Find out what types of assets make the best planned gifts. Learn about gifts of cash, securities and property.
Bob and Mary Are Giving Smarter and Achieving Their Dreams...Find Out How You Can Too!
Bob and Mary first met at Two-Bit Flicks, a 25-cent movie night held on Fridays in Brighton Lecture Hall. When the spring formal hosted by the women's dorm came around, Mary asked Bob to go with her. It was their first "official" date.
The rest, as the saying goes, is history. Or in Bob and Mary's case, it is natural history. That's because Emporia State also introduced them to a lifelong passion for the natural sciences.
Bob and Mary feel Emporia State was the catalyst for the life they've built together. Mary became a science educator for 6th, 7th, 8th and 9th grade students. Bob founded and served as director of the Great Plains Nature Center and became a renowned nature photographer.
Now they want others to have the same opportunity they did. They want to help students come to ESU and discover a passion they can follow for the rest of their lives.
Bob and Mary found a simple and easy way to achieve this dream. When they set up their trust, they named Emporia State as a beneficiary.
What's your dream?
Learn how easy it is to make your dream a reality by naming Emporia State University in your will or trust. Contact Angela Fullen, Director of Planned Giving at the Emporia State University Foundation. She can answer your questions or help you get started. If you have already named Emporia State in your will or trust, let us know. We will make sure your gift does everything you want it to do.
"I would encourage anyone, if they are thinking about doing something like this, to contact the Foundation. For us, it has been a great experience." - Mary Butel
Getting Started is Easy
Not sure how to take the first step? We've got just the thing you need. Download your free Will and Estate Planning Guide. This guide is an easy way to get started on, or update, your estate plan. It will help you explore your options at your own pace. It's free, easy and yours to keep.
Download your copy today or contact Angela Fullen to request a printed copy.
Senators Advocate Expanded IRS Tax Software
The letter emphasizes that the IRS should make the tax filing process simpler and more efficient. If taxpayers had accessible e-filing tools, fewer errors would be made and refunds more quickly. The Inflation Reduction Act provided additional funding to the IRS. The Service should use a portion of this funding to reduce the burdens of tax filing.
On average, Americans spend $250 and devote 13 hours each year to filing taxes. While the IRS has created a Free File Program, the usage rate is extremely low. The National Taxpayer Advocate notes that 70% of taxpayers qualified for Free File, but only 2% of Americans used the program in 2022.
Most taxpayers file using more expensive options or simply fail to file their returns. The two decades of Free File experience show that many taxpayers still are not benefiting from the Earned Income Tax Credit or the Child Tax Credit. The Free File program does not meet accessibility standards on mobile devices and offers limited use of foreign languages. The Governmental Accounting Office states the "IRS is not managing the potential risks of relying on the Free File program as the way it helps taxpayers file for free online."
Therefore, the Senators advocated for the IRS to consider the recommendation of the National Taxpayer Advocate to offer a government-run e-filing system. There have been studies by the Treasury Department and Federal Reserve that indicate millions of Americans could use government-filing software. An estimated 12 million non-filers missed out on $8.5 billion in refunds in 2019. Government e-filing software could minimize filing errors, improve tax system fairness and save the IRS money and processing time.
A high priority for the Senate Committee on Finance is reducing barriers to filing. The additional IRS funding is designed to help make filing easier. The IRS notes in its strategic operation plan that "many other tax authorities have rolled out the ability to file taxes directly for free as part of their digital transformations."
The Treasury Department stated, "a viable Direct File option would ease the burden on many taxpayers." Treasury Secretary Janet Yellen appeared before the Senate Finance Committee and promised a direct filing program is "something that will happen."
Given the challenges of the Free File program, the Senators opined that it is important that the IRS move forward with a plan to transition to a direct e-filing system. The Senators urged the IRS "to roll it out as quickly as possible."
Editor's Note: A tax software system is a major project. It involves a sophisticated effort to design the user interface. With the complexity of the tax system, it is feasible to prepare a system for those Americans who take the standard deduction, but it will be quite difficult to build a complete software system for those who itemize deductions. While many other countries have built e-filing systems, this is a major challenge for the IRS.
Estate Debt Deductions Denied
In Estate of Bernard J. MacElhenny Jr. et al. v. Commissioner; No. 12981-19; No. 12982-19; T.C. Memo. 2023-33, the Tax Court determined that an estate of a real estate investor did not qualify to deduct judgments owned by two children who were also heirs of the estate.
Decedent Bernard MacElhenny, Jr. passed away on April 27, 2015. His children Michael MacElhenny (Michael) and Catherine MacElhenny Dann (Catherine) were co-executors of the estate, co-trustees of a 1999 living trust and the principal heirs of the decedent.
The decedent and his son, Michael, were both involved in real estate. Michael managed many of the decedent's properties. In 2010, the decedent had cognitive issues and developed amnesiac dementia. On January 31, 2012, Michael became the conservator of his father's finances and Catherine became conservator of her father's personal care.
In 2012, Michael had to address distressed real estate assets with bank loans that were in default. The first was a real estate development known as the Creekside property. The decedent defaulted on Union Bank loans in 2010. As part of the settlement agreement, decedent gave Union Bank a security interest in the El Mercado property in Santa Barbara, CA. Decedent then defaulted on payments under that settlement agreement.
Michael eventually negotiated a settlement with Union Bank and the bank agreed to transfer its judgment rights to Michael. Michael and Catherine entered into a separate agreement wherein Catherine agreed to pay for one-half of the Union Bank judgment. They then obtained a stipulation in the Sonoma County Superior Court. The state court entered judgment in their favor for $6,000,000 against the estate.
The decedent held debt with Westamerica Bank also related to Creekside. In 2011, the decedent defaulted on this Creekside loan. Following multiple negotiations in 2012, Michael was able to settle the claims with Westamerica Bank on his father's behalf and, once again, purchased the judgment from the bank. The Sonoma County Superior Court entered a judgment against the estate in favor of Michael for $865,517.
On October 26, 2012, Michael and Catherine purchased the El Mercado property from their father's trust for $4,750,000. The purchase agreement included that Michael and Catherine assumed an existing $1,614,391 mortgage and received a $3,135,609 credit for amounts paid relating to the Union Bank judgment.
The estate filed IRS Form 709, Gift Tax Return for 2011, but did not file a gift tax return for 2012. The IRS determined that the various stipulations in 2012 constituted a taxable gift and increased the estate gifts for 2012 by $3,497,609. The estate also filed IRS Form 706, Estate Tax Return. It claimed deductions for the Union Bank judgment of $3,638,083 and for the Westamerica Bank judgment of $1,007,320. Because the children were heirs of the estate and owned the judgments, the IRS disallowed both deductions.
The Tax Court noted that the estate was attempting to deduct the two judgments under Section 2053(a)(3). A deduction is permitted if it is a bona fide debt of the estate. The IRS claimed that because the two heirs to the estate owned the judgments, the debts were not bona fide.
The Tax Court noted that the bank claims were personal obligations of the decedent. Following the settlements with the banks, the assignments of two judgments were not negotiated at arm's length. The banks wanted to be repaid and were willing to transfer the judgments to Michael and Catherine in order to secure the payments.
The taxpayers claimed that because the Sonoma County Superior Court approved the assignment of the judgments, they were therefore bona fide. However, the assignment of the judgments was not in the "ordinary course of business." Because the judgments were not negotiated at arms length and there was no dispute between the estate and the children, this was not a business transaction. The essence of the transaction was donative. Michael and Catherine were on both sides of the transaction. They have not made any claim to collect their judgments against the estate.
The transfer of the El Mercado property to Michael and Catherine was advantageous to them. They did provide consideration, but the net benefit was a $967,805 taxable gift to each child. When property is transferred for less than full and adequate consideration, it is a gift. Because they received equity and the Union Bank claim assigned to them did not constitute a bona fide debt liability, they are subject to gift tax on the $967,805 each.
Because the judgments were not bona fide and Michael and Catherine received gifts, the gift and estate deficiencies were upheld.
Applicable Federal Rate of 4.4% for May -- Rev. Rul. 2023-9; 2023-19 IRB 1 (15 April 2023)
The IRS has announced the Applicable Federal Rate (AFR) for May of 2023. The AFR under Sec. 7520 for the month of May is 4.4%. The rates for April of 5.0% or March of 4.4% 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 2023, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.