eGiftLaw Newsletter

November 17, 2008

Dear Professional Advisor,

Greetings from University of Northern Colorado 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 free service. Please feel free to call me at 970-351-1380 if I can run a proposal or be of assistance to you.

    University of Northern Colorado Foundation

November 17, 2008   

  GiftLaw Weekly eNewsletter - November 17, 2008

• WASHINGTON HOTLINE
• Banking Bailout -- $290 Billion Spent, $410 Billion Remaining
• PLR THIS WEEK
• PLR - 200845029 Pension Plan Assignment to Charity Excluded From Gross Income
• CASE OF THE WEEK
• Closing a Gift of Real Estate with Little Time Left on the Clock, Year End Gifts - Part 1
• ARTICLE OF THE MONTH
• IRA to Testamentary Gift Annuity

WASHINGTON HOTLINE

Tax Quote of the Week

". . . For imposing Taxes on us without our Consent . . . ."

-- The Declaration of Independence

Banking Bailout -- $290 Billion Spent, $410 Billion Remaining

Sen. Charles Grassley (R-IA) sent a letter this week to Treasury Secretary Henry Paulson and Chairman of the Federal Reserve Ben Bernanke. He expressed concern about the progress of the bailout and the questionable use of some government funds.

The Emergency Economic Stabilization Act of 2008 authorized an initial $250 billion and another $100 billion at the discretion of the President with an option for the President to request an additional $350 billion for a total bailout amount of $700 billion. Of the first $350 billion, Treasury distributed $125 billion for stock of large banks and is currently seeking to distribute another $125 billion for stock from smaller banks. Treasury also has added another $40 billion to the bailout for AIG, the major insurance company that had issued securities to insure against defaults on mortgage bonds.

Sen. Grassley noted that "the President can submit a request to authorize Treasury to obtain an additional $350 billion." He continued that Secretary Paulson now plans to use the final $350 billion "to reinvigorate the markets for credit cards, student loans and auto loans."

The use of the final $350 billion for this purpose is very different from the initial plan to acquire bad debt mortgage securities from financial institutions. Sec. Paulson now calls these "toxic assets" and plans to avoid purchasing them.

Sen. Grassley expressed concern that the funds are not being used appropriately. He notes that only the "top five executives" of banks are subject to salary limitations if they participate in the Treasury bailout plan. In addition, he expressed concern that on November 10, 2008, AIG received an additional $40 billion and promptly spent "money on another lavish retreat in Arizona."

Sen. Grassley asked, "What is being done to monitor the expenses of companies rescued with taxpayer dollars?"


Healthcare Reform Blueprint

Senate Finance Committee Chairman Max Baucus (D-MT) held several hearings this year to consider major healthcare reform. On November 12, 2008, he published "Call to Action; Healthcare Reform 2009."

Sen. Baucus stated, "American families -- and our economy -- are in crisis over healthcare. We can't get coverage to the 61 million who are either uninsured or underinsured without a major overhaul of the system and there's no way to really solve America's economic troubles without fixing healthcare for the long term."

Because of the 46 million uninsured and 25 million underinsured Americans, Sen. Baucus notes that families struggle to maintain their medical care. A recent government study indicated that adults who are ill receive care "only 55%" of the time. For children, the rate of care during illness is even lower.

The major proposed reform by Sen. Baucus is a new national insurance pool with the title "Health Insurance Exchange." The Health Insurance Exchange would invite participation by private insurers. Through Health Insurance Exchange, all Americans who are not otherwise covered could purchase health insurance. There would be no "discrimination based on pre-existing conditions." In addition, for qualifying individuals and families there will be premium subsidies.

Editor's Note: Major reforms such as the proposed healthcare reform typically occur during the first two years of a new administration. Sen. Baucus has been developing his plan for universal coverage for several years. However, as he notes, the plan will involve what Washington politicians call "significant investment." The tax increases necessary to pay for the Health Insurance Exchange were not outlined in the plan.


90 Million eFilers in 2008

The IRS recently released the statistics on tax returns for 2008. Over 155 million returns were filed. Nearly 90 million of these returns were sent electronically to the IRS.

The IRS is pleased that an increasing number of individuals file electronically. IRS Commissioner Doug Shulman indicated, "More people with home computers and businesses embraced electronic filing this year. Every year, more people realize that electronic filing is the safe, accurate way for taxpayers to complete their taxes and get faster refunds."

Another popular option is "Free File" on the www.IRS.gov site. Taxpayers whose adjusted gross income is $54,000 or less are permitted to use the online income tax software through the IRS Free File System. Nearly 4.8 million returns were filed in 2008 using Free File. This is an increase of 24% over the 3.9 million returns the prior year.

The primary advantages to the IRS for electronic filing are accuracy and convenience. For the taxpayer, refunds are often more rapid. In many cases, the refunds were also made through direct deposit to banks and other financial institutions. Of the 107 million tax refund payments, 66 million were directly deposited into the taxpayers' accounts. The average refund for 2008 was $2,400.


Applicable Federal Rate of 3.6% for November - Rev. Rul. 2008-50; 2008-44 IRB 1 (17 Oct. 2008)

The IRS has announced the Applicable Federal Rate (AFR) for November of 2008. The AFR under Sec. 7520 for the month of November will be 3.6%. The rates for October of 3.8% or September 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.

PLR THIS WEEK

PLR - 200845029 Pension Plan Assignment to Charity Excluded From Gross Income

Decedent died owning an interest in a defined benefit pension plan ("Plan"). The beneficiary of Plan was Decedent's estate ("Estate"), while Decedent's will named Charity as the residuary beneficiary of Estate. Decedent's Will gave the Executor the power to "make, partition, divi[de] or [distribute] property in kind" and state law permitted distributions in kind as well. Estate's Executor proposes to assign Decedent's interest in Plan to Charity as part of Charity's residuary share of the Estate.

The Service concluded that Executor's assignment of the Plan to Charity in partial satisfaction of its share of the residue of Estate is not a Sec. 691(a)(2) transfer and therefore, not includible in Estate's gross income. Income in respect of a decedent (IRD) is income not properly includible in respect of the taxable period in which falls the date of the decedent's death or a prior period. Under Sec. 691(a)(1)(A), if a decedent designates his or her estate as the beneficiary of IRD, the IRD will be included in the gross income of the decedent's estate. If, however, the estate distributes the right to the IRD to a beneficiary of the estate, the recipient beneficiary will include the IRD in his or her gross income according to Sec. 691(a)(1)(B). Sec. 691(a)(2) provides that if a 691(a)(1) right to IRD is transferred (exchanged, old, or otherwise disposed of), the value of the IRD at the time of transfer is included in the gross income of the transferor. Reg. 1.691(a)-4(b) explains that the transferee of an IRD at set under Sec. 691(a)(1) will include the IRD in their gross income when only received and Reg. 1.691(a)-4(b)(2) provides that if the asset is transferred by an estate to a specific or residuary legatee, only the legatee must include the IRD in gross income.

Editor's Note: The benefit in the Executor's transfer of the IRD Plan in-kind to Charity is that although the Plan is includible in Decedent's gross estate (because Decedent owned Plan at death), the Plan is not includible in Decedent's gross income. Furthermore, for any other recipient of an IRD, the IRD would be includible in the recipient's gross income, but here it is not because Charity is a tax-exempt entity.


To view the full PLR Click Here.

CASE OF THE WEEK

Closing a Gift of Real Estate with Little Time Left on the Clock, Year End Gifts - Part 1

Don Gregory, 60, is a very control-oriented businessman. In fact, his business philosophy is best summed up as "my way or the highway." While sometimes difficult to work with, Don nevertheless has achieved substantial business success in his life. His quick decision-making skills and solid commitment to a plan have catapulted his company onto the Fortune 1000 list. It seems Don's "way" proved financially fruitful over the past 20 years.

Don recently attended a seminar on charitable remainder trusts (CRT) with his attorney, Bob Jeffers. After hearing of the tax benefits and increased income potential of a CRT, Don turned to his attorney and exclaimed, "I want one of those Bob - by year's end." The date was December 21.

Don is now anxious to create a CRT, because he has a severe tax bill looming just ahead of him. The thought of a nice, large charitable income tax deduction excites him. In addition, Don has some investment land that would be perfect for the CRT - the land has appreciated significantly yet produces little income. Bob is worried, however, that ten days is not enough time to create and fund a CRT with real property. Of course, Bob dare not tell Don that it cannot be done.

Can Don create and fund a CRT with as little as ten days? What steps need to be completed? What rules govern the timing of charitable deductions?

November 7, 2008 Decide Now, Deduct Now but Give Later

Carol Garcia is CEO, President and Founder of Widgets, Inc. After many years of blood, sweat and tears, Widgets, Inc. has become a very strong and established corporation. As a result, Carol has slowly cut back her long hours at the office and has been spending more time with her family and personal endeavors. One such endeavor is her philanthropic goals.

Carol is actively involved with many local charities. She has made major contributions to at least six local charities in the past three years. Not surprisingly, she has more tax deductions than she can handle (i.e. she has reached her AGI limits and has numerous carry-forwards). So even if Carol decided to make a 'nondeductible' gift this year, she has not even begun to consider what charity she should benefit. Given the short amount of time left in the year and her excess charitable deductions, Carol regretfully decided not to make a gift this year.

Taking into account the time constraints and Carol's AGI limitations, how could Carol make a gift next year, yet receive a tax benefit for doing so this year?


To view the solution to this Case of the Week Click Here.

ARTICLE OF THE MONTH

IRA to Testamentary Gift Annuity

IRAs and pension plans have grown dramatically in aggregate size during the past decade. Even with the reduction in value due to the stock markets, Federal Reserve data suggests that there is over $3 trillion in IRAs and over $12 trillion in cumulative qualified plans.

The cumulative balance in IRAs and other qualified plans will also increase during the next decade as a result of the Sec. 408 Final Regulations. Under these regulations, minimum distributions are relatively low. The minimum distribution rules under Reg. 1.401(a)(9)-5 use a distribution schedule that assumes that there is an IRA owner and a beneficiary 10 years younger. In addition to this assumption, the final regulations use a mortality table with longer life expectancies.

As a result of the mortality table and the two-life expectancy calculation, the minimum distribution will be substantially below the IRA growth rate until individuals are in their mid to late 80's. For example, if the IRA earns 7% per year, the balance will increase until age 86 under the Uniform Table.

A very favorable rule within these regulations is that the designation of a charity or charitable trust will not affect the minimum distribution. Thus, it is possible to select a charity, a charitable trust or a charitable gift annuity as the designated beneficiary of an IRA. This designation will not affect the ability of the IRA owner to take the same minimum withdrawals.


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.

    University of Northern Colorado Foundation

November 17, 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,

George O. Pickell
Director of Planned Giving
E-mail: George.pickell@unco.edu
Phone: 970-351-1380
University of Northern Colorado Foundation

http://www.uncalumni.org/Foundation



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