eGiftLaw Newsletter
| February 1, 2010 Dear Professional Advisor,
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| University of Northern Colorado Foundation, Inc. | February 1, 2010 | |
GiftLaw eNewsletter - February 1, 2010
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WASHINGTON HOTLINE Senate Increases Debt Limit to $14.3 Trillion Tax Quote of the Week [A] democratic government is the only one in which those who vote for a tax can escape the obligation to pay it. -- Alexis De Tocqueville
Senate Increases Debt Limit to $14.3 Trillion On January 28, 2010, the Senate voted 60-39 to increase the Federal debt limit from $12.4 trillion to $14.3 trillion. The Senate resolution will now be sent to the House. It's expected that the House will also pass the same resolution and send it to President Obama for his signature. As part of the resolution, a "pay-go" provision was included. The pay-go concept has been enacted in prior legislation. However, this pay-go provision in H.J. Res. 45 includes a number of exemptions. Congress would be able to index the alternative minimum tax exemption in 2010 and 2011, and they could set the estate exemption at $3.5 million with a 45% estate tax rate for those years. The tax brackets below 33% would be extended at their current reduced levels. However, the pay-go rules would permit the 33% tax bracket to increase to 36%, and the 35% bracket would be raised to 39.6% for two years. Majority Leader Harry Reid (D-NV) supported the pay-go provision. He stated, "Pay-as-you-go in the 1990s led to record surpluses. Its absence in the next decade led to record deficits. The road back to economic recovery is a long one. If we are to travel it successfully and prudently -- if we are to create jobs and govern responsibility -- pay-as-you-go must be one of the rules of that road." Sen. Judd Gregg (R-NH) is the Ranking Member on the Senate Budget Committee. He was opposed to the pay-go provision because of the various exemptions. Sen. Gregg responded, "Pay-go isn't pay-go. Pay-go is Swiss cheese-go." Sen. Gregg has been a strong voice during the past year for moving forward with spending reductions to reduce the deficit. Finally, Sen. Kent Conrad (D-ND) acknowledged that Sen. Gregg is correct in stating that the pay-go provision is not very rigid. Sen. Conrad continued, "To be clear, I would have much preferred a stricter statutory pay-go. But the bottom line is the statutory pay-go provision being adopted today will serve as a useful additional barrier against the adoption of legislation that does not have broad bipartisan support." Senate Rejects Budget Commission On January 26, 2010, the Senate rejected a proposed Budget Commission by a vote of 53 to 46. The Budget Commission bill would have required 60 votes. The proposed Budget Commission was developed by Senate Budget Chair Kent Conrad (D-ND) and Ranking Member Judd Gregg (R-NH). Both Senators maintained that only a bipartisan commission with the authority to propose legislation that could not be amended on the Senate floor would make meaningful progress in reducing the deficit. At a hearing on the Budget Commission, CBO Director Douglas Elmendorf projected the fiscal 2010 deficit to be $1.35 trillion. This is 9.2% of the gross domestic product, down slightly from the $1.41 trillion deficit in 2009. Director Elmendorf noted, "The country faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues they are prepared to send to the government to finance those services." The Budget Commission was opposed by Sen. Max Baucus. As Chair of the Senate Finance Committee, he has great influence in all of the budget and tax legislation. Sen. Baucus noted that there have previously been deficit-cutting budgets that were passed using the "normal order" of the Senate. He suggests, "That's the process that Congress should employ to implement any bipartisan agreement today." President Obama supported the Budget Commission. He indicated that the Budget Commission is necessary to address the "serious fiscal situation that our country faces." The Budget Commission will make "tough choices" but could be helpful in creating future jobs and economic growth. Following the failure of the Budget Commission bill, President Obama issued an executive order to implement a Budget Commission. Sen. Conrad approved of the concept and concluded, "We now face a perfect storm of exploding debt, brought on by rising healthcare costs, a retiring baby boom generation, and an outdated and inefficient revenue system. Now is the time to act." State of the Union and Taxes President Obama spoke to a joint session of the House and Senate on January 28, 2010. In the State of the Union Address, he included two short sentences on taxes. President Obama stated, "To help working families, we will extend our middle-class tax cuts. But at a time of record deficits, we will not continue tax cuts for oil companies, investment fund managers and those making over $250,000 a year." Following the State of the Union Address, Senate Finance Chair Max Baucus (D-MT) indicated he would pursue the middle-class tax cuts. He stated, "In the coming weeks, I will work with my colleges to pursue targeted tax cuts that fulfill the President's goals of strengthening the middle-class, bolstering our economy and creating American jobs." However, Republican Senators were dismayed that President Obama suggested he would increase taxes on upper-income persons. Sen. Charles Grassley (R-IA) has been a strong advocate for small businesses. He observes that over "70% of new jobs" are typically created by small businesses. With the unemployment rate in most states over 10%, Sen. Grassley believes that raising the top two brackets and the capital gain rate will have a harmful impact on small businesses and job creation. Sen. Grassley responded, "For job creation, I've urged the President to get behind a comprehensive tax relief plan to encourage small business activity, and I introduced a bill last summer (S. 1381) that would leave more money in the hands of small business owners to hire workers, pay employee salaries and make investments that lead to new jobs." Editor's Note: After the State of the Union Address and passage of the Senate debt increase resolution this week, it is now becoming clear that the Senate and White House leadership plan to increase the two top income tax brackets. Unless there is a change in law, on January 1, 2011, the 33% and 35% brackets increase to 36% and 39.6%. The 15% capital gains rate will increase to 20%. While the estate tax is scheduled to return with a $1 million (with indexed increase) exemption and a 55% rate, it is very possible that there will be a compromise on that tax. Applicable Federal Rate of 3.4% for February -- Rev. Rul. 2010-6; 2010-6 IRB 1 (20 Jan 2010) The IRS has announced the Applicable Federal Rate (AFR) for February of 2010. The AFR under Section 7520 for the month of February will be 3.4%. The rates for January of 3.0% or December 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 at clicking here.
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PLR THIS WEEK PLR - 201003025 Private Foundation's Grants Are Not Taxable Expenditures X is a 501(c)(3) tax-exempt private foundation described in Sec. 509(a). X plans to award grants to promising individuals for the development of new projects that address societal problems in a manner that will benefit society at large. X proposes to open the application process to the general public and award grants on an objective and non-discriminatory basis. The selection committee will not receive any private benefit and X's staff and other related parties will be prohibited from applying. X has created written criteria for evaluating applications, will require the grant recipient to provide semi-annual reports on the progress and will reserve the right to recover the funds should they be diverted from their intended purpose. X seeks a ruling that grants issued under this program will not constitute taxable expenditures. Sec. 4945 imposes a tax on private foundations for any "taxable expenditures" made, which includes amounts paid to an individual unless the grants are awarded under an approved procedure meeting Service requirements. Reg. 53.4945-4(c)(1) provides that grants are not taxable expenditures if the private foundation demonstrates that: (i) its grant procedure includes an objective and non-discriminatory selection process; (ii) such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance; and (iii) the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance. Because X demonstrated to the Service's satisfaction that it will observe these requirements, the grants awarded will not be classified as taxable expenditures. To view the full PLR Click Here.
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CASE OF THE WEEK Wild Bill Russell's Art Gift Bill Russell grew up on the Great Plains. During his youth, he was a rodeo bull rider and gained fame as "Wild Bill" for his daring exploits. Wild Bill was an artist at heart and soon decided to move on to his artistic pursuits. He traveled throughout America and Europe studying all of the great modern and classical artists. In France he, was greatly impressed by the delicate works of Impressionist painters Monet and Manet and the bold colors and brush strokes of Van Gogh. Upon his return to his beloved great plains of the west, Wild Bill combined the subtlety of the Impressionists, the colors of Van Gogh and his own unique skills. His Impressionist western landscapes and paintings of cowboys and life on the ranch became treasured by art collectors nationwide. Wild Bill was approached by the Cowboy Western Museum and asked to donate one of his paintings. The museum director noted that they did not have any western Impressionist art and a Wild Bill Russell painting would draw art lovers from America and the world. Bill was now finally selling his paintings for $75,000 or more, and now had another new experience - paying large income taxes. He asked, "Could I get a charitable deduction for this gift of my painting?" To view the solution to this Case of the Week Click Here.
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ARTICLE OF THE MONTH To Reinsure or to Self-Insure? – Reinsurance Part II Reinsurance of a gift annuity involves payment of a premium by the charity to a company qualified to issue annuities in that state. When a charity receives a gift annuity, it usually has the option to retain the annuity in a designated reserve fund and invest that fund. The charity may make payments from the fund or pay a premium to a financial services company that will then make the required annuity payments. The second choice is commonly called "reinsurance" of the gift annuity. Reinsurance involves evaluating the factors that will benefit the charity with self-insurance, or the favorable factors that might lead to reinsurance. The primary questions relate to the life expectancy of the donor, the estimated return of the charity's annuity reserve fund and the cost of reinsurance. To view the full Article of the Month 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 1999-2010 Crescendo Interactive, Inc. |
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| University of Northern Colorado Foundation, Inc. | February 1, 2010 | |
| 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 University of Northern Colorado Foundation, Inc. If you do not wish to receive future emails, please click here to unsubscribe. Thank you. |
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