eGiftLaw Newsletter
| March 8, 2010 Dear Professional Advisor,
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| University of Northern Colorado Foundation, Inc. | March 8, 2010 | |
GiftLaw eNewsletter - March 8, 2010
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WASHINGTON HOTLINE HIRE Act Passes House Tax Quote of the Week The best legislator is the one who votes for all appropriations and against all taxes. – Walter P. Brownlow (attributed)
HIRE Act Passes House On March 4, 2010, the House passed an expanded version of the Senate HIRE bill. The House version expands the "Build America Bonds" portion of the Senate bill and has increased the cost from $15.5 billion to $17.6 billion. The bill passed by a rather narrow margin of 217 to 201. This margin reflected the concern by both Democratic and Republican members that the hiring credit will not have much impact on decisions to increase staff by small and mid-size businesses. The bill now will be returned to the Senate and reasonably prompt action is expected to pass the legislation. The HIRE Act includes three specific provisions to encourage employment and several offsets or tax increases. The provisions to increase employment are as follows:
Second, there are multiple changes to implement provisions of the Foreign Account Tax Compliance Act of 2009. These provisions include:
Senate Tax Extenders Bill On March 1, 2010, the Senate began consideration of an expanded tax extenders bill. Originally, there was a compromise tax extenders and HIRE bill negotiated by Senate Finance Chair, Max Baucus (D-MT) and Ranking Member, Charles Grassley (R-IA). However, Majority Leader Harry Reid (D-NV) decided to separate the tax extenders section from the HIRE Act. Therefore, Sen. Reid presented an expanded bill to the Senate this week. The revised tax extenders bill includes four major provisions. These include the following:
Sen. Baucus urged the Senate to pass the bill in order to enact the various tax extenders and also provide assistance for the unemployed. Sen. Reid indicated that the Senate vote on the bill should take place next week. Blue Dogs Propose Balanced Budget by 2020 Lead by Rep. Bobby Bright (D-AL), the Blue Dog Democrats in the House of Representatives introduced a "Balanced Budget Amendment" on Mar. 2, 2010. The House Joint Resolution 78, sets a target date of 2020 for balanced budgets. The Blue Dogs have urged the Democratic leadership to consider the impact on the country of the unprecedented deficits in 2009 and 2010. Rep. Bright noted, "Balancing the budget is a simple concept that Alabama families follow everyday, but unfortunately the federal government doesn't play by the same rules. This Amendment is an essential part of our larger efforts to bring real and effective fiscal reform to government." Rep. Bright concluded that, "balancing the budget on a yearly basis" is the only potential solution to the current record deficits. The Balanced Budget Amendment requires three actions by Congress as well as the President. First, the President is required each year to submit a balanced budget to Congress. Second, Congress is required to pass a balanced budget. Third, Congress can fund a deficit only if there is a vote by 3/5 of both the House and the Senate to spend more than the estimated revenue received through taxes. As with all constitutional amendments, it will require ratification by both the House and the Senate and 3/4 of the states within a period of seven years. Editor's Note: The creation by the President of a Fiscal Commission through an Executive Order and the introduction of the Balanced Budget Amendment by the Blue Dog Democrats show that both parties now are talking about solving the deficit. The challenge is that a true balanced budget would require both increasing taxes and reducing spending. The total tax increase would be approximately 8% to 10% and the spending reduction would similarly be on the order of 8% to 10% of total expenditures. These changes in both areas are so large that it will be a major political challenge for the balanced budget to actually come into existence. Applicable Federal Rate of 3.2% for March -- Rev. Rul. 2010-8; 2010-10 IRB 1 (19 Feb. 2010) The IRS has announced the Applicable Federal Rate (AFR) for March of 2010. The AFR under Sec. 7520 for the month of March will be 3.2%. The rates for February of 3.4% or January of 3.0% 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 by clicking here.
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PLR THIS WEEK PLR - 201003021 Land Trust Education Grants Not Taxable Expenditures PF is a private foundation under Sec. 509(a) of the Code. PF requested advanced approval of a grant program under Sec. 4945(g)(3). The program will make grants for land trust education and training to practitioners in the field. The purpose of the grants is to increase the effectiveness of land trust practitioners in promoting and conserving the biodiversity of the area. Grant opportunities will be announced to members of Charity. Recipients of the grants will be chosen based on four sets of criteria. First, the applicants must describe how the grants will assist in training to protect land and river resources. Second, applicants must describe how training will benefit their conservation organization. Third, applicants must demonstrate a cost-share match plan for the training. Finally, the applicant must demonstrate a need for financial assistance. Members of the selection committee are unable to receive the grants or any other private benefit. Once selected, the grantee must annually submit a report detailing the training attended and submit copies of receipts. Sec. 4945(a) imposes an excise tax on the taxable expenditures of private foundations. Sec. 4945(d)(3) defines "taxable expenditures" as "any amount paid or incurred by a private foundation as a grant to an individual for travel, study or similar purpose unless the grant satisfies the requirements of Subsection (g)." 4945(g) provides that the grant is not classified as a taxable expenditure if it is awarded on a non-discriminatory basis pursuant to a procedure approved in advance by the Service. The private foundation must demonstrate that the grant is a scholarship to an approved educational organization and the purpose of the grant is to achieve a specified purpose. To obtain approval PF, as required by Sec. 53.4945-4(c)(1), must demonstrate that the grants will be awarded on a non-discriminatory basis, the award procedure is reasonably calculated to achieve the intended purpose and that PF will obtain reports on awardees' activities. The Service determined that PF's grant program met all of the requirements mentioned above. Therefore, the program will not result in classification as taxable expenditure subject to the excise tax in Sec. 4945(a). To view the full PLR Click Here.
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CASE OF THE WEEK George's "Green Children" Unitrust III George Green was a man of humble beginnings. He was born in Bulgaria and lived with his parents on their farm. But George was a diligent student and was determined to become a successful business owner. After high school, he obtained permission to come to America to go to college. George applied to several colleges and was accepted as a work-study student at a state college. He lived in the dorm and worked nights in the cafeteria. On weekends, he moonlighted as a waiter at a five-star restaurant. George was both resourceful and determined to succeed. He enrolled in chemical engineering and studied every spare moment. His industry was quickly recognized by faculty. After graduating with honors, he became a graduate assistant and earned a master's degree in engineering. George had always loved nature. He interviewed with and became a product development engineer with a company that built emissions control equipment for automobiles. Soon, George met Helen Wilson and they married. But George was too energetic to stay in one place. After saving $5,000, he convinced Helen that it was time for him to go out on his own. George started a company that offered environmental consulting. As soon as he could gather and borrow the funds, he also started to produce components for emissions control equipment. After a terrific struggle, the business took off and George began to manufacture probes for company smokestacks. When asked if that was a good business, George responded, "It is a great business. Companies buy my probes to measure their smokestack emissions and then the government changes the rules! Then, they all have to buy upgraded probes!" George incorporated the probe manufacturer as Green Probe. Ever the entrepreneur, he later had a chance to buy a company that built converters for automobiles. He bought the assets of that company and transferred them into a company named Green Converters (GC). Finally, George started a third company to build "smokestack scrubbers" that would clean the emissions from the smoke of power plants. Later, there was a huge increase in the cost of energy and power companies began to build more coal-burning plants. His "smokestack scrubbers" from Green Scrubber were in great demand. Seven years ago, George funded a unitrust with the GC stock and then GC sold all assets to General Auto. Three years earlier, George sold Green Probe to Major Power Company. At age 82, he and Helen now know they need to sell Green Scrubber (GS). Fortunately, MegaScrubber is very interested in purchasing GS. So George called CPA Arnie Arnst again and asked, "What should I do now? We don't want to pay a large tax. The unitrust worked fine before and I suppose that we could sell tax-free again. But the trust is over $9,000,000, and we have no need for more income. We are swimming in a sea of cash. What should we do?" To view the solution to this Case of the Week Click Here.
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ARTICLE OF THE MONTH Gift Annuity Returns and the Age 111 Donor – Reinsurance Part III Ms. Ella Kelly was a fortunate and very healthy annuitant. When she was age 92, she purchased a gift annuity paying 14% from a private university in Florida (14% was the rate at that time for annuitants over age 90). Ms. Kelly was so encouraged by her 14% gift annuity payouts that she lived to be 111! Another donor purchased a $100,000 gift annuity for cash from a west coast charity. She also received a high percentage rate of return and was paid one quarterly payment before passing away. Some gift annuitants live a very long time – some pass away fairly quickly. It is quite difficult to know what the probable life expectancy will be of an individual. The concept of gift annuities and insurance is that the two extremes will balance in the middle. 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.
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| University of Northern Colorado Foundation, Inc. | March 8, 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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