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Sunday December 4, 2016

Washington News

Washington Hotline

IRS End-of-Year Gift Tips

In IR-2016-154 the IRS offered tips on how to document various 2016 charitable gifts. Gifts to qualified public charities are deductible. Taxpayers may use IRS Select Check on www.irs.gov to know if a charity is qualified. The exception to this rule is that places of regular worship are qualified charities without registering with the IRS.

1. IRS Charitable Rollovers – If you are over 70½, you may make an IRA rollover gift by contacting your IRA custodian. The IRA custodian will make a transfer directly to charity. This will not be reported in your income and therefore is not an itemized deduction. The transfer may fulfill your required minimum distribution (RMD). This IRA charitable rollover is especially attractive if you do not itemize charitable deductions or have high income.

2. Monetary Gifts – You must have a bank record or written statement from the charity to qualify for itemizing your deduction. These gifts may include cash, checks, electronic fund transfers, credit card gifts and payroll deduction gifts. For payroll deduction gifts, you should retain a paystub, W-2 or other employer statement. You will need a contemporaneous written acknowledgement (receipt) if your gifts are over $250 to one charity.

3. Property Gifts – Clothing or household items gifted to charity must be in "good used or better" condition. If the household goods are valued over $500, it is an option for you to obtain a qualified appraisal. Once again, you will need a contemporaneous written acknowledgement if the gifts are over $250 in value. The gift of household goods receipt must include a property description. Generally, if you give property (other than public stock or bonds) to charity with value over $5,000, you must have an appraisal by a qualified appraiser and include IRS Form 8283 with your tax return.

4. Donor Benefit Gifts – If you make a gift to charity and receive a donor benefit in return, gifts over $75 require specific documentation. You must reduce the value of the gift by the benefit received. For example, if you attend a charity dinner that has a value of $25 and buy a ticket for $100, you may deduct $75.

5. Good Records – The IRS has specific explanations of all of these principles on www.irs.gov. Pub. 526 Charitable Contributions is particularly helpful if you have questions on how to document your gifts. You also may search for "Can I Deduct My Charitable Contributions?" on the IRS website.

Opposition to Proposed Estate Regulations


On December 1, the much-anticipated IRS hearing on Sec. 2704 Proposed Regulations was held. During the six-hour hearing, 36 of 37 speakers urged the IRS to withdraw the proposed regulations.

The objections focus on four issues.

1. Deemed Put Right – Prop. Reg. 25. 2704-3 language suggests that appraisers should disregard restrictions. The Reg. states a restriction is "considered a disregarded restriction if each holder of an interest in the entity has a put right." Catherine Hughes, attorney-advisor, Treasury Office of Tax Legislative Council, replied to this issue by stating, "There is no intended put right and we will absolutely make that clear in the final regulations."

2. Transfers Within Three Years – Prop. Reg. 25.-2504-1(c)(1) creates a three year rule that may lead to disregarding restrictions created close to death. The rule states "the lapse of a voting or liquidation right as a result of the transfer of an interest within three years of the transferor's death is treated as a lapse occurring on the transferor's date of death." Commentators expressed great concern that this provision would be retroactive immediately to the period three years before the effective date of the final regulations. Hughes stated that the regulation will not be applicable to transfers prior to the date the final regulations are effective.

3. Fair Market Value – The historic method for determining fair market value is the "willing buyer – willing seller" test. Based upon the uncertainty created in the regulations through disregarded restrictions, commentators suggested that the "investment value" standard may now apply. Because there is great uncertainty in determining the meaning of that new standard, it will be very difficult for appraisers to create values defensible in tax court. The potential exists for appraisers to increase valuations because of this uncertainty.

4. Family Attribution – Sec. 2704 uses the existing family attribution values of Sec. 2701. However, many business entities have multiple layers of shareholder or business interests and are far more complex than the existing attribution rules. It would be preferable for Sec. 2704 to have its own family attribution rules.

During the six-hour hearing 36 speakers expressed a strong desire for the IRS to withdraw the proposed regulations. One individual supported the regulations.

In a letter to IRS Commissioner John Koskinen, Frank Clemente, Executive Director of the Americans for Tax Fairness urged the IRS to make the proposed regulations final. He stated, "We are concerned that the wealthy and many corporations avoid paying their fair share of federal taxes by taking advantage of sophisticated interpretation of the law and regulatory guidance. We strongly support Treasury moving to address these instances of tax avoidance wherever possible and appropriate."

Editor's Note: The Sec. 2704 proposed regulations sent shock waves through the estate planning profession. Over 29,000 comments were submitted to the IRS – with most of them opposing specific provisions of the proposed regulations. The IRS did not indicate when or if the final regulations will be promulgated.

Final Regulations on Estate Basis Reporting


In T.D. 9797; 81 FR. 869353-86955 (2 Dec 2016), the IRS published final regulations on the requirement for executors to report the basis of estate assets.

Under Sec. 6035(a), certain executors must file a statement of value for assets and estates. The final regulations are effective for estates that are required by Sec. 6018(a) or (b) to file a federal tax return after July 31, 2015.

If the requirement exists to file the federal state tax return, Sec. 6035(a)(1) states that the executor must file a statement with "the Secretary and furnish to the person acquiring any interest in property included in the decedent's gross estate, a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the Secretary may prescribe."

The regulation is effective as of December 2, 2016.

Applicable Federal Rate of 1.8% for December -- Rev. Rul. 2016-27; 2016-47 IRB 1 (18 Nov 2016)


The IRS has announced the Applicable Federal Rate (AFR) for December of 2016. The AFR under Section 7520 for the month of December will be 1.8%. The rates for November of 1.6% or October of 1.6% 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 2016, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published December 2, 2016
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