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July 7,
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 |
July 7,
2008 |
GiftLaw Weekly eNewsletter -
July 7, 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
Sen. Grassley
and the "Big Bad Wolf"
On June 26, 2008, ranking member
of the Senate Finance Committee Charles Grassley (R-IA) pleaded for
the Senate to pass the tax extenders bill.
The House and
Senate are once again engaged in a strident conflict over tax
increases to offset the cost of AMT relief and the tax extenders.
Sen. Grassley notes that the AMT relief will affect 25 million
families. Tax extenders such as the research and development tax
credit, the teacher's expense deduction and the IRA charitable
rollover will also affect millions of Americans.
Sen.
Grassley asked what is "holding up these important, bipartisan,
time-sensitive tax relief matters?" In his view, the problem is the
Democratic "obsession" with "raising taxes to offset continuing
current tax law relief."
Sen. Grassley compared the current
situation to the "story of the Big Bad Wolf." The Big Bad Wolf is
"going to huff and puff and blow your house down."
The
current Washington rhetoric similarly resembles the "huff and puff"
of the Big Bad Wolf. Sen. Grassley understands the political huffing
and puffing, but hopes that eventually this "partisan obsession with
a tax increase version of pay-go will not, at the end of the day,
trump bipartisan popular tax relief measures that millions of
families are counting on."
Editor's Note: Following
the July 4th holiday, the House and Senate return to Washington.
Senate Finance Chair Max Baucus (D-MT) hopes to bring Senate
Democrats and Republicans together in an effort to find an
acceptable level of offsets for the tax extenders. If he is
successful, then the Senate may pass AMT relief with no offsets and
tax extenders with modest offsets. Hopefully, the process can be
completed during July so that charities can make marketing plans for
a fall IRA rollover campaign.
Charitable Deductions
Increased, But "Secret Gifts" Deductions Denied
In Paul
L. Tucker Jr. et ux. v. Commissioner; T.C. Summ. Op. 2008-78;
No. 5854-06S (2 Jul 2008), taxpayers claimed business deductions and
charitable deductions. Mr. Tucker is a pilot for Southwest Airlines
and resides in Birmingham, Alabama. His principal position with
Southwest is as a line captain and check pilot at Midway Airport. He
deducted $28,536 for employee expenses and $19,979 for charitable
gifts for tax year 2002.
The IRS claimed that Chicago, IL was
his tax home because most of his work was centered there. Treasury
permitted only $10,810 of the employed business expenses and $2,196
of the charitable contribution expenses.
The tax court
reviewed the requirements for a "tax home" and noted that his
principal business functions were completed at Midway Airport.
Therefore, the tax court agreed with the IRS determination on
employee business expenses. However, Mr. Tucker claimed that he had
given $6,410 to his local church and had checks to substantiate
those gifts. In addition, he also claimed a "secret cash" gift of
nearly $14,000. The tax court determined that the cancelled checks
were sufficient substantiation and permitted the $6,410. While
expressing appreciation for Mr. Tucker's "religious beliefs and
practices," the tax court would not permit the deduction of the
secret cash gifts.
Editor's Note: Gifts of money are
substantiated by a receipt from the organization or reliable written
records. Gifts of $250 or more also require a "contemporaneous
written acknowledgement" from the charity, typically a receipt. Cash
gifts of any amount are deductible only if there are reliable
written records. The reliable record must be a bank record or a
receipt from the charity specifying the amount and date of the
contribution. Sec. 170(f)(17).
IRS Targets Overseas
Funds
On July 1, 2008, the Justice Department filed a
"John Doe" summons requesting records from the Swiss Financial
Services Firm UBS AG. In a guilty plea hearing by former UBS
employee Bradley Birkenfeld, it was disclosed that UBS held about
$20 billion in assets for US taxpayers.
The IRS summons
requested records on this $20 billion amount to assist Treasury in
collecting taxes from U.S. taxpayers.
IRS Commissioner Doug
Schulman issued a statement and noted, "Offshore accounts harbor
billions of dollars, and people should take notice that the secrecy
surrounding these deals is rapidly fading." In the request for the
court order, Treasury reminded Americans that "United States
taxpayers are required to file annual income tax returns reporting
to the Internal Revenue Service their income from all sources
worldwide. Taxpayers who fail to include taxable payments on their
income tax returns have failed to comply with the Internal Revenue
laws."
Editor's Note: There is a concerted effort
underway by Treasury to close the tax gap. Senate Finance Chair Max
Baucus (D-MT) is leading the charge to raise money without raising
tax rates by closing the tax gap. The action by the Justice
Department and Treasury to collect taxes from overseas accounts is
one of many additional regulatory actions to come. Sen. Baucus
highlighted a Government Accountable Office (GAO) report that
covered "methods to increase compliance" with tax laws. He stated,
"This report underscores that the tax gap is a serious problem that
is not going to be easy to fix." He pledged continued focus on
efforts to locate new ways to close the tax gap and raise
revenue.
In view of this campaign by Sen. Baucus, even with
additional revenue from increased compliance, there will be great
pressure on Congressional taxwriters to raise revenue through
increased taxation.
Applicable Federal Rate of 4.2%
for July -- Rev. Rul. 2008-33; 2008-27 IRB 1 (18 Jun.
2008)
The IRS has announced the Applicable Federal Rate
(AFR) for July of 2008. The AFR under Sec. 7520 for the month of
July will be 4.2%. The rates for June of 3.8% or May of 3.2% 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 - 200826028 Assignment of IRA Not a
Transfer
Decedent's will
provides that the residue of his probate estate is added to a trust
he created during life. The terms of the trust state that upon
Decedent's death distributions are to be made to specified
beneficiaries with the residue passing to four charitable
organizations. Decedent owned an IRA at the time of his passing but
failed to name a designated beneficiary. As a result, the IRA passed
to his estate. Both the Trustee of Decedent's trust and the
representative of his estate proposed to satisfy the charitable
bequests by assigning the IRA to the four named charitable
organizations.
Under Sec. 691(a)(1) income in respect of a
decedent (IRD) assets owned at death are included in the gross
income of the estate or the person or persons whom, by reason of the
owner's death, acquire the right to receive the asset. Under Rev.
Rul. 92-47, 1992-1 C.B. 198, a standard IRA is an IRD asset. Sec.
691(a)(2) states that if a right to an IRD is transferred by an
estate who received the asset by reason of the owner's death, the
asset is included in the gross income of the estate or person
acquiring the asset. The term "transfer" under Sec. 691(a)(2) does
not include the transmission of an IRD asset at death if the
transmission occurs pursuant to the right of the person receiving
the asset by reason of a decedent's death by bequest, devise or
inheritance. The Service ruled that the transfer of the IRA in
satisfaction of the decedent's bequest from his trust is not a
transfer within the meaning of Sec. 691 and, therefore, is not
includable in the gross taxable income of decedent's
estate.
Editor's Note: The value of the IRA is
included in the gross income of the party receiving the asset. In
the instant case, four charities will split the value of the IRA.
Because charities are exempt from income tax under Sec. 501(c)(3),
they will not be liable for any tax on this bequest. Using the
proper beneficiary designation form provided by the IRA
administrator is the preferred way to pass this type of asset.
Charitably inclined persons are encouraged to leave IRAs and other
IRD assets to charity by way of such forms or in their wills and use
other assets to provide for loved ones.
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 9 - Draft Testamentary CRUTs not
CRATs
Jeanne Henry, 85, is
a very concerned American. Having grown up during the Great
Depression, Jeanne developed certain attitudes toward money and
savings. As a result, she saved consistently and conservatively
during her entire life. Jeanne is now concerned with her two
children's financial security. They, unfortunately, have not saved
as successfully and have fewer retirement resources. Accordingly,
Jeanne would like her estate plan to provide financial security for
her son Tim, 60, and her daughter Judy, 55.
Recently, Jeanne
met with her attorney to discuss her options. She told her attorney
that she wanted to create a $1 million charitable remainder annuity
trust with a 6% annuity payout at her death. Jeanne liked the idea
of her children receiving a fixed payout for the rest of their
lives.
What problems are associated with Jeanne's current
plan? Should Jeanne proceed nevertheless? What suggestions can
Jeanne's attorney make to help resolve the issue?
To view
the solution to this Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
Mega-Income Inheritance
Based on Federal Reserve statistics, an estimated
300,000 to 500,000 Americans now have mega-estates of $10 million or
above. Most charities with gift planning programs have 20 to 60
potential donor prospects with estates at this level. These families
are able to provide added economic security for children and many
have thought carefully about the best way to provide a substantial
inheritance.
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 |
July 7,
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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