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July 23,
2007
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 23,
2007 |
GiftLaw Weekly eNewsletter -
July 23, 2007
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
We have long
had death and taxes as the two standards of inevitability. But there
are those who believe that death is the preferable of the two. "At
least," as one man said, "there's one advantage about death; it
doesn't get worse every time Congress meets."
-- Erwin N. Griswold
Closing
the "Tax Gap" May Cause Taxpayer Problems
National
Taxpayer Advocate Nina Olson makes an annual report each summer to
Congress. Her report on July 19, 2007 expressed concern about the
efforts of Senate Finance Chair Max Baucus to close the "Tax
Gap."
Ms. Olson is very concerned that the pressure to
collect additional tax by reducing the $345 billion tax gap will
harm taxpayers. She stated, "The IRS is under scrutiny for its
efforts to close the tax gap, while the Taxpayer Advocate Service
(TAS) is struggling to address taxpayer difficulties that arise as a
result of these very efforts."
She indicates that there is a
balance required. While there is a substantial potential to collect
additional tax revenue, Ms. Olson suggests, "Congress should require
the IRS to adopt a long-term research strategy that focuses not only
on closing the tax gap but also on understanding what it takes to
encourage taxpayers to voluntarily comply."
Sen. Baucus
corresponded this week with Treasury Secretary Henry Paulson on the
tax gap. Sen. Baucus has been exerting pressure on Treasury to
produce a detailed plan to close the tax gap. In April he requested
a plan from Treasury that would raise the voluntary compliance rate
to 90% within a decade.
In supporting this effort Sen. Baucus
noted, "Increasing voluntary compliance is essential to a tax system
that is fair to all Americans. I am encouraged that the Treasury
Department has made considerable progress toward meeting my request
for a comprehensive and credible plan with specific objectives and
targeted completion dates."
Treasury Sec. Paulson responded
to Sen. Baucus and stated, "I appreciate your continued support for
our efforts to improve tax compliance. Our staffs have had regular,
productive meetings to discuss the administration's legislative
proposals to reduce the tax gap."
Editor's Note: With a
belief by Senate staffers that perhaps $100 billion of the $345
billion tax gap may be collected by additional IRS enforcement,
there are powerful forces that are likely to lead to increased tax
revenue and increased tax complexity. However, the steps necessary
to collect additional revenue may create burdensome new reporting
requirements for ordinary American taxpayers.
House
May Bar Tax Patents
The US Patent and Trademark Office
(USPTO) has authority to issue patents to inventors. The issuance of
a patent permits an inventor a term of 20 years to receive the
benefits of his or her original idea or device. The inventor
frequently benefits by licensing the patented concept or device to
organizations that then implement the concept or market the
device.
Patents have traditionally applied to new devices and
medical research breakthroughs. The protection of the patent is
believed to be important for the purpose of encouraging companies
and inventors to invest resources in research and development of new
ideas and devices.
However, there now are "business process"
patents in a number of areas. One of the areas is tax law. The USPTO
has issued approximately 50 tax patents. Over 80 applications for
tax patents, including applications for patents of charitable
remainder trusts and charitable lead trusts, are now
pending.
The American Bar Association (ABA) has opposed the
concept of tax patents. Attorney Dennis Drabkin, Chair of ABA Tax
Force on Patents, indicates, "I can't even imagine what it will be
like in five or ten years if any time a lawyer or accountant gives
tax advice, they have to find out if there is a patent on this." Mr.
Drabkin and other tax attorneys observe that it will be very
difficult to implement common tax planning strategies if the
attorney or CPA must also be an expert in patent law.
To
reduce the potential risk to the CPAs and attorneys who counsel
clients to undertake a strategy that could save taxes (including
funding a charitable remainder or lead trust), Rep. Rick Boucher
(D-VA) and Rep. Bob Goodlatte (R-VA) have introduced an amendment to
H.R. 1908 that is designed to restrict tax patents. The amendment
essentially states that "a patent may not be obtained for a tax
planning method." A tax planning method is any strategy to defer or
minimize tax liability, but does not apply to tax preparation
software. The tax patent bill was approved by the House Judiciary
Committee and now will be submitted to a vote by the full
House.
If the Boucher-Goodlatte amendment passes, it will
restrict issuance of tax patents after the date of passage and will
also preclude pending applications from receiving a tax
patent.
Editor's Note: This is very important
legislation for the charitable sector. If tax patents were issued to
an attorney or CPA for charitable remainder trusts, gift annuities
or pooled income funds, there could be a reluctance by other
professional advisors to create these agreements.
Tax
Exempt Hospitals Report Charity Care
On July 19, 2007 the
IRS released a summary of almost 500 tax-exempt medical centers and
their efforts to provide community benefits and charity care. Lois
G. Lerner, Director of the IRS Exempt Organizations Division,
stated, "This is an important first step in our ongoing review of
community benefit and tax-exempt hospitals. As the report states,
this project gives the IRS a unique and valuable insight into the
manner in which hospitals report on and attempt to meet the
community benefit standard."
The report highlights the
efforts of the IRS and the Senate Finance Committee to understand in
greater depth the benefits of medical centers for their communities.
Sen. Charles Grassley (R-IA) has been the motivating force behind
that effort. He commented, "The report highlights that 22% of the
non-profit hospitals spend less than 1% of total revenue on
uncompensated care and 21.6% of hospitals reported spending less
than 2% on community benefit as a percentage of total revenue. The
report also shows that it's possible for hospitals to provide
generous support for those in need, with 20% of the hospitals
providing over 10% of total revenues for uncompensated care."
Sen. Grassley has been discussing a number of potential
reforms that relate to tax-exempt medical centers and uncompensated
care. These could include a written charity care policy, a minimum
percent allocated to charity care such as 5% of revenues, new
restrictions on joint ventures between nonprofit and for-profit
organizations and a uniform definition of uncompensated
care.
PPA 2006 Charitable Impact Hearing
A
hearing will be held on July 24, 2007, by the House Ways and Means
Oversight Committee on the impact of the Pension Protection Act of
2006 (PPA 2006) on charitable organizations. The hearing will
undoubtedly cover both the incentives for charitable giving and the
regulatory changes of PPA 2006.
A report by the Joint
Committee on Taxation (JCT) highlighted the probable topics for the
hearing. Testifying at the hearing on behalf of charitable
organizations will be Diana Aviv, President of Independent Sector
and Steve Gunderson, President of the Council On
Foundations.
In the incentives area, the JCT report suggests
that the IRA charitable rollover, gifts of food and book inventory
and gifts for conservation purposes are likely to be discussed. The
JCT report notes that The Public Good IRA Rollover Act of 2007 (H.R.
1419) would make the IRA Rollover permanent and also extend the IRA
rollover to life-income gifts for donors over age 59˝.
On the
regulatory side there are three probable topics of great interest.
First, museums and other organizations that receive partial-interest
art gifts have experienced extraordinary problems with fractional
gifts under PPA 2006 rules. Second, community foundations will note
the significant restrictions on donor advised funds and the
potential changes that may result from the IRS study on donor
advised funds due to be published in August of 2007. Third,
community foundations and other organizations will also discuss the
limitations on supporting organizations, particularly the stringent
limits on Type III SOs in PPA 2006.
Applicable Federal
Rate of 6.2% for August. Rev. Rul. 2007-50; 2007-32 IRB 1 (18 Jul.
2007)
The IRS has announced the Applicable Federal Rate
(AFR) for August of 2007. The AFR under Section 7520 for the month
of August will be 6.2%. The rates for July of 6.0% or June of 5.6%
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 2007, 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 - 200728026 Division of NIMCRUT will Not Result in
Two Disqualified Trusts
H
and W created a Net Income plus Make-up Charitable Remainder Trust
(NIMCRUT) on date 1. On date 2, H and W dissolved their marriage and
divided their property along the lines of a previously agreed
stipulation order. H and W proposed to bifurcate their NIMCRUT with
50% of the original trust corpus allocated to the new trusts. After
the proposed division H and W would receive the same amounts in the
aggregate they would had received before bifurcation. H and W sought
a letter ruling from the Service that the proposed bifurcation would
not result in the disqualification of the new NIMCRUTS and would not
result in the implication of gift tax. The Service ruled that
because the NIMCRUT would be bifurcated into trusts meeting the
requirements of a charitable remainder trust they will both qualify
as tax-exempt NIMCRUTS under Sec. 644(d)(2). Considering the issue
of gift tax, the Service noted that under Sec. 2512(b) where
property is transferred for less than an adequate and full
consideration, the amount by which the property exceeds the value of
the consideration shall be deemed a gift. Sec. 2501(a) imposes a
gift tax on transfers of property. Sec. 2511 provides that tax
applies if the transfer is in trust or otherwise. However, Under
Sec. 2516 property transferred to another will be deemed to have
been transferred for full and adequate consideration if the transfer
occurs pursuant to a written agreement between a husband and wife if
a divorce occurs with in three years of the establishment of such an
agreement. The Service ruled that because H and W had entered into a
written agreement concerning the division of their property less
than three years before a final divorce decree, the bifurcation of
NIMCRUT would not result in the application of gift
tax.
To view the full PLR Click
Here.
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CASE OF THE
WEEK
Getting Back to the "Art of the Matter", Part
5
Paulo Frambini, 45, is a
talented artist and a self-proclaimed leader of the art purist
movement. He lives, breathes and eats art history and culture. Paulo
refuses to be characterized as any one particular type of artist.
Accordingly, Paulo's artistic creations are very diverse and varied.
In fact, during the past year, he painted a traditional 17th century
landscape piece and he sculpted a giant dolphin out of a 2000-pound
marble block. In addition, he also purchased a modern abstract piece
made entirely out of used car parts.
Not surprisingly, Paulo
strongly supports the arts in his community. He frequently gives
workshops and tours at the local art museum. In addition, Paulo also
is fond of the local art college where young new talent is groomed
and developed everyday.
Paulo desires to make a substantial
contribution to charity. Specifically, he would like to give one of
his work of arts, but also wants to receive income for a period of
ten years to help supplement his inconsistent income. He wants to
take full advantage of the tax benefits associated with charitable
giving.
To view the solution to this Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
Gifts of C Corporations Part III -- Charitable
Bailouts
The majority of
family businesses are sold when the founders retire. However,
perhaps one-third of the time children or other heirs will be
capable of taking over the business. In this circumstance, the
parents typically have three goals. First, they desire to have a
secure source of retirement income. Second, there is the desire to
transfer the business to children. However, in most circumstances,
some children will be operating the business and other children will
be pursuing independent lives and careers. For most small
businesses, the children operating the business will need to have
both control and ownership to assure the long-term success of that
business. Thus, goal number two is to achieve transfer of the
business to children, generally with zero gift or estate taxation.
Third, there are usually other children who will not be involved in
the business. Since children view an inheritance from the parents as
a representation of the love of the parents, it is desirable for
there to be at least general equivalence to the overall inheritance.
Therefore, the third goal is to acquire resources appropriate to
provide a substantial inheritance for children who are not involved
in the business.
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 1999-2007
Crescendo Interactive, Inc.
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| Immanuel St.
Joseph's Foundation |
July 23,
2007 |
| |
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
| |
