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July 14, 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

Immanuel St. Joseph's Foundation	July 14, 2008
GiftLaw Weekly eNewsletter - July 14, 2008 WASHINGTON HOTLINE Tax Extenders and IRA Rollover - On Again and Off Again PLR THIS WEEK PLR - 200826026 Redemption of Endowment Shares Produces Capital Gain in CRT CASE OF THE WEEK Marketing Ideas during Soft Markets and Dropping Interest Rates, Part 10 - Commercial Real Estate, Investment Land and Homes ARTICLE OF THE MONTH Mega-Income Inheritance
WASHINGTON HOTLINE Tax Quote of the Week "The thing generally raised on city land is taxes." -- Charles Dudley Warner Tax Extenders and IRA Rollover - On Again and Off Again On Tuesday, July 8, 2008, Senate Finance Committee Chairman Max Baucus (D-MT) suggested that there will be action "next week" on the long-awaited tax extenders bill. He and ranking member Sen. Grassley both have emphasized the importance of completing action on the tax extenders and AMT relief by the end of July. Two prior attempts to pass a tax extenders bill have failed due to Republican opposition to a tax increase on hedge fund managers and other tax offsets. Despite claims by House Ways and Means Chairman Charles Rangel (D-NY) that the AMT relief should also be offset by tax increases, the Senate bill does not include any offset for an increase in the AMT exemption. If passed, the tax extenders bill will extend the research and development credit, the deduction for teachers' classroom expenses, the IRA charitable rollover and 50 other tax provisions. An attempt to pass the tax extenders as an amendment to the Renewable Energy and Job Creation Act may be made this month if a compromise on the offsets can be reached. However, by the end of the week, Sen. Baucus indicated that a compromise was not yet in place. Until there is a compromise that can gain support of the 60 Senators necessary to override a filibuster, he indicates that no tax extenders bill will be submitted. Editor's Note: As the economy weakens and the stock markets reach five-year lows this week, business leaders continue to urge Congress to move quickly on the research and development credit. With the desire to pass a bill to support the economy, the tax extenders still have a good chance to pass by the end of the month. Will Sen. Reid and Sen. McConnell Find the Path to Compromise? The tax extenders contest reflects an ongoing conflict between Sen. Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY). In a "battle of the letters" on July 3rd, Sen. McConnell opposed tax offsets. He prefers spending cuts or "revenue raised from appropriate tax policy proposals." Sen. Reid responded in a July 8th letter, "Let me begin by saying I strongly share your hope that the Senate can work out a bipartisan solution to extend these important tax incentives before the August recess. Such action is as important as it is long overdue." While both Senators hope for a rapid conclusion, Sen. Reid describes the offsets as "noncontroversial." He points out that spending "cuts in health care, energy, and infrastructure programs" are unacceptable because they "would harm Kentucky and many other states." Editor's Note: Understandably, Sen. McConnell does not propose spending cuts for appropriations for his home state of Kentucky. Because spending cuts are even more unpopular than tax offsets, the path to compromise is to find acceptable offsets. IRS Rules on Split-Up Split-Unitrusts In Rev. Rul. 2008-41, 2008-30 IRB 1 (8 Jul 2008), the IRS published guidelines for division of charitable reminder unitrust or annuity trust assets if there is a divorce. Several private letter rulings have approved the CRT division process. Typically, a husband and wife fund a charitable remainder unitrust or annuity trust and later petition a court for a divorce. As part of the allocation of property, the charitable trust is divided between the parties. Each receives income from his or her trust. After one person passes away, the income from that share may be directed to the survivor or that trust share may be directed to qualified exempt charities. The ruling covers a multiple party split (Situation 1) and a more common division between husband and wife (Situation 2). The general guidelines are: Pro rata division - trust still qualifies as a CRT under § 664(d). Basis allocation - no Sec. 1015 sale or exchange, and therefore basis is prorated. The Sec. 1223 holding period for each asset is carried forward. No termination or private foundation penalties - no Sec. 507(a)(1) termination, no private foundation Sec. 4947(a)(2) penalties, and no Sec. 507(c) excise tax. No self-dealing under Sec. 4941. No taxable expenditure under Sec. 4945. Editor's Note: This ruling clarifies the law for split-up CRTs. The key is that there is a pro rate allocation of assets, especially with multiple trusts. By following the pro rata rules, divisions of CRTs are approved. It is also helpful that an annuity trust may be divided, so long as the assets and annuity are prorated. Under the ruling, the costs of trust division are paid by the recipients and not by the trusts. 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.
PLR THIS WEEK PLR - 200826026 Redemption of Endowment Shares Produces Capital Gain in CRT Trust is a qualified charitable remainder unitrust within the meaning of IRC Sec. 664. University is the remainder beneficiary of Trust and serves as its trustee. As part of its activities, University maintains a highly diversified endowment pool. University contractually agreed with Trust to exchange "units" of the endowment for the assets held by Trust. The contract provides that Trust shall be entitled to quarterly distributions from the endowment based upon the number of units Trust owns at the date of payment multiplied by a price set by University in its sole discretion. Both Trust and University agree that distributions made under this plan will be classified as ordinary income. University, as trustee, requested a ruling that redemption of endowment units by University from Trust will produce capital gain rather than ordinary income. Sec. 1221 defines a capital asset as property held by a taxpayer unless it meets one of eight listed exceptions. In the instant case, none of the eight listed exceptions applied to the issued units. However, the Supreme Court requires a narrow reading of Sec. 1221 "...in accordance with the purpose of Congress to afford capital gains treatment only in situations typically involving the realization of appreciation in value accrued over a substantial period of time...." Commissioner v. Gillette Motor Transport, Inc., 364 U.S. 130 (1960). In previous cases the Court created the "substitute for ordinary income" doctrine. This doctrine, simply put, states that if monies received are merely a substitute for what would otherwise have been earned ordinary income, no capital gain is incurred. Then, in 1966, in Guggenheim v. Commissioner, 46 T.C. 559, 569 (1966), the court focused in the transfer of investment risk in order to determine the character of the income received. In Guggenheim, the court ruled that from the transfer of a stallion, which subsequently increased in value, the new owners benefited from an increase in value and held the risk should the asset decline in value. The taxpayer did not retain any benefits or burdens of ownership. Thus, the court found that the taxpayer had transferred substantial investment risk to the buyer and was entitled to capital gain treatment of the proceeds. The Service applied the rational from Guggenheim and subsequent cases and determined that although endowment units produce ordinary income upon payment distributions to Trust, the redemption of the same units from Trust would produce capital gain. The Service noted that the important factor in the instant case was that there was significant investment risk associated with each unit transferred. To view the full PLR Click Here.
CASE OF THE WEEK Marketing Ideas during Soft Markets and Dropping Interest Rates, Part 10 - Commercial Real Estate, Investment Land and Homes Jack Henry, 80, is a very concerned American. Having grown up during the Great Depression, Jack developed certain attitudes towards the stock market and savings. As a result, he saved consistently and conservatively during his entire life. In addition, Jack would only put his money into real estate and savings accounts. As a result of his steadfast belief in savings and real estate investing, Jack and his late wife Samantha accumulated a $5 million estate. While stock investors have recently lost ground, commercial real estate values generally have held steady and even increased in some areas. Accordingly, Jack's holdings have remained quite solid. In fact, many of Jack's properties have continued to grow and have accumulated a huge amount of appreciation. Although Jack believes strongly in his investment strategy, he now fears that the real estate market may drop sharply in the near future similar to the way the stock market fell. Despite his past success in the real estate market, Jack feels his holdings are not diverse and subject to great loss potential. As a result, he is interested in selling some of his real estate holdings now, locking in the appreciation and reinvesting in a safe, income-producing investments. What could Jack do with his appreciated real estate holdings? What vehicle(s) should he consider to meet his goals? Is this a safe investment? To view the solution to this Case of the Week Click Here.
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.
Immanuel St. Joseph's Foundation	July 14, 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