|
|
Senate Promises To Amend Tax Extenders Bill
On May 28, 2010, the House passed the American Jobs and Closing Tax
Loopholes Act of 2010 (H.R. 4213) by a vote of 215-204. The bill now will
go to the Senate as it returns to Washington the week of June 7.
After passage of the bill, House Ways and Means Committee Chair Sander
Levin (D-MI) expressed a hope that the Senate would pass the House bill. He
stated the bill has been "fully discussed between the House and the
Senate" and believes that "it's a bill they can accept."
President Obama issued a press release in support of the bill. He stated,
"I ask the Senate for its swift action on this passage so I can sign
it into law and I urge Congress to move quickly on additional relief
measures." President Obama was making reference to his request for
additional funds for unemployment benefits and added assistance to the
states to avoid layoffs of "teachers, police officers and
firefighters."
The ranking Republican on the House Ways and Means Committee is Rep. Dave
Camp (R-MI). He indicated that the current bill was "going
nowhere." In his view, Senate Majority Leader Reid will have the bill
"totally rewritten in the Senate." Rep. Camp called the bill a
"$52.4 billion deficit-increasing, tax-hiking, job-killing
plank."
Senator Reid will now take up the tax extenders bill as the Senate resumes
work on June 7th. He stated that the Senate "will change the
bill" that has been passed by the House. However, he hopes that the
changes will not "be major" and plans for a vote within the next
week.
Editors Note: As frequently happens in election years, the passage
of the tax extenders bill has been a protracted and difficult congressional
process. While there still are differences, the bill (including the IRA
charitable rollover) is now nearly certain to be passed in June. The Senate
will make some changes in the tax increases passed by the House. If the
House and Senate are able to come to agreement within the next 10 days, the
bill will be passed and sent to the President by the third week of June.
The final bill will include the IRA charitable rollover and six other tax
extenders.
Grassley Predicts "Tremendous Upheaval" Over Estate Tax
Senate Charles Grassley (R-IA) is the ranking Republican on the Senate
Finance Committee. In a conference call with several reporters on June 2,
2010, he discussed the uncertain future of the estate tax.
Sen. Grassley noted that Sen. Jon Kyle (R-AZ) and Sen. Blanche Lincoln
(D-AR) have proposed that the Senate Finance Committee pass an estate tax
bill with a $5 million per person exemption and a 35% top estate tax rate. However,
Grassley expressed the opinion that "the Finance Committee would like
to take up consideration of legislation, but we aren't assured by the
majority leader that the bill passed out of committee will be taken up on
the floor."
Under the Senate rules, even if the Finance Committee were to pass the
Kyle-Lincoln estate tax compromise, Majority Leader Harry Reid (D-NV) is
not obligated to schedule a floor vote and could simply stall the
legislation.
In December of 2009, the House passed the Permanent Estate Tax Relief for
Families, Farmers and Small Businesses Act of 2009. This makes permanent
the 2009 estate exemption of $3.5 million and top estate tax rate of 45%.
If the House and Senate are not able to take action on estate taxes by the
end of 2010 then on January 1, 2011 the estate tax returns with a 55% top
rate and an exemption of $1 million (plus indexed increases). If this were
to happen, Sen. Grassley stated that there will be a "tremendous
upheaval at the grassroots of America."
Will Fiscal Commission Consider VAT?
The National Commission on Fiscal Responsibility and Reform continues to
develop a comprehensive proposal to address the federal deficit. It has
invited comments from members of Congress, leaders of all types of American
organizations and private individuals.
James Q. Riordan, Sr. sent a letter this week to co-chair Alan K. Simpson,
the former Senator from Wyoming. Mr. Riordan made four basic points about
the fiscal problems and suggested a Value Added Tax (VAT) as a solution.
First, he indicated that there is too much "unaffordable
spending." Even with limited spending growth, the income tax cannot be
sufficiently increased to pay for current and future proposed spending
without doing damage to the economy and increasing unemployment....
Therefore, Riordan claims that the only potential solution is a VAT.
However, because the VAT is a tax on consumption and would have great
impact on middle and lower incomes, it needs to be accompanied by a
progressive income tax.
His third point is that the new income tax would need to be very simple. In
his view, there would be no deductions for home mortgage interest,
charitable gifts or medical expenses.
Fourth, he would tax all income only once. There would presumably not be a
corporate-level tax or an estate tax under this theory.
As the fiscal commission considers the options for reducing spending and
increasing taxes, it has indicated that the current staff resources are
inadequate. In response to a request by the commission, Senate Majority
Reid sent a letter this week to the White House and requested additional
staff support. The White House indicated that it will be pleased to
"work with him" to provide additional assistance.
At a hearing on the financial challenges, Senator George Voinovich (R-OH)
noted that the commission is under great pressure to develop an effective
plan. He stated, "If we don't get something out of that commission, we
are over the cliff."
Senate Budget Committee Chair Kent Conrad (D-ND) was the prime supporter of
the commission. He stated, "This is not a time to impose austerity in
my judgment." However, he indicated that austerity will be necessary
in the future, and that budget cuts and tax increases "must be imposed
in a way that is convincing."
Editors Note: Your editor and this organization take no specific
position on VAT or other specific tax and spending recommendations by the
Fiscal Commission. This information is offered because potential Fiscal
Commission plans may affect many of our readers.
Applicable Federal Rate of 3.2% for June – Rev. Rul. 2010-15; 2010-23
IRB 1 (18 May 2010)
The IRS has announced the Applicable Federal Rate (AFR) for June of 2010.
The AFR under Sec. 7520 for the month of June will be 3.2%. The rates for
May of 3.4% or April of 3.2% 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 2010, pooled income funds in existence less than
three tax years must use a 4.6% deemed rate of return. Federal rates are
available by clicking
here.
Church, a recognized Sec. 501(c)(3) charity, purchased
property with a mortgage note. For the first five years after acquisition,
Church leased the existing structure on the land to three separate tenants.
In year four, Church hired an architectural firm to design a new structure
and facilities to best meet Church's own needs. The design was accepted by
Church in year five. The scheduled completion date is in year twelve. The
original plan called for a demolition of the existing structure. The
revised plan calls for retaining the front of the existing building,
demolishing the rear and adding new construction. Church requested a ruling
that the property is exempt from the debt-financed provisions of Secs.
512(b)(4) and 514 as a result of the neighborhood land rule of Sec.
514(b)(3).
Sec. 512(b)(4) and 514 impose a tax on unrelated business taxable income
(UBTI) from debt-financed property. Debt-financed property is defined in
Sec. 514(b)(1)(A)(i) as any property held to produce income upon which
there is debt. However, Sec. 514(b)(3)(A) contains an exception to the tax
known as the "neighborhood land rule." This rule makes an
exception for property financed by debt that the organization will use in
furtherance of its exempt purpose within a ten year period after acquisition
(15 years for churches) if the land is within one mile of the organization.
Sec. 1.514(b)-1(d)(3) states that the neighborhood land rule will apply
only to the buildings on acquired property or to the land itself if
buildings on the property are to be demolished to make use of the property
possible for the organization's exempt purpose. Therefore, for the first
five years after acquisition, debt-financed improvements to property will
not be taxed as UBTI so long as the organization does not abandon its plan
for demolition of existing structures. In order for the neighborhood land
rule to apply, an organization must fulfill the requirements set forth in
Sec. 1.514(b)-1(d)(1)(iii). The organization must demonstrate with
reasonable certainty that the property will be used in furtherance of its
exempt purpose within ten years (15 for churches) of its acquisition. The
organization must submit detailed plans specifying improvements, an
estimated completion date and must detail some action taken towards fulfillment
of the plan. The plan must be submitted to the Service not less than 90
days prior to the end of the fifth year after acquisition.
The Service ruled that Church's property is exempt from tax under Secs. 512
and 514 as a result of the neighborhood land rule for the first five years
after acquisition. However, because Church has abandoned its original plan
to completely demolish the existing structures on the land and instead
retained a portion of the existing structure, the debt-financing on the property
will be subject to UBTI tax starting in year six as required by Sec.
1.514(b)-1(d)(3).
Note: At publication date the House and Senate are close to agreement
on the provisions of the tax extenders bill. It is very likely to be passed
and enacted, but has not yet been signed by the President.
In The American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213),
Congress permits a 2010 rollover directly from an IRA to a qualified public
charity.
This act enables 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. See Sec.
408(d)(8)(A). The IRA rollover first created by the Pension Protection Act
(PPA) of 2006 is (after enactment of H.R. 4213) extended to the end of
2010.
Several years ago Mother and Father built a very unique home
on 45 acres of beautiful rolling hills and woods. Father passed away three
years ago and Mother now solely owns the 45-acre parcel and home.
She enjoys the peaceful country view out her front window. However, the
university adjacent to the property is very interested in acquiring the
property for eventual future growth. Not surprisingly, Mother is concerned.
She does not want a new dormitory filled with college students in her front
yard. In fact, she enjoys the peace and protection of her lovely home in
the wooded countryside. However, at age 80, she recognizes that eventually
some planning will have to be accomplished.
How can Mother enjoy her peaceful country view, increase her income today
and allow the university to acquire the property when she passes away? And,
there is one more request. Her Son would like to eventually acquire the
very unique home and move it to a nearby city when she passes away.
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 1999-2010 Crescendo Interactive, Inc.
|
|
