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July 13, 2009
If a cluttered desk signs a cluttered mind, of what,
then, is an empty desk a sign?
- Albert Einstein.
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Indiana Community Foundations
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July 13, 2009
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GiftLaw
eNewsletter - July 13, 2009
- WASHINGTON HOTLINE
- PLR THIS WEEK
- ARTICLE OF THE MONTH
- CASE OF THE WEEK
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WASHINGTON
HOTLINE
Blue Dog Democrats
Hold Up House Healthcare Bill
Tax Quote of the Week
When Congress talks about simplification, taxpayers
may well be reminded of Emerson's comments regarding an acquaintance,
"[t]he louder he talked of his honor, the faster we counted our
spoons."
-- Michael J. Graetz
Blue Dog Democrats Hold Up House Healthcare Bill
With a flurry of meetings this week, the fiscally
conservative "Blue Dog" Democratic group confronted Speaker Nancy
Pelosi (D-CA) and Majority Leader Steny Hoyer (D-MD) on healthcare.
The Democratic leadership had hoped to publish their
plan by July 10, 2009 with general support of their party members. But
chief Blue Dog negotiator Mike Ross (D-FL) said that the current bill
"lacks a number of elements essential to preserving what works and
fixing what is broken."
Blue Dog leaders met Wednesday with White House Chief
of Staff Rahm Emmanuel. Subsequent meetings were held with Ways and Means
Chairman Charles Rangel (D-NY) and Energy and Commerce Chairman Henry
Waxman. Rep. Ross and other Blue Dogs emphasized that they are opposed to a
public insurance option that would be similar to Medicare.
Many of the Blue Dogs are from rural districts and
their constituents receive lower Medicare reimbursements than those from
urban districts. The Blue Dog leaders advocate higher Medicare
reimbursements for rural districts.
After meeting with the Blue Dog Democrats, Speaker
Pelosi again supported the public insurance option. She indicated that the
House Democratic plan will include a public option to cover many of those
currently not insured.
Editor's Note: The debate this week between the Blue
Dog Democrats focused on benefit payments under the new plan. But an even
more difficult and contentious debate will occur over the funding options
for the House bill. Unlike the Senate, the House will not tax high-cost
healthcare plans. The House funding plan will focus on new taxes on
higher-income Americans.
Senate Struggles with Healthcare Tax Options
Sen. Max Baucus (D-MT) and Majority Leader Harry Reid
(D-NV) struggled this week to find the funding for the Senate Healthcare
bill. The initial $1.8 trillion bill had been reduced to about $1 trillion
and Sen. Baucus indicated that he still needed to find $320 billion in additional
funding to cover the new costs.
The preferred method of Sen. Baucus has been to tax
healthcare insurance over a fixed annual limit. Plans have been discussed
to tax healthcare insurance over the federal standard for government
employees. But as opposition to the plan has become stronger, the fixed
limit has increased.
Sen. Kent Conrad (D-ND) suggested that the limit
could be raised to $25,000 per year. If only insurance plans with costs
greater than $25,000 were taxed, there would be increased federal revenue
of $90 billion over ten years. However, Sen. Charles Schumer (D-NY) and
Sen. Chris Dodd (D-CT) expressed concern over even that number. Sen.
Schumer noted that the medical insurance tax might impact many middle class
taxpayers and he would have "a lot of concern about that." Sen.
Dodd noted that healthcare costs are higher in Connecticut, and he flatly
opposed the tax, noting, "We're going to have to find another
option."
Both the House and the Senate are also considering a
2% surtax on higher-income taxpayers.
On the Republican side, Sen. Orrin Hatch (R-UT)
suggested that it may be too difficult to agree on the tax offsets with the
$1 trillion healthcare plan. Another option will be to reduce significantly
the scale of the coverage. He suggests that a plan costing $250 billion
over ten years could cover most of those currently uninsured.
Editor's Note: Sen. Baucus and Sen. Conrad
have both supported the tax on expensive healthcare insurance plans. They
claim that taxing health insurance benefits over a fixed level will help
reduce healthcare costs. With the massive budget deficit, there is
agreement that new healthcare legislation must be paid for through new
taxes. As the events this week prove, deciding who will pay the new taxes
is quite difficult. If a 2% surtax is combined with the proposed return of
the top rate to 39.6% by 2011, then top rates in many states will be well
over 40% at that time.
Swiss Government Fights to Protect U.S. Tax
Evaders
The IRS has undertaken a sustained campaign against
offshore tax evasion. Through a Department of Justice summons, the IRS
seeks to obtain records from Swiss bank UBS on up to 52,000 accounts. As
part of that effort, the IRS announced a voluntary disclosure option. For
those UBS clients who are evading U.S. income tax and voluntarily disclose
their evasion, the IRS will waive or reduce penalties.
This week the Swiss government filed a motion with
the U.S. District Court for the Southern District of Florida. It sought to
learn the number of Americans who have participated in the voluntary
disclosure program. Judge Alan S. Gold denied the motion.
As part of the motion, the Swiss government stated
that it will issue an "Act of State" order to UBS, taking actual
control of the data for the 52,000 accounts so that UBS cannot release data
the IRS could use to prosecute tax evaders. The Swiss order will take
"effective control of the data at UBS" and expressly prohibits
"UBS from attempting to comply" with the Department of Justice summons.
Editor's Note: The Swiss banks are faced with
a difficult choice. On the one hand, they would like to have access to the
large and very profitable U.S. market. UBS has branches in many American
cities. On the other hand, Swiss banks have made billions in profits through
their privacy laws that permit hiding of assets from other governments. As
the voluntary compliance program demonstrates, some American taxpayers are
avoiding income tax on their Swiss accounts. The IRS and the Department of
Justice are essentially saying to the Swiss banks, "If you want access
to the large U.S. markets, then you no longer can facilitate tax evasion by
U.S. taxpayers."
Applicable Federal Rate of 3.4% for July -- Rev.
Rul. 2009-20; 2009-26 IRB 1 (19 June 2009)
The IRS has announced the Applicable Federal Rate
(AFR) for July of 2009. The AFR under Sec. 7520 for the month of July will
be 3.4%. The rates for June of 2.8% or May of 2.4% 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 - 200927042
Estate Administration Exception Applies to Self-Dealing Rules
B's former spouse founded a private foundation
(Foundation) under Secs. 501(c)(3) and 509(a) as well as a for-profit
corporation. B also made substantial contributions to Foundation. F, B's
son, is the personal representative of B's estate. F is also the sole
shareholder of Corporation and serves on the board of Foundation. Upon
death, B devised the residue of her estate to Foundation. Included in the
residue is a parcel of timberland upon which Corporation holds a purchase
option. Pursuant to the option agreement, the purchase price of the land is
at full fair market value at the time the option is exercised. Corporation
exercised its option and paid to the estate of B an amount, in cash, above
the fair market value. The attorney general for the state was notified of
the petition and did not file an objection. Permission for the sale was
approved by the appropriate probate court. The personal representatives of
B's estate, Corporation and Foundation have requested a ruling that the
exercise of the option and the sale of the land do not constitute
self-dealing under Sec. 4941.
Sec. 4941(a) imposes an excise tax on each act of
self-dealing between a disqualified person and a private foundation. Sec.
4941(a)(1) includes substantial contributors in the list of disqualified
persons. Sec. 507(d)(2)(A) defines a "substantial contributor" to
a private foundation as any person who has contributed an amount of $5,000
or more if, such amount meets or exceeds 2% of the total contributions to
the foundation within a taxable year. Sec. 53.4941(d)-1(a) states the term
"self-dealing" also includes indirect acts of self-dealing."
However, Sec. 53.4941(d)-1(b)(3) provides that self-dealing shall not
include a transaction with respect to a private foundation's interest or
expectancy in property held by an estate regardless of when title vests if
five conditions are met. These conditions are: (1) the administrator of the
estate either possess a power of sale, the power to reallocate or is
required to sell the property; (2) the transaction is approved by the
probate court; (3) the transaction occurs before the estate is terminated
for federal estate tax purposes; (4) the estate receives an amount which
equals or exceeds the fair market value of the foundation's interest and ;
(5) the transaction results in the foundation receiving an interest at
least as liquid as the one given up, which is related to its exempt
purpose, and is required by the terms of any option which is binding upon
the estate. The Service ruled that all of the requirements of Sec.
53.4941(d)-1(b)(3) have been met and, therefore, the sale of the land,
pursuant to the option agreement, does not violate the self-dealing rules
of Sec. 4941.
To view the full PLR Click
Here.
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ARTICLE
OF THE MONTH
Current Planned Gifts
I - Gift Annuities
Most planned gifts involve a transfer to charity at a
future time. For example, a charitable gift annuity, a charitable remainder
trust, a charitable annuity trust, a pooled income fund or a life estate
all involve a gift at a future time.
However, presidents and CEOs of charities generally
prefer current gifts as opposed to planned gifts. All presidents and CEOs
have many goals and projects that require current funding. Therefore, the
gift planner will be very favorably received if he or she understands the
different methods for converting a planned gift into a current gift.
It is indeed possible for a charitable gift annuity,
a charitable remainder unitrust, a charitable remainder annuity trust, a
life estate agreement or a pooled income fund to be converted into a
current gift. The methods in some circumstances involve an outright
transfer to charity. In other situations, there is the retention of a life
income through a qualified plan. In most cases, there will also be
additional charitable income tax deductions.
When a gift annuity is created, the annuitant
receives the right to receive the payment for his or her lifetime. This
annuity stream is a property right under state law that may be valued.
Under the bargain sale rules, the donor has made a gift to charity but has
retained the balance of the value. While the annuity contract typically
does not allow assignment, there is an exception that allows assignment of
the annuity contract value back to the issuing charity.
To view the full Article of the Month Click
Here.
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CASE
OF THE WEEK
Exit Strategies for
Real Estate Investors, Part 14
Karl Hendricks was a man with the golden touch.
Throughout his life, it seemed every investment idea that he touched turned
to gold. By far, Karl was most successful with real estate investments. It
was definitely his passion.
Amazingly, Karl continued to buy and sell real estate
at the age of 85. For instance, about three months ago, Karl discovered a
great investment property. It was a "fixer-upper" commercial
building in a great area. While other nearby buildings sold for over $2
million, the seller needed to sell quickly and was asking just $1 million.
The condition of the building turned many buyers
away. It was being sold "as-is." But Karl was not deterred. He
could see great potential with the building and knew it would not take much
to get it to market condition. Therefore, Karl swooped in, bought the
building for $1 million and instantly hired contractors to refurbish the
place.
After three months of hard work refurbishing the
building, the place looked like new! In the end, Karl invested $250,000 in
the building bringing his total investment in the property to $1.25
million. One month after the completion of the work, Karl was contacted
informally by a company that expressed an interest in the building - a $2
million interest! This was no surprise to Karl. He knew the building was
another great buy.
After Karl learned about the benefits of a FLIP CRUT,
he eagerly wanted to move forward. (See Parts 1 and 2 for a full discussion
of this decision.) It looked like the perfect solution. However, Karl did
have one complaint about the FLIP CRUT solution. Because CRUT payouts are
recalculated each year based upon the January 1 value of the trust; there
is an element of uncertainty associated with the future income stream. In
short, Karl's payouts could go up, down or up and down for that matter!
Instead, Karl would love to have a set, annuity type
of payout each year. Can Karl fund a charitable remainder annuity trust
(CRAT) with his building? Which is better for Karl - a CRAT or FLIP CRUT?
To view the solution to this Case of the Week 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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Indiana Community Foundations
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July 13, 2009
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Thank
you for your interest in the Community Foundation of Grant County. To
contact us, please call 765.662.0065 or check out our website at www.comfdn.org.
If you do not wish
to receive future emails, please click
here to unsubscribe.
Thank you for your
continued interest in a better quality of life in Grant County.
Yours in Philanthropy,
Elizabeth A. Wright and Dawn M. Brown...
on behalf of the entire
Community Foundation Team
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