Business extenders provisions
include the research and development credit and a new markets tax
credit.
Of particular interest to supporters of philanthropy
are the charitable provisions. These are the IRA rollover for
individuals over age 70˝, enhanced deductions for gifts of food,
books and computers and favorable rules on Subchapter S corporation
gifts of appreciated property.
House Democrats
Threaten to Let Extenders Expire
As part of the
continuing negotiation process over the tax extenders, two House
Democratic leaders indicated a willingness to allow tax extenders to
expire rather than to pass an extenders' without
offsets.
House Ways and Means Committee Chair Charles Rangel
(D-NY) stated that he would "go to the mat" to insist that the tax
extenders be offset by tax increases. House Majority Leader Steny
Hoyer (D-MD) also indicated that the House Democratic leadership
would not pass a bill without the offsets.
House Democrats
sent a letter to Senate Minority Leader Mitch McConnell (R-KY)
urging Senate Republicans to support the compromise. The House
Democrats noted that, "Many business groups support these provisions
as essential to ensuring passage of the tax relief included in the
bill."
Editor's Note: The two major offsets are to tax
offshore deferred compensation of hedge fund managers and delay a
business tax interest deduction until 2019. Democratic leaders hope
that the Republican leaders will accept the preference of 300
presidents of major companies to approve the tax
extenders.
Gift Tax Declaratory Judgment Proposed
Regulations
In Reg-143716-04
(6 Jun 2008), the Treasury published proposed regulations for
obtaining a declaratory gift tax valuation judgment under Sec.
7477.
Gift tax is determined by calculating the tax on gifts
for the current year, plus the total gifts from prior years. Because
the filing of IRS Form 709 may claim a specific value and the IRS
may determine a different value for a gift that does not produce a
gift tax, Congress passed Sec. 7477 to permit a taxpayer petition to
tax court. The proposed regulations outline the requirements to
obtain a tax court declaratory judgment with respect to valuation of
a gift that is below the taxable threshold.
There are four
requirements for obtaining the tax court declaratory judgment. These
are as follows:
1. Adequate Disclosure. The type of property,
claimed value of the gift and other supporting information should be
disclosed on the gift tax return. However, the taxpayer may be
permitted to pursue a declaratory judgment even if the technical
requirements of the Sec. 6501(c)(9) disclosure are not
met.
2. Actual Controversy. The IRS must "propose
adjustments" and the taxpayer must disagree. Following any disputes,
the IRS will issue a Letter 3569 to notify the taxpayer of the
dispute.
3. Exhausting Administrative Remedies. The taxpayer
must pursue appropriate administrative remedies with the IRS. An
appeal must be filed in writing within 30 calendar days from the
notice of preliminary determination of value. The taxpayer must
participate in the process until the date when the IRS mails Letter
3569.
4. Timely Petition to Tax Court. The petition must be
"before the 91st day after the date of mailing of Letter
3569."
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 - 200817039 Early Termination of CRT Not
Self-dealing
B and C
established A, a charitable remainder unitrust under Sec. 664(d)(3).
B and C served as trustee of A and D served as an independent
special trustee. D resigned and an appointment of a successor was
not required under the trust terms. The trust was to make annual
payments to B and C in an amount equal to the lesser of net income
or 10% of the trust assets. B and C designated G, a qualified
charity, as the sole remainder beneficiary of A. B, C and G later
agreed that an early termination of A would be in the best interest
of all parties. In an earlier letter, B and C agreed to calculate
the actuarial value of their interests using the discount rate in
effect on the date of termination. At issue in this ruling is
whether early termination of A and distribution of assets to B, C
and G will result in a termination tax under Sec. 507 or constitute
self-dealing under Sec. 4941.
The Service noted that as a
split-interest trust described in Sec. 4947(a)(2), A is subject to
the provisions of Sec. 407 and 4941 as if it were a private
foundation. An early termination of A will result in lump sum
distributions to the income beneficiaries B, C and G equal to the
actuarial value of their interests in A. Generally, payments to
income beneficiaries constitute self-dealing. However, because the
distribution equals the actuarial value of the income interest, the
exception to self-dealing under Reg. 53.4947-1(c)(2)(i) applies and
the distribution will not constitute self-dealing. Furthermore,
because G is a public charity (rather than a split-interest trust or
private foundation), Sec. 4941 does not apply to the transaction
between B, C and G. Because the effect of the transaction is to vest
both the income interest and remainder interest in the
beneficiaries, the trust will no longer be a split-interest trust
and Sec. 507 also will not apply.
Editor's Note: In a
series of rulings the Service has clearly stated that early CRT
termination will not result in the assessment of private foundation
excise taxes. With lower earnings due to market fluctuations, early
trust terminations and charitable remainder trust to gift annuity
rollovers may become more common as donors seek more
security.
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 6 - Grantor Charitable Lead Annuity
Trust
Harold Henry, Age
67, 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
considering the idea of creating a charitable lead trust to benefit
one of his favorite charities. Harold loves the concept and the 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 create the trust.
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.
|
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 16,
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
| |
