SMALL BUSINESS TAX FAIRNESS ACT 2000 | USING APPRECIATED ASSETS - TRADING UNCERTAINTY FOR INCOME | TREASURY REACTS TO "VULTURE CHARITABLE LEAD TRUST"

"Small Business Tax Fairness Act 2000"

H.R. 3832, the "Small Business Tax Fairness Act 2000," was passed last month by the House of Representatives. It is notable in what it includes as well as what is absent.

It includes a provision to reduce by 2002 the top[ estate tax rate from 55% to 50% and, in 2003 and 2004, reduce all rates by 1% annually. The bill will also repeal the 5% 'bubble tax' on estates.

Notably missing from H.R. 3832 are provisions previously reported that would A) allow nonitemizers to claim a charitable tax deduction and B) allow IRA rollovers to charities.

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Using Appreciated Assets - Trading Uncertainty for Income

With the stock markets near their all-time highs, growth stocks have appreciated, in many cases dramatically, over the last several years. The recent fluctuations in stock prices have again raised questions about the near term direction of the markets. Days such as April 4, when records were set in trading volume and fluctuation (the NASDAQ was off 574 points early in the day and rallied 500 points to close down 74 while the Dow Jones did roughly the same) have raised the level of direction uncertainty.

Recently a mathematics and statistics professor, who has a hobby of security analysis and investing, became concerned that his passion might be headed for a shortfall. He had carefully and astutely managed a small portfolio into one of significant value. However, his growth stocks were providing little income and his concern was that the markets would reduce his portfolio value in a correction or sell-off.

In discussions about his situation, he was introduced to the concept of donating appreciated assets to a charitable trust, avoiding tax on the gains in stock value, getting a significant tax deduction in the tax year of his gift, increasing his annual income immediately and reducing his market fears. He set up a charitable remainder unitrust and, in addition to all the benefits above, has the joy of watching his passion benefit the lives of others, which happens to be another of his passions.

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Treasury Reacts to "Vulture Charitable Lead Trust"

The IRS has recently issued proposed regulations which, according to the Service, are intended to "restrict the permissible terms for charitable lead trusts in order to eliminate the potential for abuse." The abuse relates to circumstances where a donor artificially inflates the charitable deduction by utilizing a seriously ill unrelated individual (but someone not "terminally ill" per the current Section 7520 Regulations) as a measuring life to establish the term of a charitable lead trust (CLT).

There are marketers providing a package complete with the name and medical records of the seriously ill individual, who receives a small payment as compensation for being used as the measuring life for the trust.

The Service is proposing that only the donor, the donor's spouse and a linear ancestor of all the remainder beneficiaries may be considered as measuring lives for a CLT. The proposed Regulations would apply to transfers to trusts made after April 4, 2000, which will place any transfer from this point on questionable as to deductibility and any expense incurred potentially wasted.

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The following is intended as general information and does not represent legal or tax advice. Individual circumstances vary - please consult your legal and tax advisors about your specific situation.