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Tuesday October 17, 2017

Washington News

Washington Hotline

Will Tax Reform Include New Charitable Deductions?

As the House Ways and Means Committee staff continues to draft a massive tax reform bill, a new proposal could expand charitable giving. This week, Rep. Mark Walker (R-NC) introduced the Universal Charitable Deduction Act (UCDA).

The UCDA proposes allowing "above the line" charitable deductions in an amount equal to up to one third of the new standard deduction. If the standard deduction is increased from $12,700 for married couples to a proposed level of $24,000, then couples who take the standard deduction could also deduct up to $8,000 in charitable gifts. The deduction limits are lower for single persons, but they also would be able to take both the standard deduction and charitable gift deduction.

With the existing standard deduction, about 30% of taxpayers itemize and may deduct cash gifts each year up to 50% of adjusted gross income. However, the proposed tax bill would double the current standard deduction. If a larger standard deduction passes, there will be fewer taxpayers who itemize and take charitable deductions. The UCDA would permit most taxpayers to take the increased standard deduction and also claim their charitable gifts.

Two Washington associations of nonprofits welcomed the bill. Independent Sector President Daniel Cardinali stated, "This proposal would also move us closer to another important goal for Independent Sector – making a tax incentive for charitable giving available to all those who pay taxes in the United States."

National Council of Nonprofits President Tim Delaney noted, "The nonprofit community was pleasantly surprised by the introduction of the Universal Charitable Deduction Act, a bill that would extend to all taxpayers a tax deduction for donations for the work of charitable nonprofits."

Editor's Note: Tax reform in 2017 is still a big challenge for Congress. On October 12, Speaker of the House Paul Ryan (R-WI) said he expects to pass a tax reform bill in November. Because this is a large legislative project, he is willing to keep the House Members in Washington until December 25. Ryan stated, "I do not care . . . We have got to get this done."

Mortgage Precludes $33 Million Easement Deduction


In Palmolive Building Investors LLC et al. v. Commissioner; No. 23444-14; 149 T.C. No. 18 (10 Oct 2017), the Tax Court rejected a claim for a $33.4 million charitable deduction for a facade easement. The Tax Court determined the building mortgages were not properly subordinated to the easement.

Palmolive Building Partners LLC (PB) owned the Palmolive Building on North Michigan Avenue in Chicago, Illinois. On December 21, 2004, PB executed an easement deed to the Landmarks Preservation Council of Illinois (LPCI). The deed granted a facade easement for the Palmolive Building to LCPI.

The Palmolive Building was subject to two mortgages totaling $55.6 million. The fair market value was $257 billion and the facade easement value was $33.41 million.

The two lenders subordinated their loans to the façade easement, but retained a prior right to potential insurance proceeds. The IRS denied the $33.41 million deduction because the easement was not in perpetuity.

The Tax Court noted that a facade easement is permitted under Sec. 170 (f)(3)(B). The easement must be exclusively for conservation purposes under Sec. 170(h)(5).

If there is a mortgage, the mortgagee must subordinate "its rights in the property to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity." See Reg. 1.170A-14 (g)(2). Under the "extinguishment" principle, if the building is destroyed, "the donation of the perpetual conservation restriction gives rise to a property right, immediately vested in the donee organization, with a fair market value that, at the time of the gift, is at least equal to the proportionate value that the perpetual conservation restriction bears to the value of the property as a whole."

PB claimed that the mortgage was only an incidental burden and the potential for loss was "so remote as to be negligible."

The Tax Court noted that subordination required the nonprofit to have priority for the receipt of insurance proceeds. In this case, LPCI did not have priority. The language in the agreement did create priority for the lenders rather than LPCI.

Because the parties clearly intended the lenders to have a prior claim, this was not an incidental issue. Therefore, the charitable dedication was denied because the subordination was improper.

Rental Allowance for Ministers Rejected


In Gaylor, Annie, Laurie et al. v. Steve Mnuchin et al; No. 3:16-cv-00215 (6 Oct 2017), the United States District Court for the Western District of Wisconsin held unconstitutional the Sec. 107(2) ministers' rental allowance.

Taxpayers Gaylor and Barker are co-presidents of the Freedom from Religion Foundation. In an amended 2012 tax return, they stated they are "not clergy" and their employer "is not a church." However, they claimed a deduction for housing expenses under Sec. 107(2).

On June 27, 2016, the IRS denied the deduction because the return "avows that neither of you are ministers of the gospel."

The District Court determined that the ministers' rental allowance was not permitted. The judge stated, "I've concluded that Sec. 107(2) was invalid under either the plurality or concurring opinion. The provision was invalid under the plurality opinion because it gave an exemption to religious persons without a corresponding benefit to similarly situated secular persons. As to the concurring opinion, because a primary function of a minister of the gospel is to disseminate a religious message, a tax exemption provided only to ministers results in preferential treatment for religious messages over secular ones."

The court determined that the ministerial rental allowance is therefore unconstitutional.

Editor's Note: The judge suggested that if Congress were to extend the allowance to all nonprofits, it would be constitutional. Congress is likely to wait for review by an appellate court before taking action.

Applicable Federal Rate of 2.2% for October -- Rev. Rul. 2017-20; 2017-41 IRB 1 (19 Sep 2017)


The IRS has announced the Applicable Federal Rate (AFR) for October of 2017. The AFR under Section 7520 for the month of October will be 2.2%. The rates for September of 2.4% or August of 2.4% 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 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return.



Published October 13, 2017
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Shelby Harder, 2018
Dr. Irving Auld and Dorothy
Roher Auld Scholarship

"Many students take for granted what a university has to offer. However, I am thankful every single day for the opportunity to attend this prestigious school. At Lawrence, you have the ability to engage in Socratic debates about the world we live in at dinner, play recreational or NCAA sports, and talk one on one with brilliant professors. At Lawrence, you don't just 'learn' a subject, you are immersed in it. You dive into the liberal arts and these professors show you the beauty in it all, and how everything is tied together. I am a Biochemistry major with a soft spot for rocket science, philosophy, and evolution. Lawrence is my dream school, and it would have never been possible without the Dr. Irving Auld and Dorothy Roher Auld Scholarship. I am forever grateful for their generosity."

Max Loebl, 2017
Grace Gates Scholarship and Schade Family Scholarship

"Lawrence has been a life changing opportunity. My experience here is made possible by the Grace Gates Scholarship and the Schade Family Scholarship. I will always be grateful for the generosity that made my life at Lawrence a reality. I am incredibly thankful for the amazing education and lifelong connections I have made here. Beyond a doubt, my time at Lawrence has been a multifarious experience; playing varsity soccer, working in the Volunteer and Community Service Center, and now serving as the President of the Lawrence University Community Council. The times spent at Lawrence will be carried with me and cherished for the rest of my life."

Magdalen D'Alessio, 2017
Lillian Seybold Wells Memorial Scholarship

"Hello, my name is Magdalen D'Alessio, I'm majoring in Psychology and minoring in Education Studies and History. I am extremely thankful to be a recipient of the Lillian Seybold Wells Memorial Scholarship as I have been able to further my education and pursue my extracurricular interests, including Dance Team, and participating in the many International programs offered on campus. I'm really glad to be able to attend Lawrence and hope to expand my knowledge of the world even further! In the near future, I plan to conduct an independent study regarding the relationship between the government and school systems and the importance of parental involvement!"

Joe Johnson, 2017
Amy Aplin Larsen Scholarship

"The Amy Aplin Larsen Scholarship has allowed me to pursue tons of opportunities at Lawrence as part of a liberal arts education. I have been able to take classes from close to a dozen different academic departments, perform in ensembles and theatre productions, and take part in shaping the Lawrence community. Regardless of what field I may go into, the connections I have made here at Lawrence with staff, faculty, and friends have been invaluable. Thank you!"

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

Kaitlin Yorde, 2017
Maurine Campbell Endowed Scholarship

"I am so thankful to be a recipient of the Maurine Campbell Scholarship. I am the first person in my family to attend a four-year college, and this would not be possible without the scholarships I receive. At Lawrence there are so many wonderful opportunities and learning experiences available. This summer I was able to participate in research in my field and have also been able to get involved with the Appleton community through ESL tutoring at the Fox Valley Literacy Council. I am sure that the Lawrence education I have received will continue to benefit me for the rest of my life!"

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