Help for Hurricane Harvey…and Irma Too

Employers seeking ways to help employees and their family members affected by Hurricanes Harvey or Irma should consider the various relief made available by the Internal Revenue Service under Announcements 2017-11 and 2017-13 and Notice 2017-48.

Under Notice 2017-48, employers who maintain a leave-based donation program (there is still time to adopt one) can afford employees the opportunity to forgo their vacation, sick or personal leave in exchange for cash contributions made by the employer, before Jan. 1, 2019, to charitable organizations assisting those impacted by Hurricane Harvey.  The donated leave will be excluded from the donor employees’ income and wages and the employer will be able to deduct such contributions to a qualifying charitable organization as a business expense.  As always, the Notice includes specific guidelines that must be followed in order for employers and employees to take advantage of this relief.  Note that currently this relief is approved only for Hurricane Harvey assistance.

Announcements 2017-11 and 2017-13 permit employers who sponsor a “qualified employer plan” to offer hardship distributions and/or plan loans to participants for reasons (including to obtain food and shelter) relating to Hurricanes Harvey and Irma even if the plan doesn’t currently permit hardship distributions or loans.  For purposes of this relief, participants may obtain a hardship distribution and/or plan loan not just for their own needs but also to help certain affected family members.  In addition, certain other restrictions (e.g., automatic six-month suspension of elective deferrals following a hardship distribution) that generally apply are suspended.

Your qualified employer plan does not need to be formally amended before the hardship withdrawal and plan loan relief is offered; however, the plan must be amended no later than the end of the first plan year beginning after December 31, 2017, and the relief can only be offered to the extent provided and within the time period authorized by Announcements.

The IRS is also offering other forms of relief to affected taxpayers (employers and individuals), including penalty relief for certain late tax filings, extended deadlines for certain tax filings and payments. A special IRS website contains links to all of its Hurricane Harvey relief and other helpful information about reconstructing records, checking the tax-exempt status of charitable organizations and more.  Similar information is provided on a separate webpage for those affected by Hurricane Irma.

Written by in: General

EO Update: e-News for Charities & Nonprofits

1. IRS provides help for Hurricane Harvey victims

The IRS is providing a variety of tax relief for those affected by Hurricane Harvey. Check our webpage for the latest updates.

2. Beware of Hurricane Harvey fake charity scams

The IRS issued a warning about possible fake charity scams emerging due to Hurricane Harvey and encouraged taxpayers to seek out recognized charitable groups for their donations.

3. More IRS disaster relief information available

Publication 3833, Disaster Relief, Providing Assistance Through Charitable Organizations

Two-part mini-course on disaster relief.

Additional information about IRS help for Hurricane Harvey victims is available on IRS social media sites, including the Twitter handle @IRSnews, following the hashtag #Harvey.

Written by in: General

IRS Seeks Applications for Advisory Committee for the Tax Exempt and Government Entities Division

The IRS is seeking applicants for vacancies on the Advisory Committee on Tax Exempt and Government Entities (ACT). The committee provides advice and public input on the various areas of tax administration served by the Tax Exempt and Government Entities Division (TE/GE). Applications will be accepted through September 18, 2017.

Written by in: General

Bryan Cave Recognized in The Legal 500

We are very excited to announce that Bryan Cave was recognized in Legal 500 as one of the top law firms in the Nonprofit / Tax Exempt Organizations category.  This is an honor and we are delighted that our Firm has been recognized along with the other top law firms in the United States that specialize in advising nonprofit and tax-exempt organizations.

The purpose of The Legal 500 is to help corporate counsel find the right advisors through its law firm rankings and editorial, which are free of charge to access. Rankings are based on feedback from 250,000 in-house peers and access to law firms deals and confidential matters, which are independently assessed by researchers.

Written by in: General

403(b) Pre-Approved Retirement Plans List

We’ve recently updated the list of 403(b) pre-approved retirement plans that have received an IRS favorable opinion or advisory letter. A favorable opinion or advisory letter for a 403(b) pre-approved plan means that the IRS has determined that the plan satisfies the requirements of Internal Revenue Code Section 403(b) (these requirements are specifically outlined in the opinion or advisory letter).

Employers eligible to sponsor 403(b) retirement plans for their employees may want to consider adopting a pre-approved plan that has received a favorable letter instead of a having an individually designed plan.

Related resources:

Written by in: General

Planning and the Death of the Death Tax

On Wednesday afternoon the White House again proposed eliminating the so-called death tax as part of its tax reform plan, but the details remain sparse.  When pressed for specifics Director Cohn simply stated that with the implementation of the administration’s tax plan, the death tax would disappear.

The phrase “death tax” entered the popular lexicon by way of tax reformers wanting to summarize and caricature the several parts of the Federal transfer tax system.

What is the Death Tax?

The death tax could refer to the estate tax alone or to any combination of other taxes that grew out of the estate tax regime.  The modern estate tax was introduced in 1916.  In its current form it imposes a top rate of 40% on transfers above $5,490,000 per person made at death.

After the estate tax was instituted, savvy taxpayers quickly realized that a deathbed gift would avoid the estate tax altogether.  To prevent this, Congress passed the gift tax in 1936.  The current gift tax has the same top rate as the estate tax and shares the $5,490,000 exemption.  This means any gifts that use gift tax exemption during life reduce the available estate tax exemption at death.  The gift tax also excludes gifts up to $14,000 per year to any one person.

Under the estate tax, if a taxpayer pays estate tax and leaves the entire estate to his or her children, the children would again pay estate tax when the estate is passed to the taxpayer’s grandchildren. To avoid this problem, wealthy taxpayers began leaving a large portion of their estate to their grandchildren (or to trusts for their children for life, then to grandchildren), effectively leapfrogging one generation of the estate tax.  Not to be outmaneuvered, Congress passed the generation-skipping transfer (“GST”) tax on transfers to or for anyone in a generation below the taxpayer’s children.  The current GST tax has the same top rate and exemption level as the estate tax.

To avoid double taxation, Congress also introduced stepped-up basis at death.  This provision resets the basis of property acquired from a decedent to the date of death fair market value.  Thus heirs will not pay capital gains tax on later sales of property that already may have been subject to the estate tax.  Any or all of these tax regimes may (or may not) be targeted by the administration’s planned repeal.  But it is unclear what the tax landscape will look like once the dust settles.

What exactly will be repealed?

It is certain that the White House repeal will target the federal estate tax.  But this may not mean the end of the estate tax altogether, because some states have their own estate or inheritance taxes.  New Jersey may reinstate its previously repealed estate tax regime and California has proposed a new state estate tax based on the existing Federal system, in response to a Federal repeal.  Other states may follow suit.

If the estate tax is repealed it is unclear what will happen to the gift tax.  It could be repealed with the estate tax or retained – as it was under the Bush tax cuts.  Some argue that even if the estate tax is repealed the gift tax is necessary as a backstop against capital gains shifting.  But, if the income tax rates are collapsed, and depending on the capital gains rate, there might not be much need for such a backstop.

The White House plan does not mention what will become of the GST tax.  The House Republican Blueprint eliminates the GST tax.  And indeed it would seem obvious that a GST tax is unnecessary without an estate tax.  But repeal could create a problem if taxpayers unwind all of their GST tax exempt trusts only for the GST tax regime to be reinstated sometime in the future.  For exactly this reason, the GST tax regime was maintained under the Bush tax cuts with a 0% rate for 2010.

It also is unclear whether estate tax repeal would eliminate the rationale for providing a stepped-up basis at death.  At one point the administration thought so.  According to the administration’s 2016 proposal, the estate tax repeal would be accompanied by a repeal of stepped-up basis.  Instead the administration proposed a tax on capital gains at death at a rate of 20% with a Ten Million Dollar exemption.  This tax has not been mentioned in the most recent proposal and it is unclear whether it is still on the table.

The longevity of the death tax repeal may well depend upon the method used to move the tax bill through Congress.  Senate rules dictate that any legislation which increases the budget deficit beyond ten years requires the vote of 60 Senators.  Because the Republicans hold only 52 seats in the Senate, such legislation would require negotiation with the Democrats.  If the Republicans can’t attract votes from Democrats, they can pass their own version of the tax plan but the changes must be revenue neutral or they will sunset after ten years.

Until the details of the death tax repeal are made public and a final bill is passed, it would seem premature to plan for any specific scenario.


Charitable Income Tax Deductions: The Rockefeller Edition

Billionaire David Rockefeller passed away this week at the age of 101.  According to Forbes magazine, during his lifetime, the well-known philanthropist gave away nearly $2 billion.

In light of this newsworthy charitable donation, we thought now would be a good time to remind everyone of some of the basic income tax deductions available for gifts to charities.

Section 170 of the Internal Revenue Code (the “Code”) governs income tax deductions for charitable contributions. In the case of an individual making a cash gift to a Section 501(c)(3) organization classified as a “public charity” (such as churches, schools, hospitals, and governmental units), the gift is deductible for federal income tax purposes so long as the aggregate gifts do not exceed fifty percent (50%) of the taxpayer’s adjusted gross income (“AGI”) for the taxable year.

In the case of a contribution of capital gain property to a public charity, a taxpayer can only deduct such contributions up to thirty percent (30%) of the taxpayer’s AGI for the taxable year. The amount of capital gain property contributed is taken into account after all other charitable contributions to public charities. Therefore, if the taxpayer contributes 30% of his or her AGI in non-capital gain assets and 30% of his or her AGI in capital gain assets, the non-capital gain assets will be applied first, then 20% of the capital gain property will be allowed, with the remaining 10% exceeding the taxpayer’s total 50% limit. Any excess contributions will be treated as a contribution in each of the five succeeding taxable years.

If a taxpayer contributes cash to a Section 501(c)(3) organization that is not classified as a public charity, such as to a private non-operating foundation, then the deductions for such contributions may not exceed the lesser of thirty percent (30%) of the taxpayer’s AGI or the excess of fifty percent (50%) of the taxpayer’s AGI for the taxable year over the amount of contributions of cash made to public charities.

If a taxpayer contributes capital gain property to a Section 501(c)(3) organization that is not classified as a public charity, then the amount of the contributions allowable for deduction purposes shall not exceed the lesser of twenty percent (20%) of the taxpayer’s AGI for the taxable year, or “the excess of thirty percent (30%) of the taxpayer’s AGI for the taxable year over the amount of the contributions of capital gain property” to public charities. Contributions of capital gain property to which this twenty percent (20%) limitation apply shall be taken into account after all other charitable contributions. Any excess contributions will be treated as a charitable contribution of capital gain property in each of the five succeeding taxable years.


Important Information on W-2/SSN Data Theft Scam

A dangerous email scam currently is circulating nationwide and targeting employers, including tax exempt entities, universities and schools, government and private-sector businesses. The scammer poses as an internal executive requesting employee Forms W-2 and Social Security Number information from company payroll or human resources departments. They may even send an initial “Hi, are you in today” message before the request.

The IRS has established a process that will allow employers and payroll service providers to quickly report any data losses related to the W-2 scam. See details at Form W-2/SSN Data Theft: Information for Businesses and Payroll Service Providers. If notified in time, the IRS can take steps to prevent employees from being victimized by identity thieves filing fraudulent returns in their names. There also is information about how to report receiving the scam email even if you did not fall victim.

As a reminder, tax professionals who experience a data breach also should quickly report the incident to the IRS. Tax professionals may contact their local stakeholder liaison. See details at Data Theft Information for Tax Professionals.

Written by in: General

Benefactors Beware: Fake Charities Included in IRS List of Top Tax Scams for 2017

Every year, the IRS issues its “Dirty Dozen” Tax Scams list, a compilation of tactics and devices used by scam artists against taxpayers.  While the threat exists year-round, the IRS promulgates the list ahead of filing season. As susceptible taxpayers prepare their returns, they face a higher risk of being targeted.

Included in the 2017 “Dirty Dozen” list are fake charities; however, this is hardly a new occurrence. Fraudulent charities and organizations have a long-standing history of soliciting donations from unsuspecting individuals. In its 2017 report, the IRS notes three steps taxpayers should take in making charitable contributions.

One: Keep your information private. Individuals are advised against sharing their personal information, such as a Social Security Number or passwords, as this is commonly used in identity theft. The IRS reminds individuals that a legitimate charity will never ask for such information in soliciting or receiving donations.

Two: Avoid cash. When making a donation, individuals should use check or credit card. In the case of the latter, credit card information should only be used over a secure network.

Three: Do your homework. As a matter of good practice, the IRS recommends using the Exempt Organization Select Check Tool to ensure that your donation is directed to a legitimate organization. The Tool allows donees to view an organization’s federal tax filings, and other   information, such as whether exempt status has been revoked or suspended. The Tool is available here.

The Dirty Dozen also advises donors to be wary of fraudsters in the wake of natural disasters. During such times, fake charities may solicit donations under the guise of disaster-relief funds. The IRS encourages donors to make contributions to officially recognized organizations, such as the Red Cross or UNICEF. The Exempt Organizations Select Check Tool is another way to verify a relief or human-rights organization as legitimate.

Find the IRS complete list of Dirty Dozen scams for 2017 here.

Written by in: General

IRS Notice: Conservation Easements for Charitable Giving

In Notice 2017-10, the Internal Revenue Service recently issued guidance on syndicated conservation easement transactions presumed to be used as tax shelters. This addition to the “listed transactions” under Section 1.6011-4(b)(2) requires both participants and material advisors involved in such transactions to report their activity to the IRS. Failure to report involvement in such a transaction, or to correct previously filed returns, will subject individuals to penalty under Section 6707.

Conservation easements provide a tax deduction aimed at furthering the public good. Most often, conservation easements involve historical, endangered, or otherwise valuable property. The property is contributed to a charitable organization, encumbered by a right or restriction in the form of an easement. The easement guarantees to maintain or change the current use of the land, so that it is properly conserved.  However, like many tax deductions, conservation easements are susceptible to abuse by individuals seeking to shelter large investments from taxation. The Notice pertains to using conservation easements through a pass-through entity to effectuate an improper charitable tax deduction.

Notice 2017-10 describes a transaction whereby a pass-through entity solicits prospective investors for a charitable tax deduction through a conservation easement. In such a transaction, the pass-through entity holds real property that is eligible for a conservation easement. The investors purchase direct or indirect interests in the pass-through entity. In turn, the pass-through entity contributes a conservation easement encumbering the property to a tax-exempt organization. This contribution entitles the pass-through entity to a charitable tax deduction, which it allocates to the taxpayer investors. The investors then claim a deduction on their federal tax returns. Notice 2017-10 requires investors as well as the pass-through entity, and any sub-tiers thereof, to report participation in such transaction.

Ordinarily, the donor of a qualified conservation easement is properly entitled to a tax deduction. The contribution is usually made through a deed executed in favor of the charitable organization, which grants the perpetual right to use the property for purposes other than its current use. The deduction for a gift of a conservation easement, or similar restriction, is the fair market value of the restriction at the time the gift is made. Due to the conservation restriction, this is typically calculated by the decrease in the property value. However, solicitation materials described in Notice 2017-10 offer investors a charitable deduction that equals or exceeds two and a half times the original amount invested.

Written by in: Tax Shelters

Powered by WordPress | Published by Bryan Cave LLP | Privacy Policy | Disclaimer | Advertising Notice | Site Map
Home | Our Team | Our Practice | FAQ | Clients | Our Firm | Contact Us | Twitter