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August 18,
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 |
August 18,
2008 |
GiftLaw Weekly eNewsletter -
August 18, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"Our tax code is
perhaps the second most remarkable book in Western civilization. Of
only one other book can it be said, with equal conviction, that
great minds have devoted countless hours to the scrutiny and learned
exegesis of every passage; that differing interpretations of the
text have given rise to some of humanity's most epic struggles; and
that, while millions mine it for valuable insights and inspiration,
those who claim to live by the book and follow its precepts probably
far outnumber those who actually do so."
-- J. Mark Iwry
Treasury
Inspector General Agrees With Einstein
"The hardest thing in the world to understand
is the income tax."
Albert Einstein
In a July 30, 2008
report, the Treasury Inspector General for Tax Administration
(TIGTA) claimed that the IRS was making errors in administering the
income tax, especially the alternative minimum tax (AMT).
The
income tax has two basic systems -- the regular income tax and the
alternative minimum tax. The tax is calculated under both systems
and the higher of the two taxes is paid.
With the reduction
in rates on regular income tax and increasing incomes for many
Americans, a larger group each year pays AMT rather than regular
tax. While both the regular income tax and the AMT are complicated,
Treasury in the TIGTA report is agreeing with Albert Einstein that
the income tax is very difficult to do correctly.
For
example, the IRS computer identified 226,000 cases in which
taxpayers filed returns and the IRS calculation of AMT was different
from the taxpayer calculation. The Treasury reviewed 52 cases
selected at random. From these cases, Treasury determined the IRS
"did not follow procedures" with respect to 11 cases. While 8 of the
11 were simple data entry errors, three cases were the result of the
IRS examiner not correctly calculating the AMT.
Editor's
Note: When the IRS auditors who are systematically trained in
alternative minimum tax make errors in calculating over 5% of their
cases, it leads one to agree with Albert Einstein. The tax code is
so complicated that even the IRS can't correctly determine the tax
payable! This complexity highlights the importance of Congress
continuing to increase the AMT exemption to reduce the number of AMT
taxpayers. When Congress returns in September, the tax extenders and
AMT exemption relief bill should be a high priority. If Congress
fails to pass the tax extenders and AMT relief, millions of American
taxpayers will face the complexity and uncertainty of AMT this
year.
Most Corporations Do Not Pay Tax
Sen.
Byron Dorgan (D-ND) and Sen. Carl Levin (D-MI) recently requested a
report from the Government Accountability Office (GAO) on payments
of taxes by corporations. The report indicated that 66% of U.S.
domestic corporations (1.2 million) did not pay federal income tax
in 2005. Even many large corporations with $250 million in assets or
$50 million in sales paid no tax.
Sen. Dorgan exclaimed,
"It's shameful that so many corporations make big profits and pay
nothing to support our country. The tax system that allows this
wholesale tax avoidance is an embarrassment and unfair to
hardworking Americans who pay their fair share of taxes. We need to
plug these tax loopholes and put these corporations back on the tax
rolls."
Speaker Nancy Pelosi (D-CA) agreed and commented,
"When two-thirds of corporations pay no taxes, American workers are
forced to pay too much in taxes even as they cope with rising prices
and falling wages. The GAO study highlights the need to revisit tax
reform to ensure that U.S. companies pay their fair share of
taxes."
In response to the press release by Dorgan and Levin,
the Tax Foundation published an article that offered a different
perspective. Tax Foundation economist Josh Barro noted that there
were only 3,565 large corporations that did not pay tax in 2005.
Less than 1% of the corporations paying zero tax were large
corporations. He also observed that many corporations had poor
market results that produced a zero tax year. For example, American
Airlines lost $862 million in 2005 and General Motors lost $10.5
billion during the year. Both companies paid no income tax because
of these major losses.
The Tax Foundation also observed that
the U.S. now has higher corporate tax rates then nearly all other
industrialized countries. The U.S. tax rate of 35% for large
corporations is significantly above the average 26.6% tax rate of
the other 30 large industrialized nations.
Editor's
Note: Many of the industrial nations in the world have reduced
corporate tax rates because the lower rates increase employment.
With the increasingly competitive global economy, politicians are
attempting to balance the tax revenue for government programs with a
desire to maintain high levels of employment. The study requested by
Sen. Dorgan and Sen. Levin is in preparation for anticipated major
tax reform in 2009. There are a number of Congressional advocates of
lower corporate rates, but the GAO study suggests that accompanying
any lower rates will be simplified and reduced corporate
deductions.
May Churches and Religious Organizations
Support Candidates?
Following the Labor Day holiday,
election campaigns for U.S. President, the Senate and the House of
Representatives will be in full swing.
Each year, the IRS
updates Publication 1828, Tax Guide for Churches and Religious
Organizations. The key election information for churches and
religious organizations is the section on "Political Campaign
Activity."
The IRS guide provides numerous helpful examples
that describe actions that may or may not be taken. Generally, a
charity may not be engaged in specific political activity for the
purpose of electing a particular person to office. However, under
our First Amendment right of free expression, a charity may engage
in advocacy for issues that are consistent with its religious
beliefs.
Actions that may be taken by a
charity:
1. Individual support -- A religious leader may
personally endorse and support a candidate for office. This support
could include an ad in which the religious leader is identified as a
supporter.
2. Appearance at a political rally -- A religious
leader may appear at a campaign event and be identified as a
supporter of the candidate. The religious leader should make clear
that he or she is speaking personally and is not acting in an
official capacity for the religious organization.
3. Issue
Advocacy -- The religious leader and organization may communicate to
constituents and even the general public for his or her position on
issues that will be affected by an election. For example, a
religious organization may discuss its position on faith-based
programs funded by governmental organizations. So long as the issue
advocacy is limited to focus on the issue and not a substitute for
endorsing a specific candidate, it is
permitted.
Actions that may not be taken by a
charity:
1. Official Publication Endorsement -- In a
monthly newsletter, a religious leader may have a personal column.
However, he or she may not use that column to personally endorse a
candidate for public office. Even if the religious leader pays
personally for the cost of that portion of the newsletter, it is an
official publication of the charity and the endorsement is not
permitted.
2. Public Worship Endorsement -- A religious
leader conducting a public worship session may not endorse a
candidate for public office. This includes either a direct or an
indirect endorsement at the public meeting.
3. Issue Advocacy
Endorsement -- The charity may prepare appropriate print and
electronic communications to state its position on a public issue.
For example, if public funding of faith-based programs is an issue,
the organization may create print and electronic media to explain
its positions. However, it may not use that media to compare
candidate positions in a manner that effectively communicates an
endorsement of a specific candidate for public
office.
Editor's Note: IRS Publication 1828, Guide for
Churches and Religious Organizations is available at
www.IRS.gov.
Applicable Federal Rate of 4.2% for
August -- Rev. Rul. 2008-43; 2008-31 IRB 1 (17 July
2008)
The IRS has announced the Applicable Federal Rate
(AFR) for August of 2008. The AFR under Sec. 7520 for the month of
August will be 4.2%. The rates for July of 4.2% or June of 3.8% 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 - 200832017 Special Trustee Allocates CRUT
Income
Trustor intends to
create a qualifying charitable remainder unitrust (CRUT) under Sec.
664(d)(2). The instrument directs trustee to pay 25% of the income
first to Trustor for life and, if Spouse survives Trustor, then to
Spouse. The remaining 75% of the income is to be paid by a Special
Trustee (ST) to at least one of the following: Trustor, surviving
Spouse and/or any Sec. 170(c), 2055(a) or 2522(a) organization.
Trustor retains power to appoint and replace ST with another ST that
cannot be the Trustor, relative or subordinate of the Trustor.
Trustor seeks a ruling from the Service that the payment of a fixed
percentage of the CRUT income to named beneficiaries within the ST's
absolute discretion and the Trustor's power to appoint and
substitute an independent ST does not preclude CRUT from
qualification under Sec. 664(d)(2).
The Service ruled that
neither the power of an independent ST to apportion part of the CRUT
income between charitable and non-charitable beneficiaries nor the
power of the Trustor to appoint and replace ST with anyone other
than Trustor is inconsistent with the requirements of Sec.
664(d)(2). Generally, a trust does not meet Sec. 664 CRUT
requirements if a person has the sole discretion to apportion income
to a non-charitable class of beneficiaries because holding such a
power would result in a grantor-retained trust. However, Sec. 674(c)
provides an exception if the trustee is independent (not related to
or subordinate to the trustor). A trustee's discretionary power to
apportion such income will not disqualify a Sec. 664(d)(2) trust.
Furthermore, a trustor may retain the power to appoint and
substitute trustees who hold discretionary power to apportion income
without disqualifying the trust so long as the trustor cannot serve
as the trustee. See Sec. 1.674(d)-2(a).
To view the full
PLR Click
Here.
|
CASE OF THE
WEEK
The Ivy League CRAT, Part 4
Nancy Franks, 80, is a loving and giving woman.
Nowhere is this truer than when it comes to her two grandchildren,
Tommy and Cathy. Ever since the twins were born, Nancy has smothered
the two with attention, gifts and sweets. Although Tommy and Cathy
are now 17 years old, Nancy still bakes them cupcakes for their
birthdays and knits them sweaters for Christmas.
As seniors
in high school, Tommy and Cathy are applying for college. They both
want to attend Ivy League universities in the fall. As an Ivy League
alumnus, Nancy is thrilled. However, Nancy cannot believe the prices
for tuition, room and board nowadays. She can remember the days when
tuition, room and board did not even reach $1,000. In contrast, the
projected cost of four years of tuition, room and board is $150,000
per student or $300,000 for two students.
Taking into account
the rising cost of higher education and the limited resources of
Tommy's and Cathy's parents, Nancy wants to "take care of it all."
As a result, Nancy decides to create a $400,000 term of years
charitable remainder annuity trust (CRAT). (See "The Ivy League
CRAT, Part 1") The CRAT would provide three wonderful benefits: 1)
fixed payments to cover education costs, 2) income tax savings and
3) remainder gift to charity.
With respect to the funding of
the CRAT, Nancy has the perfect asset. Nancy owns a beautiful and
cozy lakeside vacation home in Vermont. She rarely uses the home, so
it is an ideal property for the CRAT. Moreover, several months ago,
a long-time neighbor offered her $300,000 for the home. Nancy told
the neighbor she would think about it.
Can Nancy fund her
term of years CRAT with the lakeside home? What issues need to be
addressed?
To view the solution to this Case of the Week
Click
Here.
|
ARTICLE OF THE
MONTH
Life Estate Opportunities in a Down
Market
With home prices
falling and real estate markets down, more of your senior donors are
deciding to remain in their homes. Contractors report remodels are
on the rise with additions that include first floor living quarters
and bathrooms equipped with safety-bars for those desiring to
maximize in-home longevity.
The prospect of more and more of
your donors wishing to remain in their homes presents the perfect
opportunity for marketing a charitable life estate gift. The goal of
this article is to cover the basics of life estates and address some
of the gift acceptance issues including MIT agreements and life
estate rollover options.
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 |
August 18,
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
| |
