|
September 22,
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 |
September 22,
2008 |
GiftLaw Weekly eNewsletter -
September 22, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"Because of the
income tax, a penny saved is more than a penny earned."
-- Jeffery L. Yablon
Financial
Crisis Leads to Senate Tax Compromise
It has been a busy
week for Treasury Secretary Hank Paulson and Chairman of the Federal
Reserve Ben Bernanke. The financial crisis this week started with
the federal government takeover of Freddie Mac and Fannie Mae.
Following the bankruptcy of Lehman Brothers and the unprecedented
federal acquisition of 80% of insurance giant AIG, Sec. Paulson
proposed a government bailout of "hundreds of billions" in high-risk
mortgage debt.
With the financial crisis on Wall Street, the
Senate was finally jarred into action. Recognizing the need for
action on the deadlocked tax bills, Sen. Max Baucus (D-MT) and Sen.
Charles Grassley (R-IA) joined together to craft a
compromise.
They determined that a compromise bill could be
drafted that combined key elements of five existing bills. The
compromise bill will be an amendment to H.R. 6049, The Renewable
Energy and Job Creation Act of 2008. It will include AMT relief
(2008 exemptions of $69,950 married and $46,200 single), energy
deductions and credits, tax extenders, disaster relief for the
Midwest and for Texas after the recent tornadoes and hurricanes and
mental health parity provisions.
A key to the $131.5 billion
act is the compromise on offsets. The energy provisions are fully
offset by added taxes on large oil companies and the tax extenders
are partially offset by added taxes on hedge fund managers. Other
provisions would not be offset, leaving a bill with a net cost of
$106 billion.
Sen. Baucus stated, "For the better part of
this Congress, we have been working on passing three major tax
bills. One has been to put America on a sounder energy policy. The
second has been to prevent the alternative minimum tax from raising
taxes for millions of American families. And the third has been to
extend a series of tax incentives that are vital to American jobs
and families."
Sen. Grassley continued, "This legislation
will be a huge shot in the arm to the economy and the timing
couldn't be better. The legislation will prevent tax increases on
students, teachers and families, including 24 million taxpayers who
will be protected from having to pay an average of $2,000 of
alternative minimum tax on top of what they already owe. The bill
will also extend tax incentives for renewable energy and strengthen
Americans' efforts to build a more stable and sustainable energy
supply."
Editor's Note: Under normal rules, Senate
bills must be within the overall budget limits. Because the bill
exceeds the current budget by $106 billion, Sen. Kent Conrad (D-ND)
has raised a budget point of order. However, with a vote on Tuesday,
September 23, 2008, it still is quite likely to pass. It is probable
that 60 or more senators will vote in favor of the bill to pass
prior to adjournment at the end of the week.
Will the
House Pass Extenders?
Following probable Senate passage
of an amended Renewable Energy and Job Creation Act of 2008, the
bill will be returned to the House on Tuesday, Sep. 23, 2008.
Because both the House and Senate are facing extreme
pressure to adjourn on September 26th so members can campaign for
re-election, the House will face limited options.
House
Democratic leaders have previously insisted on compliance with
"pay-go" rules for AMT relief and the tax extenders. Rep. Charles
Rangel (D-NY) is Chair of the House Ways and Means Committee and has
vowed to "go to the mat" to preserve the pay-go principles through a
full offset for the bill.
However, Speaker Nancy Pelosi
(D-CA) indicated that she "will look at" the bill as amended by the
Senate. Rep. Steny Hoyer (D-MD) is the House Majority Leader and has
also strongly backed pay-go. However, Rep. Hoyer indicated that he
would consider the Senate legislation.
Editor's Note:
The House faces only two possibilities due to the very limited time.
It is possible that Speaker Pelosi could present the Senate bill to
the House for an up or down vote. Alternatively, the House could
amend the Senate bill, pass yet that amended bill and return it to
the Senate. However, with only two or at most three days remaining,
this "ping-pong" strategy of passing amended bills and sending them
back to the other chamber will quickly run the clock out. Hopefully,
with thousands of business owners and over four million teachers
anxiously waiting for a favorable decision, the House and Senate
will complete work on the tax extenders bill by the end of the
week.
IRA Rollover and Other Charitable Tax
Extenders
The Renewable Energy and Jobs Creation Act of
2008 (H.R. 6049), as amended by the Senate, includes several
charitable tax extenders. The major charitable extenders
are:
Sec. 205 IRA Charitable Rollover. The IRA
charitable rollover for donors over age 70˝ permits a transfer up
to $100,000 per year to a qualified charity in 2008 and in
2009.
Sec. 307 Subchapter S Appreciated Gifts. If a
Subchapter S corporation makes a gift of appreciated property, the
gift flows through as a full fair market value deduction with a
reduction of the shareholder basis for only the inside basis of
the property.
Sec. 321 Computer Gifts. C
corporations may make qualified computer contributions and receive
enhanced deductions. The deduction amount equals the lesser of
basis plus one-half the item's appreciation or twice the basis. In
general, a C corporation's charitable contribution deductions for
a year may not exceed 10% of the corporation's taxable income.
Sec. 170(b)(2). To be eligible for the enhanced deduction, the
contributed property must be contributed to a school or
library.
Sec. 323 Gifts of Food Inventory. Any
taxpayer, whether or not a C corporation, engaged in a trade or
business is eligible to claim the enhanced deduction up to 10% of
net income for contributions of "apparently wholesome food."
"Apparently wholesome food" is defined as food intended for human
consumption that meets all quality and labeling standards imposed
by law and regulations even though the food may not be readily
marketable.
Sec. 324 Book Inventory Deductions. C
corporations may make qualified book contributions and receive
enhanced deductions. A qualified book contribution means a
charitable contribution of books to a public school that provides
elementary or secondary education (kindergarten through grade 12)
and that is an educational organization that normally maintains a
regular faculty and curriculum with a regularly enrolled body of
students and a school facility. The donee organization must
certify in writing that the contributed books are suitable for use
in the donee's educational programs and that the donee will use
the books in such educational programs. Editor's
Note: With the financial crisis and the pressing need to start
the fall campaign for re-election, House members are likely to pass
the IRA rollover by the end of the week. Charities should
immediately begin to plan their marketing campaigns for IRA
rollovers. If the bill passes this week, there will still be time to
raise several hundred million in IRA gifts in
2008!
Applicable Federal Rate of 3.8% for October --
Rev. Rul. 2008-49; 2008-40 IRB 1 (17 Sep. 2008)
The IRS
has announced the Applicable Federal Rate (AFR) for October of 2008.
The AFR under Sec. 7520 for the month of October will be 3.8%. The
rates for September of 4.2% or August 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.
|
PLR THIS
WEEK
PLR - 200829015 NIMCRUT Survives
Reformation
On Date 1, A
creates Trust with the intention that it qualify as a NIMCRUT under
Sec. 664(d)(3). Trust instrument provides for quarterly payments
equal to the lesser the unitrust payout percentage or the trust
income for the taxable year and includes a makeup provision. Sec. 10
of the Trust instrument allows the Trustee to amend the Trust
instrument in any manner required to ensure that it remain qualified
as a charitable remainder trust under Secs. 664(d)(2) and (3). On
Date 2, final regulations under Reg. 1.664-3 were issued and Reg.
1.664-3(a)(1)(b)(3) provided that proceeds from the sale or exchange
of any assets contributed to the trust must be allocated to
principal and not trust income to the extent of the fair market
value of the assets on the contribution date. Trustee, concerned
additional contributions to Trust would disqualify Trust under the
recently enacted Reg. 1.644-3(a)(1)(b)(3), petitioned Court to
reform Trust.
Court granted the reform request by striking
the Trust's makeup liability provision and adding a paragraph
requiring the proceeds from asset contributions be allocated to
principal and not income to the extent of fair market value. The
Service concluded the above judicial reformation of Trust did not
cause Trust to fail as a NIMCRUT under Sec. 664, which sets forth
the requirements for charitable remainder trusts. Sec. 664(d)(3)
permits trustees to pay the income beneficiary the lesser of the
unitrust amount or the trust income annually and, for any year in
which trust income exceeds the unitrust amount, permits the trustee
to include in the payment the excess value for the taxable year to
the extent the aggregate of the amounts paid in prior years was less
than the aggregate of the required payout amounts.
To
view the full PLR Click
Here.
|
CASE OF THE
WEEK
Family Feud Insurance, Part
1
Rodney and Kelly Griggs,
both 60, are active sponsors of community programs and local
charities. As part of a program called "Building Communities From
The Ground Up," a local land preservation charity decided to
purchase large blocks of vacant land. The land would be preserved
for future parks and recreational facilities in accordance with the
charity's mission.
Despite the wonderful eventual benefits,
any current land purchases would put a financial strain on the
charity's resources. To help ease the strain, the charity plans to
purchase the land with a long-term, interest-only, $1 million
mortgage. Despite the financial strain, the charity wants to proceed
because these land purchases represent a great opportunity for the
community.
The charity is hopeful that a major donor will
emerge in the future whose gift will pay off the outstanding
mortgage balance. Believing the Griggs may be the major donor they
are hoping for, the charity approaches them with the following
proposal.
The charity proposes that the Griggs create a
two-life charitable remainder trust (CRT) with $1 million. The CRT
will distribute income each year to the Griggs and therefore provide
a steady stream of income to them. Upon the Griggs' death, the
remaining trust principal would pass to the charity. Given the
modest 6% payout of the CRT, it is very likely that the charity will
receive $1 million or more at the end of the trust term. In other
words, the charity would have more than enough money to extinguish
the mortgage balance.
The Griggs love the plan. They have
over a $1 million of oil and gas stock and they have wanted to
diversify for quite some time. Moreover, the lifetime income and
major gift to charity make the plan that much better. However, there
are four major objections to the plan - the Griggs' four children!
In particular, the four children do not like the idea that their
inheritance potentially drops by $250,000 per child when their
parents use $1 million to fund the CRT.
Although the Griggs
are committed to the charity, they want to address the financial
concerns of their children before they proceed. In other words, they
need a plan that provides for the children as well as the charity.
What can the charity suggest?
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.
|
| Immanuel St.
Joseph's Foundation |
September 22,
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
| |
