eGiftLaw Newsletter
December 1, 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
|
December
1, 2008
|
GiftLaw
Weekly eNewsletter - December 1, 2008
- WASHINGTON HOTLINE
- PLR THIS WEEK
- CASE OF THE WEEK
- ARTICLE OF THE MONTH
|
WASHINGTON
HOTLINE
Tax Quote of the Week
"The tax which will be paid for education is not
more than the thousandth part of what will be paid if we leave the people
in ignorance."
--
Thomas Jefferson
Baucus and Grassley Praise Incoming Treasury
Secretary Geithner
At a press conference in Chicago, President-elect
Barack Obama announced the selection of Timothy Geithner as Secretary of
the Treasury. This very important appointment of the Treasury Secretary in
the midst of major economic turmoil was welcomed on both Wall Street and
Main Street. Geithner presently leads the Federal Reserve Bank of New York
and has worked closely with Treasury Secretary Paulson on various bailout
plans.
Sen. Max Baucus (D-MT)was pleased with the
appointment. He noted, "Tim Geithner has the expertise and the
qualifications to meet the seriousness of this moment and the experience in
tough times, like the Asian financial crisis, to build an economic recovery
team that will get the results Americans need."
Sen. Charles Grassley (R-IA) also approved and
stated, "The Treasury Secretary has enormous powers in ordinary times
and even greater powers in these troubled times, so the Finance Committee
owes the American people all due care and diligence in considering this
nomination."
Editor's Note: Sen. Grassley underscores the
importance of the Treasury Secretary in the midst of bailout expenditures
that could top $2 trillion (all in borrowed funds). The incoming Treasury
Secretary will have great influence over both expenditures and tax policy
during the Obama administration. Obama advisors William Daley and David
Axelrod said to the press this week that Obama may delay his planned tax
increase on upper-income Americans. During the campaign, President-elect
Obama proposed increasing the top income tax rate from 35% to 39.6%, and
increasing the long-term capital gains tax rate from 15% to 20%. Obama
advisors are now suggesting that these increases may be a lower priority
than rescuing the economy.
OMB Appointee Orszag to Cut "Special
Interest" Programs
President elect Barack Obama has indicated that he
will appoint Peter Orszag as the Director of the Office of Management and
Budget.
In making the appointment, Obama stated, "Peter
doesn't need a map to tell him where the bodies are buried in the Federal
Budget. He knows what works and what doesn't, what's worthy of our precious
tax dollars and what is not." He continued to suggest that OMB
Director Orszag will seek to identify each "special interest tax
break" and to make certain that they do not "survive" in
future budgets.
Director Orszag will assume this role in the middle
of an unprecedented spending effort. The Troubled Asset Recovery Program
(TARP) has spent approximately $350 billion, with another $350 billion
anticipated for 2009. The Federal Reserve has announced an $800 billion
program to purchase mortgage and consumer debt from Fannie Mae, Freddie
Mac, Ginnie Mae and other institutions. Finally, the lights are burning
late on Capitol Hill as aides are developing the parameters for a January
stimulus bill that could equal another $700 billion.
The Orszag appointment met with approval of Senate
Finance Leaders Max Baucus and Charles Grassley. They jointly noted,
"Peter Orszag's economic expertise and his responsiveness to the
Senate Finance Committee make his nomination to lead the Office of
Management and Budget a welcome one."
Independent Sector CEO Diana Aviv Requests Higher
Charitable Mileage Rate
In IR-2008-131 (24 Nov. 2008), the IRS announced the
2009 standard mileage rates.
Starting January 1, 2009, the rates for mileage for a
car, van, pick up or panel truck will be:
--55 cents per mile for business miles
--24 cents per mile for medical or moving purposes
--14 cents per mile for charitable purposes
Diana Aviv, CEO of Independent Sector, pointed out
that the low rate for charitable mileage discourages supporters of
charitable programs. The low rate is especially harmful for Meals on Wheels
and similar programs that depend upon volunteer drivers.
Ms. Aviv stated, "In recent months, charitable
organizations have found it increasingly difficult to attract and retain
volunteers to drive for them due to the fluctuating price of gasoline and
the current economic crisis." Because of the increasing costs of
operating vehicles, Ms. Aviv suggests that Congress "raise the mileage
deduction rate" to encourage charitable volunteers.
Gift Annuity Reinsurance
In PLR 200847014, a donor sought to fund a one-life
charitable gift annuity. While the charity is contractually obligated to
make the annuity payments for a lifetime, the charity expressed an
intention to voluntarily reinsure the annuity. The donor and charity requested
a ruling that the gift annuity would qualify for both income and gift tax
charitable deductions.
The Service noted that the gift annuity would qualify
if the various guidelines of Sec. 170, Sec. 7520 and Sec. 514 were
followed. However, the ruling also outlined in detail the exceptions under
Sec. 170(f)(10).
Sec. 170(f)(10) was enacted to eliminate a practice
known as "charitable reverse split-dollar" insurance. Under this
plan, a donor would make a large gift, such as $1 million, to a charity and
the charity would then purchase an insurance contract with the gift amount.
The charity would receive a death benefit calculated under applicable IRS
insurance tables, while the family of the donor would receive the potential
benefit of future increased value in the policy. Under Sec. 170(f)(10),
charitable deductions were denied for charitable reverse split-dollar life
insurance.
Sec. 170(f)(10)(D) provides for an exception for
charitable gift annuity contracts that permits reinsurance. However, there
are three specific requirements to comply with the reinsurance guidelines.
These are as follows:
1. Qualified Gift Annuity -- The gift annuity
contract must be qualified under Sec. 501(m) and not be
"commercial-type insurance." This unrelated business income exception
is available if the gift annuity qualifies for a charitable deduction under
Sec. 170 and complies with the minimum 10% charitable value and other
requirements of Sec. 514 (c)(5).
2. Incidents of Ownership -- The charity must
possess all incidents of ownership under the reinsurance contract. In this
PLR, the right to change beneficiaries, to cancel, assign or revoke the
incidents of ownership or other rights with respect to the commercial
annuity are all held by the charity. Furthermore, the charity agreed not to
transfer or assign the policy.
3. Only Charitable Payments -- Payments and
benefits under the contract must be exclusively distributed to the
charitable organization. Because the charity is receiving all payments and
agrees not to assign payments to another entity, this standard is also met.
Because the gift annuity with reinsurance plan is a
qualified charitable gift annuity for both income and estate tax deduction
purposes and all commercial annuity control and benefits are held by or allocated
to the qualified charity, the gift annuity with reinsurance plan is
permissible.
Applicable Federal Rate of 3.4% for December --
Rev. Rul. 2008-53; 2008-49 IRB 1 (18 Nov. 2008)
The IRS has announced the Applicable Federal Rate
(AFR) for December of 2008. The AFR under Sec. 7520 for the month of
December will be 3.4%. The rates for November of 3.6% or October of 3.8%
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 - 200847014
Charitable Gift Annuity With Reinsurance Permitted
Taxpayer desired to create a charitable gift annuity
(CGA) with Charity. Under the proposed terms, Taxpayer would transfer $X to
Charity and, in exchange, Charity would pay to Taxpayer an annual annuity
of $Y for Taxpayer's life in equal quarterly installments. Taxpayer
requested three rulings: (1) A charitable income tax deduction is allowed
under Sec. 170 at the time the CGA is funded; (2) A charitable gift tax
deduction is permitted under Sec. 2522(a) at the time the CGA is funded;
and (3) The income and gift taxes deduction will not be barred under Sec.
170(f)(10)(A).
The Service allowed both the income and gift tax
deductions and ruled that Sec. 170(f)(10)(A) will not bar the deductions
under the split-interest gift rules. The IRS reasoned that Sec.
1.170A-1(d)(1) of the Treasury Regulations allows a deduction for the
amount a donor gifts to an organization listed in Sec. 501(c)(3) in excess
of the amount paid for a CGA. Furthermore, Rev. Rul. 70-15 holds that the
amount a taxpayer pays for a CGA in excess of the fair market value of the
annuity is deductible in the year in which the annuity is created. Sec.
2501 imposes a tax on the transfer of property by gift. Sec. 2012(2)
provides that when property is transferred for less than its full fair
market value, the amount by which the value of the property exceeds the
consideration received is deemed a gift. Sec. 2522(a) allows a donor to
take a charitable gift tax deduction for transfers made to charity.
However, Sec. 2522(c)(2) provides that where a remainder interest in
property is transferred to charity and the donor retains an interest in the
same property, no deduction is allowed. Yet, Rev. Rul. 80-281 held that if
a donor makes a gift to charity and in return receives a CGA a gift tax
deduction is allowed. Sec. 170(f)10(A) states that no deduction is allowed
where the charity directly or indirectly pays the premium on any personal
benefit contract. However, Sec. 170(f)(10)(D) provides an exception for
CGAs.
Editor's Note on Reinsurance: Section 8 of the
CGA agreement provided that Charity was authorized, but not obligated, to
purchase a commercial annuity with Taxpayer's life as the measure of the
benefit term. The commercial annuity would provide a benefit to Charity in
an amount equal to the payments Charity is obligated to make under the CGA
agreement. In the CGA disclosure statement, Charity reserved the right to
direct the commercial annuity agent to make payments to Taxpayer in
satisfaction of Charity's CGA obligation. Charity sought its own ruling
that the proposed commercial annuity "reinsurance" would not (1)
constitute the sale of commercial annuities and (2) the amounts received
from the commercial annuity would not be classified or taxed as unrelated
business income to Charity. The Service conditioned their ruling to
Taxpayer on the receipt of a favorable ruling by Charity.
To view the full PLR Click
Here.
|
CASE
OF THE WEEK
Using Plastic to Make
Gold, Year End Gifts - Part 3
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 has catapulted his
company onto the Fortune 1000 list. It seems Don's "way" proved
financially fruitful over the past 20 years. As suspected, Don likes to
control many other aspects of his life as well. One such aspect is his
charitable giving. Don annually gives to charity. While very philanthropic,
Don is extremely selective with his giving. Specifically, Don looks for a
well-run charity with minimal overhead costs. Like his company, Don wants
to see his dollars effectively used and not dissipated on
"excessive" expenses.
This year Don wants to give $50,000 toward the
construction of a new church, which will seat over 5,000 people. In
addition to its enormous size, the church will be constructed with a giant
gold dome as its centerpiece. The gold dome is expected to draw thousands
of visitors each year. The final construction is near completion, but the
church is still in need of some final funding. Specifically, the church
needs money to complete the enormous gold dome. The church would like to
have the work done before Christmas and Don wants to help achieve that
goal. Unfortunately, it is already December 20, and Don is worried his
check will not reach the church in time. (Don is on the East Coast and the
church is on the West Coast.) In addition, Don wants his $50,000 charitable
contribution deductible this year.
Don wonders if he could make the gift to the church
using his credit card. If so, when is the gift complete for federal tax
purposes? When is the gift deductible? When the charge is made or paid?
To view the solution to this Case of the Week Click
Here.
|
ARTICLE
OF THE MONTH
CRTs and CGAs in a
Down Market
Charities that serve as trustees of CRTs and issue
charitable gift annuities are in the midst of a bear market. The S&P
500 Index is down over 40% and passed the 776.76 low of the 2002 bear
market.
The Federal Reserve suggests that the recession will
be longer than the typical two quarters and will stretch to three and
possibly four quarters. Banks are still struggling to recover from their
losses due to collateralized debt obligations (CDOs) and other
mortgage-related securities.
The net result is a drop in virtually all trust
portfolios and gift annuity reserve funds. The only fortunate news for
charities is that during times of adversity, donors remain faithful and
giving generally holds up fairly well, especially considering the down
market and the national recession.
But what actions should charities serving as CRT
trustees and gift annuity reserve custodians take? Should there be specific
strategies to manage charitable remainder unitrusts, charitable remainder
annuity trusts and charitable gift annuities in a down market?
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
|
December
1, 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
If you do not wish to receive future emails, please click
here to unsubscribe. Thank you.
|
|
