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December 10,
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 |
December 10,
2007 |
GiftLaw Weekly eNewsletter -
December 10, 2007
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"My father has a
great expression: 'The capital-gains tax has created more
millionaires than any other government policy.' The capital-gains
tax tends to make investors hold longer. That is almost always the
right decision."
-- Chris Davis
House-Senate AMT
Contest Continues
After another week of deadlocks,
charges and counter-charges between House and Senate members, the
Senate finally passed a bill to increase the alternative minimum tax
(AMT) exemptions. Under the Senate bill, the married couple AMT
exemption of $62,550 for 2006 would be increased to $66,250 for
2007. The single person AMT exemption or $42,500 for 2006 would be
increased to $44,350 for 2007.
The bill passed Dec. 6, 2007
by a vote of 88-5 after rejection of the compromise proposed by Sen.
Baucus (D-MT) and Sen. Grassley (R-IA). Their compromise would have
increased the AMT exemption, extended a number of popular tax
provisions such as the teachers deduction and IRA charitable
rollover, and would have had offsets or tax increases only for the
extenders.
Sen. Baucus was clearly frustrated with the
controversy. He compared the AMT to the Frankenstein character in
the 1931 film. Sen. Baucus stated, "That's how the AMT looks to the
tax code. It is a monster. It is a thing of dread for many
Americans. And unless we act, it will destroy the entire tax
system."
In response to concerns about wrong exemptions on
IRS forms leading to tax overpayments, Sen. Baucus continued, "We've
already missed one deadline. The IRS sent the 2007 tax forms to the
printer on November 16th. We tried to get something done before
then. But the other side of the aisle would not let us proceed.
Without this kind of AMT patch, 19 million more people will have an
increased tax liability for the 2007 tax year."
House
and President Urge AMT Action
President Bush spoke on
December 3, 2007 and urged action on AMT. He stated, "Congress needs
to act immediately to prevent the AMT from hitting more Americans
this year. The AMT was enacted in 1969 to ensure that a few hundred
wealthy individuals paid their fair share of taxes. But when
Congress passed the AMT, it was not indexed for inflation. As a
result, the AMT's higher tax burden is being imposed on more and
more middle-class families." President Bush reminded Congress that
"$75 billion worth of tax refund checks" will be delayed. The delay
could be as long as six weeks.
After action by the Senate,
the focus returns to the House of Representatives and Rep. Charles
Rangel (D-NY), Chair of the House Ways and Means Committee. In a
response to the Senate vote, he commented, "They have not offered
any solutions to raise the money or cut spending to cover the cost
of this AMT tax relief. They do not suggest anything and as a
result, we are getting nothing. The clock is
ticking."
Chairman Rangel must now accept the Senate bill
that provides for an increase of the AMT exemption and no other
provisions or offer a compromise. He promises that there will be
"adjustments to the bill to address some of the political opposition
in the Senate" and yet his legislation continues to seek "to close a
loophole where billions of dollars in offshore funds have escaped
taxation."
Editor's Note: The House and Senate are
very much in agreement on the increase in the AMT exemption and the
general principle that the AMT itself should be repealed. However,
the contest is not over the AMT, but over tax increases. Given the
sub-prime mortgage problems, an increase in home foreclosures and
concern about an economic downturn in 2008, Republican Senators are
reluctant to raise taxes. The actual fight is over the "Pay-go"
provisions that could lead to higher taxes at the time of potential
softening of the economy.
Sub-prime Mortgage
Solution?
With homeownership rates over 70% in many
states, the American dream of owning a home has become a reality to
more people than ever before. However, as Treasury Secretary Henry
Paulson noted in a presentation this week to the Senate Finance
Committee, the increase in homeownership is the result of "mortgage
market financial innovation." This innovation has created "riskier
loans" with little or no down payments and adjustable
rates.
As a result of the provisions in adjustable loans that
will increase the interest rates substantially for many homeowners
during the year 2008, there will be many defaults and foreclosures.
To reduce the impact of these interest rate increases, Treasury
Secretary Paulson proposed three potential solutions.
The
first is to provide tax relief for homeowners that have benefited
from debt forgiveness. Secretary Paulson noted, "Homeowners who
finally find relief shouldn't get put back in financial straits
because of the tax code." Several bills have been introduced that
would permit a homeowner to benefit from tax relief if his or her
mortgage is reduced by the lending agency.
Second, he
suggests that state and local governments should be able to use
tax-exempt bonds to assist sub-prime mortgage holders. Tax-exempt
bonds presently are available for new loans, but Secretary Paulson
would authorize their use for refinancing.
Third, he proposes
expanding the Federal Housing Administration (FHA) loans to include
more individuals.
Editor's Note: Secretary Paulson
notes that there are three categories of homeowners. The first group
can afford their loans and does not need assistance. The second
group can afford their current loans, but can not afford increased
payouts when their loan interest rates adjust higher. The third
group will not be able to afford their homes at all due to illness
or loss of employment. His programs are primarily designed to help
the second group through subsidies and workouts. Secretary Paulson
hopes that a combination of state and federal assistance will enable
most homeowners to retain their homes even if home interest rates
increase in 2008.
Applicable Federal Rate of 5.0% for
December. Rev. Rul. 2007-70; 2007-50 IRB 1 (20 Nov.
2007)
The IRS has announced the Applicable Federal Rate
(AFR) for December of 2007. The AFR under Sec. 7520 for the month of
December will be 5.0%. The rates for November of 5.2% or October of
5.2% 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 - 200748021 Service Revokes 501(c)(3)'s Exempt
Status for Political Activities
A, a tax exempt organization under Sec. 501(c)(3),
was established to provide bilingual education, youth and senior
services. A made political contributions to B, a candidate for State
X secretary of state, using a State X grant intended for exempt
purpose activity. The contributions were made via intermediaries,
through two individuals and two companies who received payments from
A allegedly for construction-related work and who then made
contributions of nearly identical amounts to B's campaign. Following
a State X audit of A and grand jury testimony by A's officers, the
IRS commenced an investigation to determine whether A's exempt
status should be revoked for engaging in political activities
prohibited under Sec. 501(c)(3).
A tax exempt organization
must "not participate in, or intervene in, any political campaign on
behalf of (or in opposition to) any candidate for public office."
Sec. 501(c)(3). An organization is not operated exclusively for an
exempt purpose if it is an "action" organization which participates
or intervenes in a campaign for national, state or local office.
"Action" activities include, but are not limited to, "the
publication or distribution of written or printed statements or the
making of oral statements on behalf of or in opposition to a
candidate." Reg. 1.501(c)(3)-1(c)(3)(iii). The IRS issued a final
adverse determination letter as to A's exempt status because A
diverted significant amounts from A's accounts and made political
campaign donations without scrutiny and proper documentation showing
they served legitimate public and charitable purposes. A's
participation in these prohibited political activities precluded
exemption under Sec. 501(c)(3).
Editor's Note: While
loss of exempt status is rare, the IRS has repeatedly revoked the
exemptions of organizations engaged in political activities. As
election season approaches, it's important for organizations to be
aware of the types of activities that are impermissible. Publication
4221-PC, Compliance Guide for 501(c)(3) Public Charities, covers
activities that may jeopardize a charity's exempt status.
Organizations should also take heed of the recent Rev. Rul. 2007-41
that provides guidance of the prohibition on political
activity.
To view the full PLR Click
Here.
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CASE OF THE
WEEK
Extreme Makeovers for the Grantor Charitable Lead
Trust, Part 7 - "Diving Into Dividends"
Lynn Burrows, 40, is a partner in her law firm and a
very successful trial attorney. Lynn mainly represents class action
lawsuits against large, multinational corporations. As a result of
the high stakes and high dollar amounts involved, it is not uncommon
for a jury to award a judgment of over $100 million. In fact, Lynn
is among a select group of attorneys with ten or more successful
judgments over $100 million. Accordingly, Lynn is an extremely
wealthy woman. In addition to her salary, her firm represents most
class action lawsuits on a contingency basis. In other words, the
firm receives between 15% and 40% of any favorable judgment (plus
costs). As a result, the firm's share of a victory is very
substantial.
Recently, Lynn won a major trial against a
financial institution. The jury awarded her clients $20 million, and
the firm's share was approximately $6 million. As a result of the
successful conclusion, Lynn received a $1 million bonus. While
extremely pleased with this large bonus, Lynn shudders at the
thought that over $400,000 would go to Uncle Sam.
In addition
to this year's bonus, Lynn regularly earns about $500,000 a year,
which places her in the highest federal and state income tax
brackets. The $500,000 represents her annual salary of $450,000 and
annual dividend income of $50,000. Not surprisingly, Lynn
desperately wants to minimize her tax liability. She, therefore, is
meeting with her tax advisor, Frank Thomas, to discuss her
options.
Lynn's primary goals are tax reduction and some
basic retirement planning. Lynn is also open to charitable giving if
it can help her accomplish her primary goals. What plan may
accomplish Lynn's goals? What are the upsides and downsides to the
plan?
To view the solution to this Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
IRA Bequests and Testamentary
Unitrusts
Document
Options to Transfer IRAs to Charities or to CRTs
With the
growth of IRAs, there will be a dramatic increase in the number of
individuals who choose to bequeath IRAs to charity or to
testamentary unitrusts. Some of these persons will transfer an IRA
to a unitrust for the life of a spouse. Other parents will transfer
an IRA to a unitrust for a term of years or for the lives of
children.
What form is required in the actual documents? In
order to create a legal transfer of an IRA, profit sharing or 401(k)
account to a charity or charitable trust, certain legal procedures
must be followed.
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 |
December 10,
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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