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October 13,
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 |
October 13,
2008 |
GiftLaw Weekly eNewsletter -
October 13, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"A sales tax is a
tax on the freedom of purchase."
- Felix Frankfurter
-- Felix
Frankfurter
Sen. Baucus Calls Bailout Bill
"Improved"
Senate Finance Committee Chairman Max Baucus
(D-MT) was modestly positive about H.R. 1424, the bailout bill
designed to save the American banking industry.
He noted,
"There are really only two good things to say about the passage of
this legislation - first, that Congress has at least done its job in
taking action to keep the current financial crisis from hitting
folks at home even harder, and second, that we insisted on
improvements to protect and provide tax relief to America's working
families in this time of economic hurt. It is still outrageous that
Wall Street greed was allowed to run rampant and force the need for
this rescue plan in the first place."
Sen. Baucus noted
approvingly that the "Emergency Economic Stabilization Act of 2008"
did include alternative minimum tax (AMT) relief, incentives that
will create jobs, encouragement of solar, wind, geothermal and other
alternative energy, and business tax cuts that will assist in job
formation. However, he suggested that no one in Congress should feel
"satisfied" with the bailout bill.
As a result of demands by
Sen. Baucus and other members of Congress, the bailout bill includes
several specific protections. A Special Inspector General with
authority to audit the Troubled Asset Recovery Program (TARP) will
have complete independence and the budget to protect the
taxpayers.
There are also specific limits on executive
compensation and "golden parachute" packages for executives.
Finally, community banks that invested in Fannie Mae and Freddie Mac
will be permitted to deduct ordinary income losses on those
investments. This will reduce the risk that small community banks
would become insolvent due to these losses.
Editor's
Note: Sen. Baucus is clearly very upset over the bailout. He was
particularly incensed when it was disclosed that immediately after
receiving billions of dollars in loans from Treasury, executives of
financial services company AIG had frolicked on a $400,000 holiday
at a western resort. Sen. Baucus sent a letter to Treasury Secretary
Paulson and asked whether or not the executives could be fired. He
exclaimed, "I want to know who we can fire and how we can get this
misspent money back, and I want both of those things to happen
pronto."
Sen. Grassley - Bailout a
"No-Brainer"
Sen. Charles Grassley (R-IA) is the Ranking
Republican on the Senate Finance Committee. He supported the bailout
and noted, "This legislation was a no-brainer."
In view of
Sen. Grassley, the AMT relief and tax extenders such as the teacher
expense deduction, sales tax deduction, and college tuition
deduction will help "millions of taxpaying families."
In
addition, the act will provide business "job-creating incentives"
and send "a clear signal" to the nation on the importance of
alternative energy. Finally, he was very pleased with the provisions
to assist in the Midwest disaster recovery.
Editor's
Note: As the senior senator from Iowa, Sen. Grassley was closely
involved in the development of a $4.6 billion disaster relief
package for Iowa and nine other Midwestern states who faced major
damage from spring flooding and tornadoes. The bailout bill was
temporarily held up by senators from Texas and other states because
the initial funding was allocated only to the Midwest and would not
cover damages from hurricanes in the Southeast. However, the final
bill was passed after $3.5 billion was allocated to other disasters
nationwide.
Special Midwestern Charitable
Deductions
Buried in the fine print of the 450 page H.R.
1424 were three specific expansions of charitable deductions for
Midwestern states. The expansions applied to "Midwestern Disaster
Area Tax Relief" and are available for gifts to support disaster
relief efforts in Arkansas, Illinois, Indiana, Iowa, Kansas,
Michigan, Minnesota, Missouri, Nebraska and Wisconsin.
The
three charitable benefits are as follows:
1. No limit on
deductions for charitable disaster relief - The normal 10% of
taxable income charitable deduction limit for corporations and 50%
of adjusted gross income for individuals are waved for gifts to
"Midwestern disaster relief efforts."
2. Increased mileage
rate for charitable use of vehicles - The normal charitable 14
cents per mile deduction rate is modified for the Midwestern
disaster to 70% of the applicable business mileage rate. This
applies to the dates from the designated disaster time to the end of
2008.
3. Charitable mileage reimbursements excluded -
If volunteers for the Midwestern disaster efforts received
reimbursement at amounts up to the full standard business mileage
rate, those payments will not constitute taxable
income.
Editor's Note: There have been increases in
the authorized charitable deduction limits for conservation
easements and in some cases for disaster relief. It is notable that
Sen. Grassley was able to pass these increases, but the geographic
use of the exception is clearly limited.
Deficit is
$438 Billion - And Rising
The Congressional Budget Office
reports that the deficit for the fiscal year completed on September
30, 2008 was $438 billion. This deficit was substantially higher
than the previous year due to both the slowing economy and the
stimulus bill payments during spring and summer of
2008.
Former Director of the Office of Management and Budget
Leon Panetta stated at a Washington panel that the budget deficit in
the future is likely to increase. He suggested, "When the new
president enters the Oval Office you're likely to see $700 billion,
if not close to a trillion."
There are three specific reasons
why the incoming President will face a major budget deficit
challenge. First, the present value of the banking bailout will be
included in the budget cost. When the federal government estimates
the probable cost of the bailout, it will increase the deficit by
perhaps $100 to $200 billion. The exact amount remains to be
determined, but the assumption of Treasury is that a substantial
part of the $700 billion investment in bank subprime debt will
eventually be recovered.
The second factor will be the
slowing economy. If economists are correct in predicting a slowing
economy for the first half of 2009, then tax receipts will be
lower.
A third factor is additional government spending to
stimulate the economy in the face an economic downturn. This
potential spending has been discussed by both Speaker Nancy Pelosi
(D-CA) and Majority Leader Sen. Harry Reid
(D-NV).
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.
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PLR THIS
WEEK
TAM - 200840008 Property Distributed to Trust Doesn't
Qualify Estate for Charitable Deduction
D's will directed the funding of a testamentary trust
with the residue of D's estate. The trustees were to divide half of
the trust's net income between A and B for their lives and to
distribute the remainder at the trustees' discretion. The will
provided that after A and B passed away, the trustees could
distribute the remaining trust assets to a charity or charities of
their choice. After D passed away, the trustees filed a notice with
the court to divide the trust, stating that the trust failed to
satisfy the requirements of Sec. 2055(e)(2) and therefore would not
qualify for an estate tax charitable deduction. The trustees
believed that splitting the trust into Trust 1 and Trust 2 would
significantly reduce the estate tax due. The Service was asked
whether the value of the property distributed to Trust 1, pursuant
to the non-judicial division of the trust under state statute,
qualifies for the estate tax charitable deduction under Sec.
2055(a).
Section 2055(a) provides for an estate tax
charitable deduction for bequests to or for the use of qualifying
charitable organizations. However, in the case of a trust with
income going to noncharitable beneficiaries, a deduction is not
permitted unless the trust satisfies the requirements of Sec.
2055(e)(2) (i.e. is in the form of a charitable remainder trust
under Sec. 664 or a pooled income fund under Sec. 642(c)(5)). D's
trust did not satisfy the requirements for proper form under Sec.
2055(e)(2) and, therefore, did not qualify for a charitable
deduction under Sec. 2055(a). Section 2055(e)(3) permits reformation
of a nonqualifying trust that fails to meet the requirement of
Sec.2055(e)(2), provided that the trust is reformed within the time
period prescribed by the statute. However, because the trustees
failed to timely reform the trust under Sec. 2055(e)(3), an estate
tax charitable deduction was not permitted for the value of the
property distributed to Trust No. 1.
Editor's Note:
Charitable trusts that do not comply with the requirements of Sec.
2055(e)(2) should be reformed without delay. A trust which provides
for a fixed percentage payout to a noncharitable beneficiary and
distribution of the remainder to a qualified charity qualifies under
the "intent to comply" provisions of Sec. 2055(e) and there is no
time limit on reformation. However, a trust like the one illustrated
in TAM 200840008, which has little or no compliance with the
charitable remainder trust requirements, must be reformed within 90
days of the date the estate tax return is due with extensions. Here,
the delay proved fatal to the estate tax charitable deduction. There
is normally ample time to reform a noncomplying charitable trust.
Since a six month extension is now permissible in addition to the
normal nine-month period for filing an estate tax return, there is a
period of up to 18 months (9 + 6 + 3) after the date of death to
reform non-complying testamentary charitable trusts.
To
view the full PLR Click
Here.
|
CASE OF THE
WEEK
Bruce - The Generous IRA
Donor
Bruce retired
several years ago, but he wanted to be active during his retirement
years. So Bruce started volunteering with an organization that helps
needy young children. Bruce devotes several hours a week to his
volunteer work and receives great satisfaction by helping young
children in need.
Since Bruce lives fairly moderately and has
a good income from his retirement plan and investments, he is a very
generous donor. In fact, Bruce gives away 50% of his income each
year and lives on the balance. He feels that this is an opportunity
for him to "give back" to society for the very good life he has been
able to lead. But Bruce would like to do more. Is there a way for
Bruce to help even more?
To view the solution to this
Case of the Week Click
Here.
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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 70˝ 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.
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| Immanuel St.
Joseph's Foundation |
October 13,
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
| |
