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October 6, 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	October 6, 2008
GiftLaw Weekly eNewsletter - October 6, 2008 WASHINGTON HOTLINE Bailout Passes With IRA Rollover and Tax Extenders PLR THIS WEEK PLR - 200806015 Asset Transfer Not Self-Dealing CASE OF THE WEEK Teacher Mary and the IRA Rollover Lesson ARTICLE OF THE MONTH IRA Charitable Rollover Guide
WASHINGTON HOTLINE Tax Quote of the Week "Taxes are what we pay for civilized society... A penalty on the other hand is intended altogether to prevent the thing punished." -- Oliver Wendell Holmes Jr. Bailout Passes with IRA Rollover and Tax Extenders On October 3, 2008 the House passed the Emergency Economic Stabilization Act of 2008 (H.R. 1424). The Senate had passed the bill 74-25 earlier in the week. Congressional leaders, business leaders, the White House and millions of Americans who plan to borrow funds for any purpose in the next years were all pleased with the bill. Federal Reserve Chairman Ben Bernanke stated, "The legislation is a critical step towards stabilizing our financial markets and ensuring an uninterrupted flow of credit to households and businesses." The comprehensive legislation includes several divisions that cover four principal areas. These are as follows: Economic Bailout of Bad Debt. There is initial authority for Treasury to spend $100 billion to purchase at discount the subprime debt securities of banks and major financial institutions. The authority may be increased up to a total of $700 billion. This section also includes a limit of $500,000 on deductible executive salary and increases the FDIC insurance on bank deposits from $100,000 to $250,000 per account. Tax Extenders. The tax extenders section includes popular provisions that extend the sales tax deduction, the teacher's expense deduction, the research and development credit, favorable depreciation for restaurants and the IRA charitable rollover. The IRA rollover permits IRA owners over age 70½ to transfer up to $100,000 per year to public charities tax free. It is available for both 2008 and 2009. Energy Incentives. The act adds incentives for solar, wind and other renewable energy methods. There also are provisions that will increase the use of oil shale and "clean" coal. Mental Health. The Mental Health Parity Bill provisions have been included. These are intended to expand coverage of mental health conditions by placing them on the same level as other types of illness. Editor's Note on the Bailout Silver Lining Congress was under great pressure to pass an unpopular bill just four weeks from the November election. However, following the 777 point drop in the Dow when the first bill was rejected on Monday of last week, the e-mails and calls from constituents to members of Congress changed dramatically. Opposition had been running 100 to 1 against the bill, but individuals age 40 to 60 with 401Ks and other retirement plans realized that failure to enact a bill was going to greatly damage retirement prospects. These "I hope to retire by age 65" constituents persuaded many members of Congress to support the economic bailout. In addition, as Sen. Kent Conrad (D-ND) noted during a hearing, a failure to resolve the credit crisis "would mean between 3 and 4½ million more Americans would lose their jobs in the next six months." Members were also persuaded by a letter from Governor Schwarzenegger of California who indicated that without a bailout that restores normal bank financing, the state would need a loan from the federal government of $7 billion to make payroll by the end of October. Given all of the very harmful effects of not acting, Congress chose to move forward with the economic bailout plan. The silver lining for philanthropy in this process is that the tax extenders bill appeared deadlocked on Monday evening. However, because the Senate leaders (Sen. Baucus and Sen. Grassley) knew that the tax extenders would be popular in both the House and Senate, they added the tax extenders (with the IRA rollover) to the improved Senate bailout bill. As a result, by Friday afternoon President Bush signed the bailout bill with the IRA charitable rollover. Thousands of donors who have IRAs and want to support their favorite charities can now use an IRA rollover this year. It is especially useful for those who do not itemize. Because about 71% of taxpayers age 71 and over use the standard deduction, they can save taxes by making 2008 gifts from their IRAs and then taking a lower taxable required minimum distribution (RMD) from their IRA. White House, Senate and House Supported Bailout The House vote of 263 to 171 reflected a massive lobbying campaign by the President, leaders of the Senate and leaders of the House from both parties. President Bush stated, "This is an issue that's affecting hardworking people. They're worried about their savings, they're worried about their jobs, they're worried about their houses, they're worried about their small businesses. And the House of Representatives must listen to these voices and get this bill passed so we can get about the business of restoring confidence." Senate Majority Leader Harry Reid (D-NV) acknowledged that the bill was not "a perfect bill by any means, but it is much improved from the administration's initial proposal. It will help stabilize our economy and protect Main Street from the crisis on Wall Street. It also cuts taxes for middle-class families and creates jobs here at home." A key Senator directly involved in many aspects of the bailout bill was Sen. Max Baucus (D-MT). Recognizing the sensitivity of the American public about the need to protect taxpayer dollars, Sen. Baucus indicated that he is "committing to watch every taxpayer dollar that is used, and promising to work to see that this kind of financial meltdown never, ever happens again in this country." Sen. Baucus highlighted the taxpayer protections that include limits to salary payments to CEO's and "golden parachute" plans for executives, an Inspector General to fight waste, fraud and abuse in the Treasury program, tax relief for homeowners facing foreclosure and help for community banks. No "Indirect Gift" with FLP In Bianca Gross v. Commissioner; T.C. Memo. 2008-221; No. 9693-06 (29 Sep 2008), the donor created a family limited partnership and transferred securities to the FLP. Discounted FLP interests were then given to two daughters, but the IRS claimed an indirect gift that negated the 35% discount. Bianca Gross was a surviving spouse living in New York with two adult daughters. She had over $2 million in publicly traded securities and was seeking an arrangement to protect the interest of one daughter who was not deemed a skillful money manager. Mrs. Gross discussed a family limited partnership with counsel and her daughters and on July 15, 1998 created and filed a certificate of limited partnership for Dimar Holdings LP ("Dimar"). The FLP was noted in the New York newspaper on October 14, 1998 and she filed an affidavit of publication with the New York Department of State. During October 15 through December 4, 1998, she transferred securities to Dimar and accurately recorded increases in her capital account. On December 15, 1998, the public securities were valued at $2,158,646 and Mrs. Gross transferred a 22.25% LP interest in Dimar to each daughter. Counsel filed form 709 Gift Tax Return and reported the $480,299 gift to each daughter with a 35% discount and a net gift value of $312,500. The IRS assessed the deficiency and claimed that there had been an indirect gift of the full $480,299 in value. The court noted that the key issue is whether the partnership was created on July 15, 1998 or whether the IRS should prevail with a claim that all actions were effectively taken on December 15, 1998. The partnership did involve a series of discussions and actions on July 15 and subsequent dates. Under New York partnership law, the question was whether the filing on July 15, 1998 plus the conduct of "petitioners and her daughters" effectively "formed a general partnership on that date." The court determined that the conduct of all parties was consistent with formation of a partnership and that the partnership did exist under New York law on July 15, 1998. As a result of the formation of the partnership and the appropriate recordkeeping of the increase in Mrs. Gross' capital account after each securities transfer, the partnership was deemed effective. The IRS also claimed that there was a step transaction and all of the actions were effectively completed on December 15th. However, the court noted that 11 days passed between the time of trust funding and the actual gift of LP interests. As a result, the step transaction doctrine was not applicable and the 35% discount on the LP gifts was upheld. 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 - 200806015 Asset Transfer Not Self-Dealing A and B are both 501(c)(3) organizations classified as private foundations under 509(a) that are controlled by the same directors/trustees. A intends to transfer real estate partnership interests to B worth approximately 25% of A's net assets for no consideration. A claims the transfer would further the exempt purposes of A by enabling a more efficient distribution of funds, limiting their liability regarding the assets and simplifying asset management. A also asserts it would exercise expenditure responsibility regarding the transferred assets. A requests the Service find the transfer of real estate partnership interests to B will not constitute a direct or indirect act of self-dealing under Sec. 4941 to either A or B. The Service found that A's transfer of assets to B will not constitute a direct or indirect act of self-dealing under Sec. 4941. Sec. 501(c)(3) organizations that operate exclusively for charitable and other exempt purposes are exempt from federal income tax. Under Sec. 507(b)(2) a transfer of assets from one private foundation to another will not cause the receiving foundation to be treated as a newly created organization, and Reg. 1.503(a)(1) provides the transferee organization will succeed to the same attributes as the transferor organization. To view the full PLR Click Here.
CASE OF THE WEEK Teacher Mary and the IRA Rollover Lesson Mary Smith is a retired teacher. When she retired, she was given the option to rollover her retirement plan into an IRA. Since she wanted to have control over the investment of the IRA, she decided to rollover her retirement plan into a self-directed IRA. Recently, Mary turned 71. She volunteers regularly for favorite charity and makes a gift each year of $2,000. This is a substantial gift for Mary. In order to make the gift, she must withdraw $2,000 from her IRA, report that amount in her income and then write a check to charity. Each year the charity must then give her a receipt, since the gift is over $250. She then reports and deducts the $2,000 charitable gift on her tax return. Mary heard about the new IRA rollover option. She spoke with the development director at the charity and asked about using the IRA rollover to make her annual gift. The charity said that it is a public charity and would be qualified for the IRA rollover gift. Mary would merely need to contact her IRA custodian and have the gift transferred to her favorite charity. Is this IRA rollover gift possible? Is it a good plan for Mary? To view the solution to this Case of the Week Click Here.
ARTICLE OF THE MONTH IRA Charitable Rollover Guide Introduction In "Division C -- the Tax Extenders and Alternative Minimum Tax Relief Act of 2008" of H.R. 1424, Congress extended an excellent charitable planning opportunity for both 2008 and 2009. This act permits an IRA owner age 70½ or older to make a direct transfer to charity. The transfer may be up to $100,000 in one year and this IRA rollover will exist for year 2008 and year 2009. Sec. 408(d)(8)(A). IRA Rollover gifts may be made to Sec. 509(a)(1) and Sec. 170(b)(1)(A) public charities. This can also include Sec. 170(b)(1)(A) conduit foundations. In most cases, IRA rollover gifts will be a transfer from a regular or Roth IRA to a public charity for the general purposes of that charity. However, it is permissible to make a transfer to a field of interest fund or for a qualified charitable purpose. For example, a transfer from an IRA owner age 71 to a college or university for a particular scholarship fund is permitted. Similarly, a transfer to a relief organization for a specific disaster relief fund is also acceptable. 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	October 6, 2008

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