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October 5,
2009
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 5,
2009 |
GiftLaw Weekly eNewsletter -
October 5, 2009
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"Tax complexity
itself is a kind of tax."
-- Max Baucus
Baucus Healthcare
Bill Vote Nears
In one of the longest Senate bill markups
in history, Sen. Max Baucus (D-MT) finally completed work on over
500 proposed amendments to his health care bill. The America's
Healthy Future Act (AHFA) language is now complete. Following a
determination of cost for the bill by the Congressional Budget
Office, it is anticipated that the Senate Finance Committee will
pass the bill this week.
Sen. Baucus was pleased with the
result. He published a statement early Friday morning that stated,
"We have a bill that will improve the lives of every American. And
one that does so in a fiscally responsible way."
There were
several important votes during the extended review by Senate Finance
Committee members. Sen. Jay Rockefeller (D-WV) proposed that the
bill include a "public option." The public option is included in the
other four proposed bills and has been a controversial proposal.
Rockefeller's amendment for the public option was voted down, with
Sen. Baucus and Sen. Kent Conrad (D-ND) opposing the public
option.
Sen. Conrad has been the primary advocate for a
system of public co-ops rather than the public healthcare option
managed by the federal government. The health care bill includes $6
billion in startup funding for the proposed co-ops.
An
amendment by Sen. Bill Nelson (D-FL) will benefit seniors. Because
the Baucus bill increased the floor for deduction of medical
expenses to 10% of adjusted gross income, seniors would have reduced
medical deductions. Under the amendment by Sen. Nelson, the
threshold for deducting medical expenses for seniors would remain
7.5% of adjusted gross income.
The amended bill includes two
types of benefits to help small businesses acquire health insurance
for employees. First, there will be small business health care
purchasing pools called "SHOP" exchanges. A SHOP will enable a
business with fewer than 100 employees to purchase health insurance
at favorable rates.
In addition, small businesses with 25 or
fewer employees may qualify for partial tax credits for up to 35% of
the cost of employee health insurance. These small businesses will
be required to cover at least 50% of employee health care
costs.
Editors Note: The Senate Finance Committee
markup has been a marathon session. Yet the remaining process is
still lengthy. Therefore, the challenges for passing a health care
bill this year are significant.
First, the Senate Finance
bill must pass and be merged with another Senate bill developed by
the late Sen. Edward Kennedy. If health care bills then pass both
the House and the Senate, there will be a fairly contentious
conference committee to resolve the substantial differences in the
House and Senate plans. Only if all of those differences can be
resolved by the end of the year, will there be a health care bill
passed in 2009.
Conservation Easement Vanishes Into
Thin Air
In J.
Maurice Herman v. Commissioner; T.C. Memo. 2009-205; No.
14005-07 (14 Sep 2009), the Tax Court denied a deduction for a
conservation easement.
Mr. J. Maurice Herman owned a building
on 5th Avenue in New York. It was designed by Henry Odis Chapman in
1923 and was eight stories high in front and 11 stories high in the
rear. The building also included development rights of 22,000 square
feet that could permit an addition from three to six stories.
The building is in the "Upper East Side Historic District"
and is a "certified historic structure."
On December 15,
2003, Mr. Herman contributed a conservation easement for 10,000
unspecified feet of the 22,000 feet of potential development rights.
The recipient was the National Architectural Trust, Inc. (NAT), a
nonprofit Sec. 501(c)(3) organization that is willing to enforce the
easement. Based on an appraisal of the "before and after" value of
the airspace rights conducted by Jefferson Lee Appraisals, Inc., the
value of the charitable deduction claimed by Mr. Herman was
$21,850,000.
Mr. Herman claimed that deduction on his 2003
Form 1040. The IRS denied the deduction, assessed a deficiency and
imposed a Sec. 6662(h) penalty of approximately $5.5
million.
A conservation easement is a real property interest
given to a qualified organization exclusively for conservation
purposes. Sec. 170(h)(1). In this case, the underlying property is a
"certified historic structure" under Sec. 170(h)(4)(A)(iv). However,
this conservation easement does not protect the historic structure.
The underlying structure had been transferred to Mr. Herman's
controlled entity Windsor LLC. Owning 10,000 feet of unspecified
airspace rights does not preclude Windsor from making major
modifications to the historic structure.
Because the 10,000
feet of unspecified rights leave another 12,000 feet in the
ownership of Mr. Herman, it would be possible to build a six-story
addition on the front half of the building and the donated air
rights would have no aesthetic impact.
In addition, the
easement does not protect the underlying land. See Sec.
170(h)(4)(A)(iv). Finally, an easement on property that is close to
a certified structure is not considered to preserve that
structure.
Because the grant of 10,000 feet of unspecified
air rights from the original 22,000 feet does not preserve the
building or the land, the conservation easement vanishes into thin
air.
Applicable Federal Rate of 3.2% for October --
Rev. Rul. 2009-33; 2009-40 IRB 1 (18 Sept. 2009)
The IRS
has announced the Applicable Federal Rate (AFR) for October of 2009.
The AFR under Sec. 7520 for the month of October will be 3.2%. The
rates for September of 3.4% or August of 3.4% 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 2009,
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 - 200939001 Extension of Trust Election for
Charitable Deduction Granted
Grantor of Trust died on Date 1. Trust provides for
bequests to Charity upon Grantor's death. In Year 1, Trust claimed
an income tax deduction for amounts set aside from Trust's gross
income for Charity. These amounts were actually distributed to
Charity in Year 2, but Trust failed to file a Sec. 642(c)(1)
election to claim the deduction for taxable Year 1. Trust requested
an extension of time to make the Sec. 642(c)(1) election.
The
Service ruled that under Reg. 301.9100-3 of the Procedure and
Administration Regulations, the Commissioner may grant an extension
for Trust to make the Sec. 642(c)(1) election. Sec. 642(c) provides
that an estate or trust may claim a deduction (from gross income)
for any amount paid for a Sec. 170(c) charitable purpose during the
taxable year. The charitable contribution must be made pursuant to
the governing instrument. If the contribution is paid after the
close of that taxable year but on or before the last day of the
succeeding taxable year, an election to treat the contribution as
paid during the initial taxable year is permitted. This election
must be made not later than the federal income tax return due date
for the succeeding taxable year (including extensions) under Reg.
1.642(c)-1(b)(2). Reg. 301.9100-1(c) permits the Commissioner to
grant a reasonable time extension to make a regulatory election and
the Commissioner may do so if (1) the taxpayer acted reasonably and
in good faith and (2) granting relief will not prejudice government
interest. See Reg. 301.9100-3. The Commissioner granted Trust 60
days to file Sec. 642(c) elections and stipulated the amended
returns must be filed within the same period.
To view the
full PLR Click
Here.
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CASE OF THE
WEEK
Lucky Lucy Lindstrom's Long Shot
Unitrust
Lucky Lucy
Lindstrom finished college and headed west. She started as a
financial analyst with a large company in Seattle. After just four
years, she became a Registered Investment Advisor and began advising
clients. Lucky Lucy also managed her own investments. Lucky Lucy was
so successful in the markets that she now manages only her
mega-dollar personal portfolio. Somewhat late in life, Lucy
discovered the wonderful world of philanthropy. She volunteered at
her favorite charity and has learned that giving someone in need a
helping hand is even more gratifying than making another million in
the futures market. After reading in the charity's weekly
eNewsletter about a charitable remainder trust, Lucy called Clara
Johnson, the gift planner for favorite charity.
Lucy recently
invested $1,000,000 in stock in a Canadian oil "wildcatter" with the
name Northern Long Shot, Inc. This company has been drilling new
exploratory wells in the far north. Recently, the stock rose from
the $1 per share that she paid to over $3 per share. Lucy thinks
that the stock could move much higher next year, but she would like
to receive a deduction this year. She suggested to Clara that she
might fund a unitrust, serve as self-trustee and hold the stock for
another two years. Would this plan work? May Lucy serve as trustee?
Is it permissible to hold the highly speculative stock in the
unitrust?
To view the solution to this Case of the Week
Click
Here.
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ARTICLE OF THE
MONTH
Difficult Donor I – Water Rights &
Zoning
As the economy
slowly recovers, real estate will begin to become attractive again.
However, there may be cases in which donors desire income today, but
the best value for their real estate will not be realized for
several years. This person is a "Difficult Donor" because he or she
wants the charity to invest to facilitate the gift. Harry and Helen
Green are age 85 and 83. Harry is a lifelong real estate investor.
Four decades earlier, Harry had the wisdom to buy a property next to
a two lane road. The property was quite inexpensive and at the time
four miles from the nearest town.
During those four decades,
the road was expanded and became a four lane highway. The town
steadily increased in population. Commercial development slowly
moved toward the land. Four decades later, Harry and Helen's
property is now a good candidate for a shopping center or other
commercial development. The 20-acre parcel is large enough for a
commercial building and surrounding parking. At age 85 and age 83,
Harry and Helen would like to start receiving cash today from the
property. There is no development on the property, and they have
paid fairly modest taxes for the 40 years. However, they are tired
of the negative cash flow and would like to receive
income.
But there is a major obstacle. As a real estate
entrepreneur, Harry understands markets and was quite successful in
picking a property that would eventually have significant value.
However, the property cannot be developed until it is rezoned for
commercial use and several water rights issues are resolved in a way
that permits a large commercial building to be constructed. Because
property issues and rezoning takes time in this community, it may be
three to five years before the property could be sold and developed.
How can Harry and Helen receive cash today without great risk to the
charity?
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 1999-2009
Crescendo Interactive, Inc.
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| Immanuel St. Joseph's
Foundation |
October 5,
2009 |
| |
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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