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Whatever your stage in life, planned giving can provide financial benefits to you and your loved ones, while helping you support Emporia State University. Some planned gifts have an impact now, some after your lifetime. Many offer tax savings, and some even provide you with income for life.
Explore your options here, or visit our contact page and reach out to us. We are always here to help you find the plan that is perfect for you!
IRS Reminder To Report Digital Asset Income
All taxpayers must answer a digital asset question on IRS Form 1040. The IRS has expanded and clarified instructions with respect to the question. The question asks, "At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?"
Digital assets include cryptocurrency, stablecoins or non-fungible tokens (NFTs). All taxpayers who file IRS Forms 1040, 1040-SR or 1040-NR must answer either "Yes" or "No" to the digital asset question.
There are several circumstances that require a taxpayer to check the "Yes" box. You must report if you received digital assets as payment for property or services, received digital assets as a reward or award, received digital assets from mining or staking, received digital assets from a hard fork (a branching of a cryptocurrency's blockchain that splits a single cryptocurrency into two) or disposed of digital assets through sale, exchange or for receipt of property or services. You also must check "Yes" if you have transferred digital assets as a gift.
Taxpayers who have transferred digital assets for value should report the income related to that transaction using IRS Form 8949, Sales and Other Dispositions of Capital Assets. This form will enable you to calculate your capital gain or loss on the digital-asset transaction, and you will report the gain or loss on Schedule D, Capital Gains and Losses. If you transfer a digital asset through a gift, you should file IRS Form 709, U. S. Gift (and Generation–Skipping Transfer) Tax Return.
If you received digital assets as an employee, you must report the value as compensation. An independent contractor who is paid with digital assets will report the income on Schedule C of Form 1040, Profit or Loss from Business (Sole Proprietorship).
There are several circumstances in which a taxpayer should check the "No" box. You can check the "No" box if you held digital assets in a wallet or account but did not engage in any transaction, if you transferred digital assets from one wallet to another wallet or account or if you merely purchased digital assets using U. S. or other real currency. In the above cases, there will be no reporting in these instances because no taxable event occurred.
Charitable Gift of LLC Units
In Calvin A. Lim et al. v. Commissioner; No. 14015-20; T.C. Memo. 2023-11, the Tax Court upheld in part an Internal Revenue Service (IRS) motion for partial summary judgment. The IRS questioned a charitable deduction of $1,608,108 that was claimed based on gifts of LLC units to a nonprofit. The IRS argued no gifts were made to charity and taxpayers did not satisfy the substantiation requirements.
Taxpayers and spouses Calvin Lim and Helen Chu were the shareholders and employees of Integra Capital Group, Inc. (Integra), an S corporation headquartered in Irvine, California.
In December 2016, the Taxpayers heard a presentation by Attorney Michael L. Meyer called "The Ultimate Plan: the Ultimate Tax, Estate and Charitable Plan." Mr. Meyer stated that he would form a "Charitable Limited Liability Company" (CLLC) for taxpayers, arrange for a gift of CLLC units to charity and provide an appraisal to support the valuation for the charitable gift. Mr. Meyer also stated he would represent taxpayers before the IRS and the Tax Court, if necessary.
Taxpayers' engagement letter Mr. Meyer stated that he would receive a fee of $25,000 or 6% of the charitable deduction up to $1 million, plus 4% of the deduction in excess of $1 million. The CLLC would receive five promissory notes with a face value of $2,008,500. The total fee payment of $84,000 assumed the charitable deduction would be $1,600,000.
Meyer created ABC Foundation Legacy, LLC (ABC) and listed himself as the registered agent. ABC was a single member LLC owned by Integra. Taxpayers transferred five promissory notes to ABC, with total value of $2,008,500. The Indiana Endowment Foundation, Inc. (Foundation) was the designated charity to receive the gift of LLC units from ABC. The purported gift was made on December 31, 2016. However, there were no transfer documents provided to the IRS.
On January 1, 2017, the Foundation sent a form letter to Taxpayers. That letter was claimed to be a "contemporaneous written acknowledgment" under Section 170(f)(8)(A). The letter stated, "We received your non-cash donation of one thousand (1,000) units in C&H Family LLC in 2016. Indiana Endowment Foundation, Inc., provided no goods or services to you in exchange for your contribution. Please allow this letter to serve as official receipt of your unrestricted gift of 1,000 units received in 2016. Your support is greatly appreciated."
The letter was not addressed to Integra, but to taxpayer Chu at her residence in Encinitas, California. It does not disclose who prepared the letter and had no signature. The letter also does not reference ABC, but rather the C & H Family LLC, which is the name that was created on February 16, 2017 through amended articles filed with the Indiana Secretary of State changing the name from ABC LLC to C&H Family LLC.
Meyer submitted an invoice for $84,000 to the Taxpayers. On January 31, 2017, he provided a document with the title "Appraisal of the Fair Market Value of the LLC Interests of ABC."
The appraisal has the form of an appraisal but does not have the substance. There was no attempt to value the notes. While the Foundation received 100% of the ABC units, there is a discount for lack of control in determining the value of those units. The certification states that Mr. Meyer was a certified public accountant (CPA), a certified valuation analyst (CVA) and a licensed Kentucky attorney.
Integra filed IRS Form 1120S for the 2016 tax year and reported the donated property as "LLC units" with an appraised value of $1,608,808. Taxpayers reported this amount on their tax return and claimed a deduction of $1,195,073 for 2016. The carryforward of $415,711 was deducted on their 2017 return.
In a separate action, in 2019 the U.S. District Court for the Southern District of Florida permanently enjoined Mr. Meyer from promoting the "Ultimate Tax Plan." It also ordered him to report to the U.S. Department of Justice the names and addresses of individuals who participated in the Ultimate Tax Plan after January 1, 2010. Mr. Meyer was ordered to return any of the Foundation's assets to the individuals who donated them. Taxpayers and Integra filed suit against Mr. Meyer and the Foundation in Orange County Superior Court, but the case was dismissed in 2019.
Charitable deductions are permitted for donations under the Section 170 and applicable regulations. The January 1, 2017 "acknowledgment letter" from the Foundation was not addressed to Integra and failed to describe the property that was gifted. The Tax Court noted the taxpayers "would face a decidedly uphill task in attempting to prove that Integra actually transferred ABC units to the Foundation during 2016." However, the Tax Court did not grant summary judgment on that point.
The appraisal must be "prepared, signed, and dated by a qualified appraiser." Reg.1.170A–13(c)(3)(i)(B). The IRS notes the appraisal was not qualified because it did not disclose the number of ABC units gifted, Mr. Meyer misrepresented his qualifications and included a prohibited appraisal fee.
The Tax Court stated it would consider the nature of the fee to determine whether it was prohibited. Because the fee specifically stated it was 6% of the deductible amount up to $1,000,00 and 4% of the deductible amount for assets over $1 million, it was a prohibited appraisal fee. Reg. 1.170A–13(c)(6)(i). Therefore, even though taxpayers claimed the appraisal was of the promissory notes, rather than the LLC units, the Tax Court determined that this was a prohibited appraisal fee.
At trial, the taxpayers would have opportunity to present a "reasonable cause" defense under Section 170(f)(11)(A)(ii)(II). Taxpayers did seek the advice of a CPA and an attorney with respect to the charitable contribution deductions. Therefore, taxpayers will be permitted to proceed to trial on the question whether Integra actually transferred ABC units to charity and whether there is a "reasonable cause" defense.
Editor's Note: Taxpayers had nearly $4 million of income in 2016, and appeared to be reasonably sophisticated. It seems highly probable they entered into a tax deduction arrangement that failed on multiple grounds to qualify as a charitable transaction. A gift of a note where the donor is the debtor does not provide a charitable deduction until the note payment is made. Mr. Meyer's use of an LLC to avoid a step transaction argument on gift of a note seems highly implausible.
IRS Promises Estate and Gift Tax Regulations Soon
At a District of Columbia Bar Taxation Conference on January 25, members of the IRS Office of Associate Chief Counsel (Passthroughs and Special Industries) indicated the IRS was planning to issue regulations soon on Sections 2010, 2053 and 7520. Melissa Liquerman of the IRS stated, "We are really putting a lot of time and effort into finalizing these regulations as soon as possible."
- Section 2010 — The Tax Cuts and Jobs Act doubled the basic exclusion amount (BEA) from $5 million to $10 million (plus indexed increases). This provision is expected to sunset in 2026. In response to requests from estate planners, the IRS published anti-clawback regulations (T.D. 9884) and issued proposed anti-abuse rules. The IRS is concerned that the anti-clawback regulations could be abused if all gift regulations are deemed applicable. Liquerman stated, "We believe that is contrary to the code, which does include in the gross estate, for example, transfers where there is a sufficient string, such as transfers relinquished within three years of death under [Sec.] 2035 and similar transfers. We feel really strongly that we are in line with the intent of the general and specific authority in issuing these regulations that are an exception to the special anti-clawback rule."
- Section 2053 — The proposed regulations under Section 2053 would limit deductible expenses to the present value of amounts that are payable after an extended post-death period or a three-year grace period. Treasury Office of Tax Legislative Counsel Attorney Tabetha Peavey indicated that this regulatory project is nearing completion.
- Section 7520 — Regulations under Section 7520 cover the actuarial tables used in valuing annuities, life estates and remainder interests. The proposed effective date is January 22, 2022 for these regulations. The new tables are not mandated until publication of the final regulations. The delay was blamed on the Centers for Disease Control and Prevention (CDC). The CDC was late in gathering data for the mortality factors and the IRS is now more than three years overdue in complying with the Code requirement to issue updated tables on May 1, 2019. Liquerman stated the IRS is "taking a really long, hard look at the effective date" for the tables that will become effective after the final regulations are published.
Applicable Federal Rate of 4.6% for February -- Rev. Rul. 2023-3; 2023-6 IRB 1 (16 January 2022)
The IRS has announced the Applicable Federal Rate (AFR) for February of 2023. The AFR under Section 7520 for the month of February is 4.6%. The rates for January of 4.6% or December of 5.2% 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 2023, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.