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September 15,
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 |
September 15,
2008 |
GiftLaw Weekly eNewsletter -
September 15, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"In general, the
art of government consists of taking as much money as possible from
one class of citizens to give to the other."
-- Voltaire
Ballooning Deficit
Cloud Over Election
The fall elections are heating up as
candidates for President, the Senate and House prepare to launch
campaigns. It will be a busy October for political figures
throughout the nation.
On September 9, 2008, the
Congressional Budget Office (CBO) released the 2008 deficit estimate
of $407 billion. This is more than double the 2007 deficit of $161
billion.
Budget leaders of both parties promptly responded.
At a Senate Budget Committee hearing, Chair Kent Conrad (D-ND)
stated, "It is Republican policies on spending and taxes that have
exploded deficits and debt. By the time they are done, on their
watch, under their control, they will nearly have doubled the
national debt; they will have far more than doubled foreign holdings
of U.S. debt and the economic consequences are just becoming
clear."
The ranking member of the Senate Budget Committee is
Sen. Judd Gregg (R-NH). He responded by stating, "These budget
numbers are obviously bad. The deficit will have more than doubled
from last year. Remember, this is doubling by the Democratic
Congress, and Congress hold controls the purse strings. Debts are up
by $1 trillion. We are looking at a situation where only one regular
appropriation bill has passed in the past two years -- it was the
Defense Appropriation Bill -- and two if you count the omnibus bill.
So essentially the business of operating the government from
day-to-day has been abdicated by the Democratic
leadership."
Editor's Note: In an election year it is
understandable that both parties will point to the other side with
respect to the federal budget deficit. Your editor and this
organization take no position on these statements and share this
background as a public service. At present, the CBO reports that the
federal public debt is now 38% of the gross domestic product, or the
entire U.S. economy. This debt is a very large number, but it is
reasonably close to the average debt level as a percent of the
economy for the past five decades. However, both the next Congress
and the next President will need to face the fact that the budget
deficit is growing and a long-term solution for funding Social
Security and Medicare has not yet been achieved.
Tax
Extenders and IRA Rollover Deferred Again
Each year for
the past 15 years Congress has passed a series of tax provisions
referred to as "tax extenders." The tax extenders for 2008 were
passed by the House in late 2007, but the Senate deadlocked in
March, May, and July of 2008. It now seems probable that the Senate
will be unable to pass the tax extenders prior to the anticipated
adjournment on September 26, 2008.
Sen. Max Baucus was asked
about extenders and stated, "The energy issue has to be resolved
first." He then emphasized that the tax extenders would be
considered only after the energy bill.
Sen. Charles Grassley
(R-IA) was also asked this week about the tax extenders. He
suggested that the extenders are not likely to pass without
"Democrats giving up on offsets."
Editor's Note: A
leading financial newsletter suggests that the IRA Rollover and
other extenders are "guaranteed to pass." However, while the
extenders (including AMT relief, the popular teacher's expense
deduction, the IRA Rollover and other provisions) are likely to
pass, it now seems quite possible that the bill may not be signed
until December of 2008. The charitable organizations and donors who
are hoping and planning for IRA Rollover gifts will need to act very
quickly if indeed the bill is enacted and signed during December.
Given that uncertainty, many charitable organizations are collecting
a list of donors interested in IRA Rollover gifts so that these IRA
transfers to charity could be made quickly if the bill passes and is
signed in December.
Energy Extenders Bill
Proposed
Sen. Max Baucus (D-MT) has announced that he and
ranking member of the Senate Finance Committee Charles Grassley
(R-IA) have agreed to jointly introduce the Energy Independence and
Investment Act of 2008.
Because he has tried several times to
pass an energy bill, Sen. Baucus humorously noted that, "I am
starting to feel like Don Quixote. Except I am not jousting at
windmills, I'm jousting for windmills."
While Senate
Democrats and Republicans have not been able to agree previously on
an energy bill, the compromise could potentially pass and be enacted
because of what Sen. Baucus calls the motivating force of "$4
gas."
The key benefits under the bill include extension of
wind and solar energy credits, a credit of $7,500 for plug-in
electric cars, a credit for capture of carbon dioxide,
energy-efficiency credits for buildings and new credits for ethanol
and other alternative fuels. There are also offsets that would
increase taxes on the five largest oil and gas
companies.
Form 990 Regulations Eliminate Advance
Rulings
In T.D.
9423; 73 F.R. 52528-52555 (9 Sep 2008), Treasury published final
and temporary regulations for implementing Form 990. The regulations
are effective immediately and specifically apply to organizations
with advanced ruling periods expiring on or after June 9,
2008.
Effective immediately, the advanced ruling procedure is
eliminated. An organization will be exempt as a public charity for
five years if it can be demonstrated that the nonprofit will
"reasonably be expected to receive the essential public support
needed during the period."
At the same time, Treasury
published frequently asked questions (FAQs) on the new regulations.
The FAQs note that any organization with an advanced ruling period
expiring on or after June 9, 2008 will be treated as a public
charity for a period of five years.
These charitable
organizations will be required to include additional information on
the new Form 990 to show public support received. After five years,
if the organization is not able to demonstrate a sufficient level of
public support (normally 33% or more of revenue from donors who make
gifts of 2% or less of total support), then in the sixth and
succeeding years the organization will be treated as a private
foundation and must file Form 990-PF.
IRS Commissioner Doug
Shulman noted, "The revised Form 990 enhances transparency for
exempt organizations and makes it easier for them to show that they
are 'publicly supported' charities, rather than private
foundations."
Editor's Note: The IRS believes that
eliminating the advanced ruling procedure will "streamline
processing" of exempt organization requests. It will use the
enhanced Form 990 information to monitor the status of
publicly-supported charities.
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 Sec. 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 by clicking
here.
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PLR THIS
WEEK
PLR - 200836014 Grant of Conservation Easement is Tax
Deductible
Business made a
grant of a conservation easement on real property consisting of
forest, marsh and saltwater habitats for endangered species to a
charitable organization in perpetuity. The charity is organized as a
public charity within the meaning of Sec. 170(b)(1)(A)(vi) created
to preserve natural and rural land along the coast of State X.
Business requested a ruling that the grant of the easement satisfies
the requirements of a "qualified conservation easement" within the
Sec. 170(h) and accompanying regulations.
In order for a
grant of a conservation easement to be deductible, the grant must
meet three requirements. First, the easement must be on real
property that is either in a natural or relatively natural state, is
agricultural land or has significant historical value. Second, the
property must be granted to an organization that is committed to the
protection of natural resources for conservation purposes. Sec.
170(h)(4) defines "conservation purpose" as: (i) the preservation of
land for recreation or education of the public; (ii) protection of
relatively natural habitat for wildlife or plants; (iii) the
preservation of open space; or (iv) preservation of a historically
important site where such preservation is for (a) the scenic
enjoyment of the general public, (b) pursuant to a clearly defined
government conservation policy, (c) a protection of an environmental
system, or (d) the preservation of a historically important land or
structure. The third requirement, under Sec. 107(h)(5), is that the
easement must be exclusively for conservation purposes and must last
in perpetuity.
The Service concluded that this easement is on
relatively natural land containing endangered species, thus meeting
the first requirement. The organization acquiring the easement is a
qualified Sec. 501(c)(3) nonprofit dedicated to the preservation of
natural lands. Business demonstrated that the easement is for both
the protection on an environmental system and preservation of open
space. Finally, the Service noted that the easement was granted in
perpetuity, as evidenced by the preamble of the easement document.
Therefore, the Service allowed a deduction for the contribution of
the conservation easement by Business.
To view the full
PLR Click
Here.
|
CASE OF THE
WEEK
The Ivy League CRAT, Part 8
Nancy Franks, 80, is a loving and giving woman.
Nowhere is this more true 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 four years charitable
remainder annuity trust (CRAT) with a 20% payout. (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.
As for the
remainder gift to charity, Nancy has her favorite charity already
selected. In fact, Nancy's favorite charity is her very own private
foundation, which she created many years ago with her late
husband.
May Nancy's CRAT have a private foundation as the
remainder beneficiary? If so, what are the tax consequences of such
a designation?
To view the solution to this Case of the
Week Click
Here.
|
ARTICLE OF THE
MONTH
IRA Loans to Charity
According to the Federal Reserve, IRAs now have
passed $3 trillion in value and are moving toward $4 trillion.
Millions of IRA owners are also charitable donors and may be
interested in a plan to benefit charity while still receiving life
income from an IRA.
A potential "benefit to charity with life
income" strategy was described in PLR 200741016. It involves a loan
from an IRA to a charitable organization with the interest payments
used to fund the IRA required minimum distributions. This option
exists with self-directed IRAs and custodians who are willing to
participate in the transaction.
There are three potential
options or strategies that could be involved with a loan from an
IRA. These are a loan to the charity with a bequest of the note, a
plan similar to PLR 200741016 in which the charity uses the funds to
acquire a life insurance policy on the IRA owner, and an option in
which the donor not only loans the funds to the charity but also
makes a cash gift of the required minimum
distributions.
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 |
September 15,
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
| |
