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August 25,
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 25,
2008 |
GiftLaw Weekly eNewsletter -
August 25, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
Introduce a wise
and efficient system of taxation, and life and energy will pervade
the country. Without such a system, it will sink into general and
fatal paralysis.
-- The Atlantic
Magazine
Charities Watch Conventions From
Sidelines
It is Presidential Convention season. The
Democratic Convention will open in Denver on August 25, 2008. The
Republican Convention will convene in Minneapolis on September 1.
Many supporters of philanthropy are watching both
conventions with great interest. The updated IRS Publication 1828,
Tax Guide for Churches and Religious Organizations, has ten
full pages on political campaign activity. Charities are permitted
to advocate for issues that are related to their exempt purpose, but
are not permitted to endorse a specific candidate for
office.
With over 80% of Americans now using the Internet,
website advocacy is very common for both issues and candidates.
Publication 1828 also includes a section that discusses advocacy on
websites.
Once again, websites are permitted to engage in
advocacy of positions with respect to the election. However, as
might be expected, the website may not directly or indirectly
endorse a specific candidate for public office. While a web site may
also have links to other sites, the charity should generally be
careful not to link to sites that directly support one of the
candidates for office.
Final IRS Instructions on
Updated Form 990
On August 19, 2008 the IRS published on
its website the final instructions
for the new Form 990.
The previous Form 990 was created
in 1979 and the IRS properly noted that there have been massive
changes within the philanthropic community since that time. In the
background paper on Form 990 the IRS stated, "The form no longer
adequately served the Service's tax compliance interests or met the
transparency and accountability needs of the states, the public, and
communities served by the organizations."
With the emphasis
on transparency and accountability, there is a new section on
"Governance, Management and Disclosure." This section asks for new
details about the board structure and the governing body. For
example, the nonprofit must disclose the number of independent
directors and the reasons why those directors are considered
independent.
Excessive compensation has also been a concern
of the IRS. The Service background paper states that "all
organizations must list their officers, directors, trustees and key
employees, regardless of whether they were compensated, and report
compensation paid by the organization and related organizations to
such persons." An additional requirement is that the top five
highest compensated employees paid over $100,000 for the year must
be disclosed. For those with compensation over $150,000, there is
additional compensation detail required in Schedule J,
Compensation Information. Part of their disclosed
compensation will include fringe benefits and retirement
plans.
Yet another requirement is the new Schedule L,
Transactions With Interested Persons. This section is
intended to require disclosure of loans, grants and other benefits
to individuals that could give rise to an excess benefit transaction
and potentially trigger Sec. 4958 Intermediate
Sanctions.
Editor's Note on Increasing Regulation of
Philanthropy
While the field of philanthropy has grown
dramatically in size and in resources since 1979, there also has
been a recent trend toward greater regulations. The principal
advocate of greater regulation has been Sen. Charles Grassley
(R-IA). He has stated on numerous occasions that it is essential to
the health of the philanthropic sector for the good charities to be
allowed to continue to do their philanthropic work, while limiting
abuses in the field that could eventually cause a reduction in the
tax benefits of charitable giving.
The revised Form 990
follows this trend toward greater regulation of nonprofits. The
governance, compensation and insider transaction disclosure
requirements are clearly steps in the direction of greater federal
oversight of charities. With the federal budget deficit for 2009
projected to be approximately one-half a trillion dollars, every
dollar of tax benefits for charities will be more closely examined
in the future.
Applicable Federal Rate of 4.2% for
September -- Rev. Rul. 2008-46; 2008-36 IRB 1 (19 Aug
2008)
The IRS has announced the Applicable Federal Rate
(AFR) for September of 2008. The AFR under Section 7520 for the
month of September will be 4.2%. The rates for August of 4.2% or
July of 4.2% 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 at clicking
here.
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PLR THIS
WEEK
PLR - 200741016 IRA Loan To Charity
Permitted
IRA owner
desires to make a 20 year term loan with annual 5% interest payments
to church B. The self-directed IRA custodian is willing to transfer
funds to church B in exchange for both the 20 year/5% note and a
collateral assignment on an insurance policy.
Church B plans
to use a portion of the funds to acquire a life insurance policy on
the life of IRA owner. Church B will have full ownership and control
of the policy and will be the beneficiary. As part of the agreement
for the loan, church B will complete both the 20 year/5% promissory
note and provide the IRA custodian a collateral assignment of the
proceeds to the life insurance policy.
At the end of 20 years
or the earlier demise of the donor (and maturity of the life
insurance policy), church B will repay the loan principal amount to
the IRA custodian. IRA owner plans to take required minimum
distributions (RMDs) from the IRA during his lifetime. Interest
payments on the loan will provide funds for the RMDs.
IRA
owner requests a ruling that the loan is not a prohibited
transaction and that the IRA has not made a prohibited investment in
the life insurance policy.
Sec. 408(a)(3) prohibits an IRA
from investing in life insurance. Sec. 408(e)(2)(A) indicates that
an IRA owner may not participate in a prohibited transaction such as
a Sec. 4975(c)(1)(B) loan of money to a disqualified person.
Because church B is not a disqualified person, the loan to
church B is permissible. Second, because church B is the owner of
the policy with full rights of ownership and is the policy
beneficiary, the IRA does not own a prohibited life insurance
investment. Therefore, the loan and insurance plan are
permissible.
Editor's Note: An IRA loan to a public
charity that invests the funds in an insurance policy does not
violate the transaction with a disqualified person rule or the
prohibition on an IRA owning life insurance. However, it is a
creative concept that should receive thorough review by counsel
before an IRA owner moves forward with the plan.
To view the
full PLR Click
Here.
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CASE OF THE
WEEK
The Ivy League CRAT, Part 5
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.
Nancy has one reservation,
however. Although she loves the educational institutions Tommy and
Cathy selected, Nancy does not want the educational institutions to
get the entire Ivy League CRAT at the end of the term of years. She
fancies many local charities, and she would like the bulk of her
trust to benefit them.
Does Nancy have to benefit educational
institutions with her Ivy League CRAT? Instead, can Nancy name local
charities as the charitable remainderman? If she desires, can she
change her mind next year?
To view the solution to this Case
of the Week Click
Here.
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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.
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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 1999-2008
Crescendo Interactive, Inc.
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| Immanuel St.
Joseph's Foundation |
August 25,
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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