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September 14, 2009
Content
makes poor men rich; discontentment makes rich men poor.
~Benjamin Franklin~
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Indiana Community Foundations
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September 14, 2009
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GiftLaw
eNewsletter - September 14, 2009
- WASHINGTON HOTLINE
- PLR THIS WEEK
- ARTICLE OF THE MONTH
- CASE OF THE WEEK
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WASHINGTON
HOTLINE
Baucus Healthcare
Plan Favors Co-Ops
Tax Quote of the Week
"It is impossible to simplify the tax code
without at the same time affecting the fairness of the tax code."
-- William G. Gale
Baucus Healthcare Plan Favors Co-Ops
Following an address by President Barack Obama to the
members of Congress on September 9, 2009, Senator Max Baucus (D-MT)
promised to present his healthcare bill to the Senate Finance Committee by
the end of September.
Senator Baucus had released a framework for his
proposed bill earlier in the week. He had been meeting with both Democratic
and Republican Senators (a group they call the gang of six) and gave the
other five Senators opportunity to provide feedback on his bill. He
indicated that there had been substantial input from both the Democratic
and Republican members of his group.
The two most significant parts of this plan are a
commitment to healthcare co-ops as recommended by Senator Kent Conrad
(D-ND) and a decision to tax high-cost healthcare plans. The tax on
high-cost healthcare plans will be 35% of the amount that exceeds $8,000
for individuals and $21,000 for a family plan. The 35% tax will be paid by
healthcare insurance companies.
The total cost over 10 years for the Baucus
healthcare plan is approximately $900 billion. Part of the cost will be
covered by the tax on high-cost insurance plans and the balance will come
from savings in Medicare and Medicaid costs.
Grassley Urges Bipartisan Bill
Senator Charles Grassley (R-IA) is the Ranking Member
on the Senate Finance Committee. He has been involved in "hundreds of
hours" of meetings with Senator Baucus to "grapple" with the
complexities of healthcare.
In response to the announcement by Senator Baucus
that he was moving forward with a healthcare bill, Senator Grassley noted,
"Healthcare is so far-reaching, major changes should not be enacted
without broad-based bipartisan support. In addition, the bills presented so
far in Congress haven't even met the major goal of lowering health care
costs. It's obviously time for a new kind of effort that would focus on
fixing what's broken and not make things worse."
Senator Grassley then listed five areas that he
suggests the healthcare bill should focus on. These are as follows:
1. Affordability -- There should be
competition within the medical insurance industry. Market exchanges and the
ability for the companies to sell insurance policies across state lines
will enhance affordability.
2. Consumer Protections -- The bill should
include new protections to limit the ability of insurance companies to
refuse to provide coverage or to cancel policies.
3. Medicare Improvements -- The Medicare
system could be improved through better data analysis and values-based
purchasing.
4. Malpractice Reform -- The cost of "defensive
medicine" and malpractice insurance for doctors can be reduced by tort
reform.
5. Federal Insurance Programs -- Senator
Grassley opposes any new federal insurance program because he claims that
it would "not curb medical inflation or improve the healthcare
delivery system."
Editor's Note: This information on the
progress of the healthcare bills is offered for educational purposes. Your
editor and this organization do not take a specific position on any bill.
The information is made available because of the importance of healthcare
to everyone.
Baucus Discloses Healthcare Bill Framework
On September 5, 2009, Senator Max Baucus released a
17-page outline of his promised 1,000-page bill. The Senate Finance
Committee bill is anticipated to be released before the end of September.
It will be the fifth healthcare bill passed by a congressional committee.
The Baucus bill is significant in several respects.
Because it is the last of the five bills, it includes many specifics that
have been debated and discussed in the other bills. In addition, it is
significantly different in its focus on healthcare co-ops rather than a
public insurance option. His bill also rejects the House surtax in favor of
a tax on high-cost insurance plans paid by medical insurance companies.
The very comprehensive framework of the Baucus bill
includes a discussion of eight different areas. These are families and
small businesses, insurance reforms, healthcare credits, universal
coverage, co-operative healthcare programs, preventive care, patient
outcomes research and revenue provisions.
1. Families and Small Businesses
For businesses with less than 25 employees and an
average wage under $40,000, there will be tax credits for 2011 and 2012.
The tax credits will cover a portion of health insurance costs. Families
will benefit from a new program for Part D Medicare drug discounts. States
will establish health care exchanges to facilitate efficient sale of
insurance policies. Finally, each state will create an "Ombudsman Office"
to serve as a consumer advocate.
2. Insurance Reforms
Insurance companies will not be able to refuse
coverage to you for pre-existing conditions and will not be able to cancel
your coverage because you are ill. Premiums will be based only on family
composition, age, smoking status and geography. There will be options for
interstate purchase of insurance that are designed to lower costs.
3. Healthcare Credits
Those individuals who are from 100% to 300% of the
poverty line will qualify for health care tax credits. These credits are
designed to offset part of the cost of private health insurance. A small
business with fewer than 25 employees whose average wage is under $40,000
will also qualify for healthcare credits.
4. Universal Coverage
All U.S. Citizens and legal residents will be
required to have coverage through an employer, a public program such as
Medicare or Medicaid or individual coverage. Persons with current coverage
may keep their existing plan. Uninsured individuals who do not purchase
coverage will pay a penalty of $750 per year. Companies with over 50
employees must offer coverage or pay a similar penalty per employee.
5. Health Care Cooperatives
All 50 states and the District of Columbia will
create new nonprofit healthcare cooperatives. Their sole activity will be
issuing health benefit plans to individuals and small businesses. The
healthcare co-ops will receive grants and loans from the U.S. Health and
Human Services Department.
6. Preventive Care
Medicare will provide a wellness plan every two years
to individuals. The wellness plans for Medicare and Medicaid will also
include incentives for healthy lifestyles. These will target risk factors
such as high blood pressure, high cholesterol, tobacco use, overweight or
obesity and diabetes.
7. Patient-Centered Outcomes
There will be a new nonprofit institute that is
designed to research healthcare. It will attempt to analyze and disclose
the patient outcomes for various organizations and types of care.
8. Healthcare Plan Revenue Increases
Health insurance with annual premiums of over $21,000
for a family plan or $8,000 for an individual plan will be subject to a tax
of 35% on the excess amount. This tax will be paid by the insurance
company. Insurance companies will each need to determine what actions to
take with respect to individual premiums as a result of the tax.
Flexible spending accounts will be limited to
contributions of $2,000 per year. Both flexible spending accounts and the
healthcare saving accounts will be permitted to purchase only prescription
drugs. There will not be FSA or HSA expenditures for vitamins and other
supplements.
The HSA penalty for nonqualified medical or other
expenditures will be increased from 10% to 20%. Businesses that make
payments of $600 to any corporation will now be required to file Form 1099
at the end of each tax year.
Finally, nonprofit hospitals will be required to
disclose the levels of charity care. The 5% standard for charity care
advocated by Senator Grassley has been dropped, but there will be
unspecified "new standards for charity care."
Applicable Federal Rate of 3.4% for September --
Rev. Rul. 2009-29; 2009-37 IRB 1 (18 Aug. 2009)
The IRS has announced the Applicable Federal Rate
(AFR) for September of 2009. The AFR under Sec. 7520 for the month of
September will be 3.4%. The rates for August of 3.4% or July of 3.4% 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 - 200935041
Exempt Status Not Threatened By Restoration Efforts
Charity is tax exempt under Sec. 501(c)(3) and is
classified under Secs. 509(a)(1) and 170(b)(1)(A)(vi). Charity's exempt purpose
is to preserve, memorialize and display the historical architecture of the
city where it is located. Charity embarked on a revitalization effort of
the faƧade of a Sec. 501(c)(7) private social club's building. The
building is on the National Register of historic buildings. Charity raised
public funds to support its preservation and revitalization efforts
connected with the faƧade. Charity signed an agreement that allowed the
National Trust for Historic Preservation to review building materials, methods
and guidelines to ensure the restoration is done according to the standards
set forth by the Department of the Interior. In addition, National Trust
will ensure that none of the public funds will be used to provide a private
rather than public benefit. Charity proposed to expand its restoration work
to interior rooms that are used only by the members of the private social
club. In order to obtain permission from the Exempt Organizations division
of the IRS, Charity signed an amended agreement with the social club that
allows the general public to tour the building on a given day every other
month and allows those with academic pursuits to tour the building by
appointment. Virtual tours through the Internet will also be freely
available.
The Service ruled that the issue is whether the
public is given substantial access to the interior rooms so as to not
violate the requirement under Sec. 501(c)(3) that no benefit inures to the
benefit of any private individual. The Service determined that the requirements
for public access exceed those listed in Example 1 of Treasury Regulation
Reg. 1.170A-14(d)(5)(iv). Therefore, the expenditure of public monies on
interior room restorations of the private social club will not negatively
impact Charity's exempt status
To view the full PLR Click
Here.
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ARTICLE
OF THE MONTH
Current Planned Gifts
III - Life Estates
Under Sec. 170(f)(2) of the Internal Revenue Code, a person
may give a remainder interest in a personal residence or farm to a charity
and reserve the right to live there for one or two lives. But what if
circumstances change and the donor no longer desires to live in the home?
Or perhaps mother and father created a two-life estate and father passes
away? Are there options that mother should now consider? Fortunately, there
are several potential flexibility options for a life estate donor.
Assume that John and Mary Jones, both age 75,
transfer the remainder interest in their $300,000 home to charity. As
owners, they agree to be responsible for the maintenance, insurance and
taxes. To make certain that both John and Mary understand their
obligations, they sign a Maintenance, Insurance and Taxes (M.I.T.) agreement
with the charity.
One caution must be emphasized with respect to the
"M.I.T." agreement - the charity must have a life estate in the
home and there can be no prearranged obligation to select any of the
possible flexibility options. The IRS will deny the charitable income tax
deduction if any binding obligation exists. In any case, the purpose of
having flexibility options is enhanced by not choosing one until the time
for a later change of ownership.
To view the full Article of the Month Click
Here.
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CASE
OF THE WEEK
The Values-Based
Charitable Remainder Trust
Stacy Powers, 40, has led an interesting life. At the
age of one, Stacy was put up for adoption. Stacy's mother was a homeless
woman with little resources to care for a young child. Soon thereafter, Dr.
and Mrs. John Powers adopted Stacy. The Powers were very affluent and
educated, but sadly were unable to have their own children. Not
surprisingly, the adoption of little Stacy was a dream come true for the Powers.
Over the next twenty years of Stacy's life, the
Powers smothered Stacy with love, affection, time and money. Stacy was a
long way from her humble and tough beginnings. Stacy soon became very
accustomed to the constant "spoiling" and financial support of
her parents. As a result, Stacy possessed little drive and initiative. In
fact, her idea of a productive day consisted of shopping trips and hours at
the salon. Over the next twenty years, Stacy continued on this path. While
a good person with a good heart, the Powers felt that Stacy did not develop
and mature as an adult.
During a visit with their estate planning attorney,
the Powers expressed their concerns about Stacy. The Powers did not want to
leave their entire estate to Stacy fearing that she would simply spend it
away. Instead, the Powers wanted an estate plan that provided retirement
and financial security and a love of philanthropy.
What planned gift would give Stacy philanthropic
involvement? How could this planned gift be structured to provide Stacy
with retirement and financial security?
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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September 14, 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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