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Tax News - Washington News
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Wednesday July 23, 2014

Washington News

Washington Hotline

IRA Rollover Passes House – On To Senate

On July 17 the IRA rollover and four other charitable bills passed the House on a 277-130 vote. Of the 12 different permanent tax extenders that have moved through the House Ways and Means Committee, 10 have now been passed by the full House of Representatives.

The five charitable bills were combined into the America Gives More Act of 2014 (H.R. 4719).

1. IRA Charitable Rollover – The Permanent IRA Charitable Contribution Act of 2014, introduced by Aaron Schock (R-IL), makes permanent the option for IRA owners over 70½ to transfer up to $100,000 per year to qualified charities.

2. Food Inventory Gifts – The Fighting Hunger Incentive Act of 2014, introduced by Tom Reed (R-NY), permanently extends an enhanced deduction for charitable gifts of food and inventory.

3. Conservation Easements – The Conservation Easement Incentive Act, introduced by Jim Gerlach (R-PA) permanently extends the higher deduction limits and potential 15-year carry forward of conservation easement gifts.

4. Private Foundation Excise Tax – The Private Foundation Excise Tax Simplification Act of 2014, introduced by Erik Paulsen (R-MN), simplifies the current 1% and 2% excise tax on private foundation income with a single 1% rate.

5. April 15 Gift Deduction – The Charitable Giving Extension Act, introduced by Mike Kelly (R-PA), permits donors to make deductions after December 31 and before April 15, with an election to take the deduction for the prior tax year.

The America Gives More Act will now be sent to the Senate. It is expected that the remaining two tax extenders passed by the Ways and Means Committee will be voted on by the House later this month.

Editor’s Note: The Founding Fathers planned for a system that encourages compromise between the House and the Senate. By this fall, the House will have passed 12 of the traditional 55 tax extender bills, but all are proposed to be enacted permanently. The Senate EXPIRE Act is expected to be passed during the November lame-duck session. It extends all 55 provisions for two years. The question is whether Majority Leader Harry Reid (D-NV) and other Senators will insist that all 55 provisions be enacted for two years or whether some extenders will be made permanent and others short term. It is very helpful for philanthropy that the strong bipartisan 277-130 vote included over 40 Democratic votes. If the Senate leadership is willing to make any of the tax extenders permanent, this strong bipartisan support suggests that the charitable provisions have good potential for permanent enactment. While it now is likely that there will be an IRA rollover for 2014 passed in November and retroactive to January 1, the duration of that provision is still uncertain.

Washington Supports Philanthropy

While the America Gives More Act of 2014 received solid bipartisan support, there was the customary diversity of opinions on the bill expressed by Members of the House.

Speaker John Boehner (R-OH) supported the bill. He stated, “Americans have always given generously to help their neighbors who are in need, and the tax code has long encouraged the significant, more-efficient role that individuals and private organizations have in providing a helping hand to the less fortunate in our communities. By expanding this support and making it permanent, this bipartisan legislation will help increase resources for charities, reduce poverty and hunger, and insure more lives are changed for the better.”

House Ways and Means Chairman Dave Camp (R-MI) also was very positive. He noted, “The American people are the most charitable people in the world, donating money, food and clothing in times of need. Their donations ensure that charities and foundations can help individuals and communities across the country. There are numerous provisions in the tax code that encourage giving, and the bill we have before us today, H.R. 4719 – The America Gives More Act – ensures that some of these provisions are made permanent, so individuals, businesses and farmers can donate and give back more.”

Chairman Camp also reviewed the specific provisions within the bill. He explained the reason for the new provision allowing deductible gifts up to April 15th each year. Camp stated, “If taxpayers were permitted to make and deduct contributions prior to filing their tax return, I believe many Americans will be even more generous in supporting religious and charitable causes.”

Ways and Means Committee Ranking Member Sander Levin (D-MI) noted his record of support for philanthropy. He stated, “We all support the good works of the charitable community and strive to provide charities with the resources they need to carry out their mission. Indeed, along with Congressman Gerlach, I am the sponsor of the food donation deduction.”

However, Ranking Member Levin expressed concern that there were no offsets for the permanent tax extender bills. He noted that the total cost of the extender bills is $825 billion over the next decade and that there were no increased taxes to offset that cost.

Similarly, the White House published a press release that shared the same opinion. The release stated that the White House “supports measures that enhance nonprofits, philanthropic organizations, and faith-based and other community organizations in their many roles, including as a safety net for those most in need, an economic engine for job creation, a tool for environmental conservation that encourages land and protections for current and future generations, and an incubator of innovation to foster solutions to some of the nation’s toughest challenges.” However, the White House also indicated it was concerned about the America Gives More Act because there were no tax offsets.

IRS Delays Trust Fee “Unbundling”

Under Sec. 67 and T.D. 9664, trusts and estates are required to “unbundle” certain fees and costs. Some of the applicable fees and costs will be subject to the 2% floor for miscellaneous deductions under Sec. 67(a).

Costs and fees such as ownership costs, fees for tax preparation and investment advisor fees will be subject to the 2% floor. The floor applies to costs and fees that commonly or customarily are incurred by an individual who holds similar property. In response to widespread claims by banks and large trust companies that they did not have sufficient time to prepare their software for this change, the IRS has delayed the implementation of the unbundling rule.

The initial Treasury decision applied on or after May 9 of 2014. The amendment changes the effective date for application of the rules to January 1, 2015. Estates and trusts with tax years commencing on or after that date will be required to “unbundle” their costs and fees.

Applicable Federal Rate of 2.2% for August -- Rev. Rul. 2014-19: 2014-32 IRB 1 (18 July 2014)

The IRS has announced the Applicable Federal Rate (AFR) for August of 2014. The AFR under Section 7520 for the month of August will be 2.2%. The rates for July of 2.2% or June of 2.2% 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 2014, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return. Federal rates are available by clicking here.

Published July 18, 2014
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