DATE: September, 2002

Fed Maintains Rates - Concern Economy is Slowing

WASHINGTON, Aug. 13 - The Federal Reserve left interest rates steady today but downgraded its view of the economy and signaled that it would consider cutting rates if the recovery from last year's recession continued to lose steam.

Abandoning its previous optimism that the economy would gradually bounce back, the Fed emphasized that the decline of the stock market and disclosures of corporate wrongdoing had prolonged a sharp deceleration that became apparent in the spring.

The Fed had suggested for several months that it expected its next move to be to raise rates from their current 40-year-low levels to keep the economy from overheating. But it adopted a policy stance today that is often a precursor to a rate cut, saying that the main risk now is that the economy will stall.
The New York Times - Richard W. Stevenson

Testamentary Gifts of IRA Proceeds

In early August, the Internal Revenue Service issued a ruling enabling gifts of IRA proceeds on the death of the donor in exchange for an annuity that is payable to another person. A charity may enter into a gift annuity agreement with an individual who agrees to make a testamentary gift of his (or her) individual retirement account.

The proceeds would be deposited in the charity's general fund. In exchange, the charity will pay another person an annuity if that person survives the donor. In the event the annuitant predeceases the donor, the IRA proceeds are transferred to the charity without obligation.

The annuity payments are an obligation of the general fund of the charity and are non-assignable and irrevocable. The payments are calculated at the time of the donor's death and are to be based on the recipient's age, the amount of the proceeds transferred to the charity and the prevailing gift annuity rates. The value of the IRA at the individual's death will be part of the gross estate of the donor who will be allowed a charitable deduction based on the transferred value minus the present value of the annuity payable to the annuitant at the time of death.

The "proceeds distributed to the charity from the IRA will be items of income in respect of a decedent to the charity when distributed and will not be income in respect of a decedent to the individual's estate. Additionally, the charity will not recognize unrelated business taxable income as a result of its receipt of the proceeds from the IRA on the individual's death in exchange for the annuity payable to another person."
8/5/02 giftplan.org

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Federal Procurement Spending Rising

If Las Vegas bookies took bets on federal procurement trends, the smart money would undoubtedly ride on a dramatic rise in spending over the next couple of years.

Even if homeland security and the war on terrorism are taken out of the picture, odds are strong that expenditures will increase. Just look at the last couple of years.

In fiscal 1998, the government spent $182 billion on contracts exceeding $25,000. That number rose slightly to $185 billion in fiscal 1999 and then significantly to $204 billion in fiscal 2000. Last year saw yet another dramatic spike, with the government spending $219 billion on goods and services.
govexec.com - Matthew Weinstock

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Insurance Scheme to Lower Estate Taxes Ruled Invalid

The Treasury Department banned a technique yesterday that thousands of the wealthiest Americans have used to escape billions of dollars in gift and estate taxes. The technique involves buying expensive life insurance that will be passed on to heirs, but declaring a far lower price on gift-tax returns.

The department said the technique was not valid and never had been, leading experts on taxes and insurance to predict that people who have bought these policies will be drawn into years of litigation with the government and with their advisers.

The technique, described in an article in The New York Times last month and reported here last month as well, "is not permitted in any published guidance," the Treasury Department and the Internal Revenue Service said in a formal notice. Before now, the technique's creators said it was legal under a 1996 I.R.S. ruling.
New York Times - David Cay Johnston

Update on Care Bill - Charity Aid, Recovery and Empowerment Act - 9/9/02

The National Committee on Planned Giving in conjunction with other supports are pushing to gain passage of the CARE Bill before the Senate breaks in preparation for the elections. If the supports can get a unanimous consent agreement in the Senate, it is possible this once (perhaps twice) dead bill to promote charitable giving can come to a vote.