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October 1,
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 |
October 1,
2007 |
GiftLaw Weekly eNewsletter -
October 1, 2007
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
A fine is a tax
for doing something wrong. A tax is a fine for doing something
right.
-- Anonymous
Children's Healthcare Bill To
President
The Senate has passed on a 67-29 vote the State
Children's Health Insurance Program (SCHIP). The bill was passed
earlier by the House on a 265-159 vote.
The Children's
Healthcare Bill will increase the number of children who are covered
by federal and state programs. While there is widespread support in
Congress for increasing the number of children covered by the SCHIP
bill, the cost of the program will result in an increase in tobacco
taxes.
The expansion cost of SCHIP is $35 billion. To pay for
this expanded healthcare for children, there would be a 61-cent
increase on each pack of cigarettes and a $3 cap on the tax on
cigars.
President Bush has indicated his intention to veto
the bill because of the tobacco tax provision. Sen. Susan Collins
(R-ME) indicated her support for SCHIP and said that it would be a
"terrible mistake" for President Bush to veto the bill.
Other
senators have discussed the possibility of a more comprehensive
healthcare reform bill. Sen. Charles Grassley (R-IA) suggested, "I
am very hopeful that once we are done with the CHIP debate, we can
roll up our sleeves and get down to the business of tackling
healthcare reform on a much larger scale."
Mortgage Relief
Tax Bill to House
Rep. Charles Rangel (D-NY), Chair of
the House Ways and Means Committee, issued a press release after the
Ways and Means Committee passed the Mortgage Forgiveness Debt Relief
Act of 2007.
Chairman Rangel stated, "Families dealing with
the pain of foreclosure should not have the double whammy of a large
tax bill for terminating their mortgage through no fault of their
own. I am pleased the Committee joined together to unanimously pass
this critical legislation."
The bill enables taxpayers whose
homes are foreclosed to avoid paying tax on the forgiveness of the
debt. This "discharge of indebtedness" on a principal residence will
no longer be taxable.
Part of the bill will potentially raise
taxes for some individuals. A single person or married couple who
live in a principal residence for two of the past five years may
exclude $250,000 ($500,000 for the married couple) of the gain. For
homeowners who have a second home and move to that home, the
exclusion will be prorated based on their time in the second home.
It appears from the language of this statute that most persons who
do this may have to use the second home for five years as a
principal residence to receive the full benefit of the home-sale
exclusion.
Projected 2008 Tax Brackets
Tax
brackets, standard deductions, personal exemptions and various other
tax limits are adjusted each year for inflation. Based upon the
changes in the Consumer Price Index for the year ending August 31,
2007, the projected 2008 amounts have been released. Professor James
C. Young of the Northern Illinois University has projected the
standard deductions to be $5,450 for a single person and $10,900 for
married persons filing separately. The 2008 exemption will be
increased from $3,400 in 2007 to $3,500 in 2008.
In 2008,
the reduction in itemized deductions for taxpayers exceeding the
base level will be a one percent reduction, rather than the two
percent reduction in 2007. The one percent reduction will apply to
2008 charitable gifts and other itemized deductions for single
persons with AGI over $159,950, for a married couple with AGI over
$239,950 and for a person filing as head of household with AGI
$199,950.
Editor's Note: The official numbers for the tax
brackets and all of the exemptions and applicable tax brackets will
be published in a revenue procedure by Treasury during November or
December. However, Professor Young has been correct on his
projections for the past five years.
Appraisal For Façade
Easement Gifts
In ILM 200738013, issued Aug. 9, 2007, the
IRS set forth guidelines for charitable deduction appraisals of
gifts of façade easements.
Generally, under Sec. 170(f)(3),
there is not deduction for gifts of less than an entire interest.
However, Sec. 170(f)(3)(B)(iii) permits a partial interest gift of a
qualified conservation easement to produce a charitable deduction.
The easement must be granted in perpetuity and the gift made
to a qualified organization. The qualified organization is expected
to monitor the easement to insure that the terms are followed in
perpetuity.
One of the types of easements that are permitted
is a façade easement. In order to simplify the process, some
appraisers have appraised the property and then attempted to apply a
percentage reduction in value to determine the value of the
easement. Frequently, the reduction in value has been between 10%
and 20% of the underlying property fair market value.
The IRS
noted that there is no "generally recognized percentage by which an
easement reduces the value of property." The appropriate method for
determining property is to value the property "both before and after
the donation." An appraiser must specify the value of the property,
the specific reasons for the reduction in value, and the claimed
value of the property after the creation of the façade easement. The
charitable deduction will be the difference between the original
value and the reduced value after creation of the
easement.
Tax Patent Fee - - Reportable
Transaction
In REG-129916-07 (26 Sep 2007), the Treasury
issued proposed regulations with respect to the use of tax patents.
Under the proposed regulations, an individual who pays a fee
for use of a tax buying method subject to a tax patent will be
required to report the use of that method. This use of a tax patent
method will now create a reportable transaction under Reg.
1.6011-4(b)(6).
The regulations "exclude mathematical
calculations or mechanical assistance" to prepare a return from the
category of reportable transactions. This exception is intended to
exclude the use of tax software and other tools to produce tax
returns.
The Chair of the American Bar Association Section of
Taxation task force on tax patents is attorney Dennis Drapkin. He
indicated that he and the ABA are pleased that the government has
issued the proposed regulations.
However the ABA, and
various other professional associations continue to express support
for the House and Senate bills that would preclude issuance of tax
patents by the U. S. Patent and Trademark
Office.
Applicable Federal Rate of 5.2% for October. Rev.
Rul. 2007-63; 2007-41 IRB 1 (19 Sep 2007)
The IRS has
announced the Applicable Federal Rate (AFR) for October of 2007. The
AFR under Section 7520 for the month of October will be 5.2%. The
rates for September of 5.8% or August of 6.2% 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 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 - 200728017 Trust Will Not Lose GSTT Exempt
Status
D established Trust
as an irrevocable trust exempt for generation skipping tax (GST)
purposes. Trust document directed the trustee to distribute its net
income at least annually for fifteen years to a charitable
organization as described in Sec. 170(c)(2). At the end of the term,
the trust corpus was to be held in a family trust, to be divided
further into two equal separate trusts for child one and child two.
Child one and child two's shares would pass to the living survivor
and then be divided and distributed to the survivor's descendants.
Currently, child one is still living and has thirteen children and
grandchildren. At trustee's petition, the state court divided the
family trust into five separate trusts with distributions to
descendants be made to primary beneficiaries (decedent's
grandchildren) and if not living, then to the beneficiaries'
descendents(decedent's great-grandchildren).
Section 2601
imposes a generation-skipping transfer tax for any transfer made to
a skip-child (like a grandchild). Regulation 26.2601-1(b)(4)(i)(D)
provides that a modification will not cause a trust exempt from GST
to be subject to GST unless the modification shifts a beneficial
interest in the trust to any beneficiary who occupies a lower
generation than the persons who held the beneficial interest prior
to the modification and the modification does not extend the time
for vesting of any beneficial interest. Such modification may not
also result in an increase in the amount of GST transfer or create a
new GST transfer.
The Service held that the state court
order will not cause the family trust or partitioned trusts to lose
their GST exempt status or become subject to GST under Sec. 2601.
Trust was irrevocable when established and no additions were made to
trust corpus. The state court's partition would not improperly shift
a beneficial interest to a grandchild or great-grandchild not
already in existence and the partition would not extend the time for
vesting of any beneficial interest beyond the period provided for in
Trust. The Service further ruled that the partition would not result
in additional gift tax nor any income, gain, or loss under Secs. 61
or 1001.
To view the full PLR Click
Here.
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CASE OF THE
WEEK
S Corporation Gifts - Strategies and Hurdles Every
Advisor Should Know, Part 9 - Gift Annuity for Mentor Creates
Comfort and Legacy
Tommy
Ely, 58, owns and operates eight car dealerships spread throughout
the city and surrounding areas. Founded in 1977, Tommy is the sole
shareholder of Ely Motorsports, Inc., an S corporation. The eight
car dealerships represent mainly high-end, luxury car lines.
Specializing in providing unparalleled customer service before,
during and after the sale, Ely Motorsports appeals to the affluent
and wealthy. Not surprisingly, Ely Motorsports generates over $250
million annually in sales and consistently ranks among the nation's
top five best dealerships, a record 12 years in a row.
As a
long-time active member of the community, Tommy is frequently
invited to charity fundraisers and events. Tommy is also one of the
top ten richest people in the city, which probably does not hurt his
popularity either. After attending a recent fundraising function for
at-risk youth, Tommy decided to make a major gift to the local
at-risk youth center. The gift is to support future expansion of the
at-risk youth facilities. Tommy is constantly supporting at-risk
youth programs in the local community. In fact, Tommy was an at-risk
youth himself. Having run away from an abusive home at age fifteen,
Tommy actually lived on the streets for a brief time. Fortunately,
Tommy was befriended and taken in by volunteers of the local at-risk
youth center at the age of sixteen. Through love, support and
counseling, Tommy turned his life around and the rest is "car"
history. Consequently, the continual decision to give and the
lifetime support of at-risk programs is not a surprise to the people
who know Tommy's story.
Tommy knows a gift to charity will
produce a charitable income tax deduction, which will reduce his
significant tax liability this year. In addition to the tax savings,
Tommy wants to also benefit his mentor and surrogate father, Ben
Smalls, 81. Specifically, Tommy's likes the idea of giving Ben an
income stream for life to make the rest of Ben's life more
"comfortable."
Is there a way Tommy can achieve all of his
goals with one plan? Tommy wants to satisfy his goals using his Ely
Motorsports shares. Is that a problem? What issues do Tommy and
charity need to address?
To view the solution to this
Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
Return of the Lead Trust - Annuity
LT
During the past three
decades, charitable lead trusts have had dramatic rises and falls in
popularity. Why have lead trusts at times been very attractive and
at other times been quite unattractive tax planning methods? The
answer is that a lead trust is related to estate size, estate tax
laws and the current applicable federal rate.
During the
early 1980's there was the first period of lead trust popularity.
With estates often rising above the $600,000 exemption and estate
tax rates of 55%, many successful Americans had an estate tax
problem. Because the assumed federal rate was 6%, there was a high
level of interest in lead trusts.
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 1999-2007
Crescendo Interactive, Inc.
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| Immanuel St.
Joseph's Foundation |
October 1,
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
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