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Saturday July 4, 2020

Washington News

Washington Hotline

Updated COVID-19 Rules on IRA Loans and Rollovers

In IR–2020–124 and IR–2020–127, the Service announced new rules to assist IRA owners who are impacted by COVID–19.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act offered IRA owners several benefits designed to enable them to cope with the pandemic. The CARES Act included three specific provisions to assist IRA and other qualified retirement plan owners.

First, there is a waiver of required minimum distributions (RMDs) for 2020. The RMD waiver was created because IRA RMDs were calculated in December 2019 when assets were at record high values.

Second, an IRA owner impacted by COVID-19 may take a distribution up to $100,000. There is no 10% penalty tax for individuals under age 59. The IRA owner may choose to re-contribute the distribution within three years with no penalty. Alternatively, he or she may choose not to recontribute the funds and pay the tax due in three equal amounts over years 2020, 2021 and 2022.

Third, an IRA owner may take a loan of up to $100,000 (the prior limit was $50,000). This loan must be taken between March 27 and September 22, 2020.

The IRS letter expands the potential group who qualify for the CARES Act qualified retirement plan benefits. A person who is infected with COVID–19 (or whose spouse or dependent is infected) may use the distribution or loan provisions. An individual may use the new IRA benefits if he or she (or a spouse or dependent) has experienced financial consequences because of COVID-19. The COVID-related adverse financial consequences may include being quarantined, furloughed or laid off, unable to work, unable to obtain childcare, experiencing reduced work hours or income or having a job offer or start date changed.

Because the CARES Act created an RMD holiday for year 2020, individuals are not required to take their IRA distribution. However, some individuals took an RMD distribution in January or February 2020. Because those individuals are past the normal 60-day period for a qualified IRA rollover, the IRS announced these IRA owners will be able to recontribute the RMD amount to their IRA by August 31, 2020. If an IRA owner took a distribution prior to the passage of the CARES Act and recontributes the full amount, there will be no taxable income for 2020.

Editor's Note: Congress and the IRS are making extensive efforts to reduce the financial impact of COVID–19. Because most individuals have an IRA or other retirement plan, the ability to take a distribution and recontribute the amount within three years or take a loan of up to $100,000 is a significant benefit.

IRS Offers Syndicated Conservation Easement Settlements

In IR–2020–130, the IRS announced a plan to offer settlements for investors in syndicated conservation easements. Many syndicated conservation easements have been audited or had deductions denied. Over 80 conservation easement-related Tax Court cases are currently pending. The settlement offer may permit some investors the opportunity to reduce the cost and risk of an adverse result in the Tax Court.

IRS Commissioner Chuck Rettig stated, "The IRS will continue to actively identify, audit and litigate these syndicated conservation easement deals as part of its vigorous and relentless effort to combat abusive transactions. These abusive transactions undermine the public's trust in private land conservation and defraud the government of revenue. Ending these abusive schemes remains a top priority for the IRS."

In Notice 2017–10, the IRS categorized syndicated conservation easement transactions as potential tax avoidance transactions. The Service noted that conservation easement syndicate promoters have encouraged clients to litigate. The IRS recommends taxpayers "consult with independent counsel, meaning a qualified advisor who was not involved in promoting the transaction."

The IRS Notice states, "The promoters obtain an appraisal that greatly inflates the value of the conservation easement based on a fictional and unrealistic highest and best use of the property before it was encumbered with the easement." The investors then claim deductions based on this inflated value. The Service continues, "These deductions grossly multiply their actual investment in the transaction and defy common sense."

The IRS has publicly indicated it will disallow the deductions, assess civil penalties and even consider criminal sanctions. The IRS has created a Promoter Investigation Coordinator and an Office of Fraud and Enforcement to contest syndicated partnership charitable deductions.

The settlement terms offered require the investor to reduce the charitable deduction to zero, all partners must accept the settlement, the partnership will pay the tax, penalties and interest and permit investor partners to deduct the cost of the acquisition of the partnership interests. However, a partner who was involved in the syndicated conservation easement transaction must pay the maximum penalty and may not deduct his or her costs.

IRS Chief Counsel Michael J. Desmond stated, "With this announcement, we encourage taxpayers and their advisors to take a hard, realistic look at their cases. They should carefully review this settlement offer. We believe this is clearly the best option for them to pursue, given all of these factors. Those who choose not to accept the offer should keep in mind the Office of Chief Counsel will continue to vigorously litigate their cases to the full extent possible."

The Land Trust Alliance has supported the IRS effort to attack syndicated conservation easement partnerships. Andrew Bowman, President and CEO of the Land Trust Alliance, stated, "I applaud IRS Commissioner Chuck Rettig and Chief Counsel Michael Desmond for their excellent work pursuing justice and protecting taxpayers. Their agency is now offering a firm but fair way forward for taxpayers that invested in syndicated conservation easement transactions. This is no sweetheart deal –– and it should not be one. This is an emphatic reminder to all investors that they should steer clear of abusive conservation easement tax shelters."

Two Conservation Easement Deductions Denied

In Lumpkin One Five Six LLC et al. v. Commissioner; No. 191-18; T.C. Memo. 2020-94 (2020) and Lumpkin HC LLC et al. v. Commissioner; No. 192-18; T.C. Memo. 2020-95 (2020), Tax Court Judge Kathleen Kerrigan denied charitable deductions for conservation easements valued at $2.5 million and $8.2 million.

In Lumpkin One Five Six LLC et al. v. Commissioner, the partnership acquired 156.43 acres of land in Lumpkin County, Georgia for $319,990 on December 1, 2011. On December 29, 2012, the partnership deeded an easement to Atlantic Coast Conservancy, Inc. (ACC), a Georgia nonprofit corporation. The appraised value of the property had increased over eightfold during the one year holding period to $2,711,000 and the claimed charitable deduction was $2,483,000.

In Lumpkin HC LLC et al. v. Commissioner, a Georgia LLC acquired 523.71 acres of property on December 1, 2011. On December 29, 2012, the partnership deeded a conservation easement on 522.21 acres to the Atlantic Coast Conservancy, Inc. (ACC). The property was valued at $9,139,000 and the conservation easement deduction was $8,242,000.

The IRS audited both returns, denied the deductions and assessed penalties.

The Tax Court noted the deed stated, "This Easement shall have at the time of Extinguishment a fair market value determined by multiplying the then fair market value of the Easement Area unencumbered by the Easement (minus any increase in value after the date of this grant attributable to improvements) by the ratio of the value of the easement at the time of this grant to the value of the Easement Area, without deduction for the value of the Easement at the time of this grant."

The IRS claimed that reducing the value to be received by ACC in the event of an extinguishment by the cost of improvements violated the Section 170(h)(5)(A) requirement that the conservation purpose must be "protected in perpetuity."

Regulation 1.170A–14(g)(6)(ii) states that the property right must create "a fair market value that is at least equal to the proportionate value that the perpetual conservation restriction at the time of the gift, bears to the value of the property as a whole."

The taxpayer claimed that the deed was sufficient because the value of improvements should not be part of the easement. However, the Tax Court explained the proceeds from an extinguishment must be "at least equal to the proportionate value" and the deed formula fails this test.

The taxpayer also claimed that there was no "rational basis" for the requirement in the regulation that a nonprofit should share in the benefits of subsequent improvements. However, the Tax Court explained that the regulation requires a "proportionate value" and that this approach is not "arbitrary, capricious or manifestly contrary to the statute." Therefore, the deduction was denied in both cases.

Conservation Easement Deduction Denied Plus Penalty

In Plateau Holdings LLC et al. v. Commissioner; No. 12519-16; T.C. Memo. 2020-93 (2020), the Tax Court denied a $25.5 million charitable deduction for a gift of a conservation easement.

On December 18, 2012, Plateau LLC acquired two parcels of land property in Tennessee for $5,822,000. Eight days later on December 26, 2012, the partnership deeded a conservation easement to The Foothills Land Conservancy, a tax-exempt organization.

The easement covered 1,126 of the 1,171 acres of the first parcel and 1,228 of the 1,273 acres of the second parcel. The 90 acres excluded from the easement had substantial frontage on several lakes and was subsequently valued at $1,795,000.

The appraised value of the easements based on a before and after determination was $25,449,000. The Tax Court noted there was a very large increase in value in eight days.

The deed of the easement included an extinguishment provision. If the easement was extinguished, the formula required multiplying "the fair market value of the Property unencumbered by this Easement (minus any increase in value after the date of this grant attributable to improvements) by a fraction, the numerator of which is the value of this Easement at the time of the grant and the denominator of which is the value of the Property without deduction of the value of this easement at the time of this grant."

The IRS denied the $25,449,000 deduction and determined that a 40% accuracy–related penalty under Section 6662(d) was applicable due to a gross misstatement of value.

At trial, taxpayers' appraisers Thomas Wingard and Martin Van Sant determined that the easement value was $15,817,000. They offered four comparable properties. The IRS appraiser determined the value of the property to be $6,151,509. He did not know until trial that the property had sold on December 18, 2012, for $5,822,000 in an "arms-length" transaction. The Tax Court determined that the taxpayers' valuations were not supported by the evidence and that the sale price near the IRS appraiser's value indicated it was an accurate determination.

However, the primary issue was the extinguishment provision that reduced proceeds for the nonprofit by "any increase in value after the date of this grant attributable to improvements." Because the proceeds were not proportionately distributed, the deed failed the "protected in perpetuity" requirement. There was a savings provision in the deed, but the Tax Court determined that clause was not valid and denied the deduction.

The IRS assessed a 40% gross misstatement of value penalty. Because the IRS valuation by appraiser Kinney of $6,151,509 was deemed accurate, the easement deductions claimed were well in excess of the correct value. Therefore, the 40% gross misstatement of value penalty was applicable.

Applicable Federal Rate of 0.6% for July -- Rev. Rul. 2020-14; 2020-28 IRB 1 (15 June 2020)

The IRS has announced the Applicable Federal Rate (AFR) for July of 2020. The AFR under Section 7520 for the month of July is 0.6%. The rates for June of 0.6% or May of 0.8% 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 2020, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

Published June 26, 2020
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Maria Poimenidou, 2020
Theodore Diamandopoulos
Memorial Scholarship

"I am currently a senior double majoring in biochemistry and economics and minoring in Innovation & Entrepreneurship. I cannot express enough how much I appreciate the Theodore Diamandopoulos Memorial Scholarship, without it, my Lawrence experience would not be possible. I have enjoyed being a mentor in the CORE freshman mentorship program, playing and working for the Women's Basketball team, competing in Model United Nations, interning as a lab assistant at the MD Anderson Cancer Center in Houston, hosting a pilot STEM program for young unaccompanied refugees in Greece, and volunteering through KidsGive during a field trip to Sierra Leone. Thank you so much for supporting me in doing the things I dream to do."

Jelani Jones, 2021
Marie Dohr Memorial Scholarship

"Being at Lawrence has and continues to be a joy for me. I feel that I have grown so much as a musician, a teacher, and a friend through the awesome community of professors and friends I have met here. I feel that I am blessed to have such an awesome violin professor, and all the faculty members in the education department are so amazing. I have come to see Lawrence and the state of Wisconsin as my home, and I wouldn't change a thing."

Maggie Wright, 2021
Margaret S. and W. Paul Gilbert Memorial Scholarship

The scholarships I receive at Lawrence allow me to experience anything that I want to. I can pursue my love of Biology and Chemistry in classes that are engaging, with professors who care individually about their students. These scholarships also give me the freedom to participate in numerous extracurriculars that Lawrence offers as well, like the Fencing Team and the American Medical Students Association. All of the opportunities Lawrence offers me remind me how grateful I am to have received the Margaret S. and W. Paul Gilbert Memorial Scholarship."

Molly Chadwick Reese, 2020
Anne Prioleau Jones Tuition Scholarship in French

"Attending Lawrence is a privilege few are granted. Every moment spent at Lawrence solidifies a lifelong membership in a special group of peers, known as Lawrentians. The esprit de corps that Lawrence fosters makes the connection between students and mentors new and challenging, with both parties in a constant state of curiosity, respect, and encouragement. My experience as a language learner at Lawrence has not only helped my comprehension of the French language, but has enhanced my ability to communicate and connect with people in ways I never expected before attending Lawrence. As a French major and a student following a pre-medicine track, I have been afforded the privilege of diving into the sumptuous depths of the humanities, while satiating my hunger for scientific knowledge in concert. From this, I am able to fully appreciate the wonders of a liberal arts education. If not for the Anne Prioleau Jones Scholarship in French, I would be unable to join my peers in this quest for knowledge. I am very grateful for the donors' generosity."

Milwaukee-Downer Scholarships and Professorships

Some of the many recipients of Milwaukee-Downer scholarships gather for a photo with Carolyn King Stephens M-D'62 and Marlene Crupi-Widen M-D'55 in January 2014 at the annual scholarship luncheon.

Rosamund Victoria Bille Adler Scholarship
Dr. Charles E. Albright Scholarship
Helen Daniels Bader Scholarship
James G. and Ethel M. Barber Scholarship
Catharine Beecher Endowed Fund for Downer Women
Bessie A. Bell Scholarship
Berk Scholarship
Frederick C. Best Scholarship
Beta Study Club Scholarship
Lynde Bradley Scholarship
Lucia R. Briggs-Alumnae Scholarship
Edith Lange Brooks Scholarship
Anne Barman Caldwell Scholarship
Alice Miller Chester Scholarship
City of Milwaukee Student Funds Scholarship
Milwaukee-Downer Class of 1940 Fund
Milwaukee-Downer Class of 1942 Fund
College Endowment Association Scholarship
Janet Cope Crawford Scholarship
Jessie Mabbott Daniels Scholarship
F. T. Day Scholarship
Rufus Dodge Scholarship
Julia P. Ely and Hannah R. Vedder Memorial Scholarship
General Endowed Scholarship - M-D College
Dr. Alfred W. and Mrs. Ada F. Gray Scholarship
Berenice E. Hess Scholarship Endowment
Lucille Ray Hibbard Scholarship
Belle Austin Jacobs Scholarship
Helen McDermott Jurack and Ronald J. Mason Scholarship
Marjorie S. Logan Scholarship
Nellie Maxwell Scholarship
S. Annabelle & Paul McGuire Scholarship
Memorial Scholarship Fund - Milwaukee-Downer
Milwaukee-Downer Class of 1953 Scholarship
Milwaukee-Downer Class of 1955 Scholarship
Milwaukee-Downer Class of 1956 Scholarship
Milwaukee-Downer Class of 1957 Scholarship
Milwaukee-Downer Class of 1958 and 1959 50th Reunion Scholarship
Milwaukee-Downer Club Scholarship
Milwaukee-Downer/Lawrence College Consolidation 50th Anniversary Scholarship
Francis Evelyn Kelley Morgan Memorial Scholarship
O'Neill-Anderson Family Scholarship Endowment
Elizabeth A. Olson Scholarship
Gilbert Haven Peirce, Sr. and Emma Elizabeth Manor Peirce Milwaukee-Downer Scholarship
Aleida J. Pieters Scholarship
Matilda Siefert Puelicher Scholarship
Elizabeth Ann Richardson Scholarship
William M. Ross Memorial Scholarship
Elizabeth Rossberg Scholarship
Charles Frederic Sammond Scholarship
Mildred L. Schroeder Scholarship
Sivyer Educational Fund for Women
Marion Merrill Smith Scholarship
Dr. Elizabeth A. Steffen Scholarship
W. Mead and Elizabeth McKone Stillman Scholarship
Strzelczyk Family Scholarship
Clare Scherf Sweetman Scholarship
Raymond H. and Jane K. Taylor Scholarship
Jerline E. Walfoort Memorial Scholarship
Barbara E. Wehr Fund
Harmony Weissbach Scholarship
Martha and Frances Wheelock Scholarship
James G. and Ethel M. Barber Professorship of Theatre and Drama
T. A. Chapman Professorship in Music
Alice G. Chapman Professorship in Physics
Alice G. Chapman Librarianship
Milwaukee-Downer College and College Endowment Association Professorship

Angela Small Fry Intia, 2019
Maurine Campbell Scholarship

"Thanks to the Maurine Campbell scholarship, I have been able to attend the amazing school that is Lawrence University. With the help from this scholarship, I have been able to pursue my dream career in chemistry working with the outstanding and extremely helpful faculty here. Even outside of chemistry I take the time for exploration into my interests and want to give back through my work as a resident life advisor, stock room assistant, and student supervisor at Bon Appetit. Everything I have learned here, academically or not has forever molded the person I am today."

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