On July 2, 2010, President Obama signed the Homebuyer Assistance and Improvement Act of 2010 (H.R. 5623). The bill permits first-time homebuyers to qualify for the $8,000 credit. It also allows homeowners who have lived for five years in their current residence to purchase a new home and receive a credit of $6,500. In both cases, the buyers must have signed a contract for purchase by April 30.
Following the signature by the President, the IRS published a letter with explanations on how to claim the credit (IR-2010-80). New homeowners will file Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. With this form the new purchaser should submit a copy of the settlement statement, normally Form HUD 1, Settlement Statement. For mobile home purchasers, include a copy of the retail sales contract.
Those existing home buyers who buy a new residence should include Form 1098, Mortgage Interest Statement for the past five years to show their ownership. Further information on claiming the homebuyer credit is available on www.irs.gov.
IRS on YouTube
The IRS has announced (IR-2010-81) that a new job search video is now on YouTube. It will provide assistance for high school and college graduates who are seeking employment with the IRS. The new video has the title, “Working at the IRS.”
The IRS currently has 82 videos on its YouTube channel with the title, “IRSVideos.” The most popular videos cover various helpful tax tips. Other titles include “Receiving a Letter from the IRS,” “Selecting a Tax Preparer” and “Extension to File a Return.”
The IRS videos are available by logging onto www.youtube.com. The user may search for “IRSVideos” and a playlist with four pages of videos will appear. Choose the title that you prefer and click to start the video.
Most of the videos are two to four minutes. It is best if you have broadband Internet access in order to view the videos.
10-Year GRAT Language Released
On July 1, 2010, the House voted 215-210 to approve an Amendment to H.R. 4899. The supplemental spending bill has now been sent to the Senate for its review.
The language included in the bill has now been released. While a grantor retained annuity trust (GRAT) may currently be written for two years or longer, the new minimum term will be 10 years. In addition, under the bill there can be no declining payments and the GRAT may not have a zero remainder value. The change in the GRAT rules is anticipated to raise $5.3 billion. It will be effective upon enactment.
The GRAT language is as follows:
SEC. 5101. REQUIRED MINIMUM 10-YEAR TERM, ETC., FOR GRANTOR RETAINED ANNUITY TRUSTS.
(a) IN GENERAL. — Subsection (b) of section 2702 of the Internal Revenue Code of 1986 is amended —
(1) by redesignating paragraphs (1), (2) and (3) as subparagraphs (A), (B), and (C), respectively, and by moving such subparagraphs (as so redesignated) 2 ems to the right,
(2) by striking “For purposes of” and inserting the following:
“(1) IN GENERAL. — For purposes of”, and
(3) by striking “paragraph (1) or (2)” in paragraph (1)(C) (as so redesignated) and inserting “subparagraph (A) or (B)”, and
(4) by adding at the end the following new paragraph:
“(2) ADDITIONAL REQUIREMENTS WITH RESPECT TO GRANTOR RETAINED ANNUITIES. — For purposes of subsection (a), in the case of an interest described in paragraph (1)(A) (determined without regard to this paragraph) which is retained by the transferor, such interest shall be treated as described in such paragraph only if —
“(A) the right to receive the fixed amounts referred to in such paragraph is for a term of not less than 10 years,
“(B) such fixed amounts, when determined on an annual basis, do not decrease relative to any prior year during the first 10 years of the term referred to in subparagraph (A), and
“(C) the remainder interest has a value greater than zero determined as of the time of the transfer.”.
(b) EFFECTIVE DATE. — The amendments made by this section shall apply to transfers made after the date of the enactment of this Act.
Editor’s Note: Many attorneys are now advising clients who are considering a GRAT to complete the trust this month. While this GRAT limit is a proposal, it is quite possible that the provision could be included in the spending bill by the end of July. If the bill passes and the President signs the provision, any GRATs thereafter will need to meet the required 10-year test. Particularly with the low applicable federal rate of 2.8% for July, it is an attractive time to fund a short-term GRAT.
Charitable Tax Shelter Final Regulations
In T.D. 9492 (1 Jul 2010) the Service published final regulations on participation by charities in tax shelters. Under Sec. 4965 a nonprofit may not facilitate a prohibited tax shelter or be a party to a tax shelter transaction. The final regulations deleted the penalty for a charitable organization that participates in a listed transaction to reduce its unrelated business taxable income.
The prohibition against charitable participation in tax shelters was enacted in the Tax Increase Prevention and Reconciliation Act of 2005. As a result of tax shelters facilitated by the participation of charitable organizations, the Sec. 4965 penalties were enacted to incentivize avoidance of tax shelters by nonprofits.