Obamas and Bidens Publish 2015 Tax Returns
President and Mrs. Obama gave $64,066 to 34 charities. This represents about 14.7% of their adjusted gross income. While most gifts were $1,000 or $1,500, some charities received larger transfers. The Fisher House, which provides housing for families of injured veterans who are in VA hospitals, received a gift of $9,066. The Beau Biden Foundation, named after the deceased son of Vice President Biden, received a gift of $5,000.
Vice President and Mrs. Biden received income from his salary from the federal government and her position on the faculty of Northern Virginia Community College. Their income was $392,279 and the federal tax paid was $91,546. The largest part of their income was the Vice-Presidential salary of $230,700. Their overall tax rate was 23.3%.
The Bidens gave $6,620 to charity. This represents about 1.7% of their adjusted gross income. Their largest gifts were $2,400 to the Annual Catholic Appeal for the Diocese of Wilmington, Delaware, $1,200 to the Northern Virginia Community College Foundation and $1,125 to Westminster Presbyterian Church.
Final Regs on Private Foundation Program-Related Investments
In T.D. 9762 the IRS published final regulations on program-related investments (PRIs) for private foundations.
Private foundations are subject to Sec. 4944 excise taxes on investments that jeopardize their charitable purpose. However, Sec. 4944(c) creates an exception for “program-related investments.” A PRI has a primary purpose described in Sec. 170(c)(2)(B) and does not produce significant income or appreciation. It also must further the charitable goals of the private foundation in a significant manner.
The final regulations modestly expand the potential use of PPIs. Example 11 involves a drug company that is funded for the purpose of producing a vaccine to be used by poor people in developing countries. Even though the vaccine will primarily be used for these poor persons, the subsidiary is also permitted to sell the developed drug at fair market value prices in the general market.
Example 15 involves loans to poor people in a developing country if there is a natural disaster. The natural disaster requirement is eliminated, and a micro-loan program is permitted for general charitable purposes.
The multiple examples in the regulations could be used to create a series of principles for PRIs. The principles were not included in the final regulations, but a list may be developed and later placed on www.IRS.gov.
The IRS declined to include specific examples for “benefit” corporations. These are companies permitted under some state laws that function to facilitate a social good or similar purpose and potentially may have modest profits.
Editor’s Note: PRIs are a very complex subject. A PRI is in part a business operation and in part fulfills a charitable purpose. The multiple examples in these Regulations are the best guidelines for investments by private foundations. At some future time, the IRS may address the complicated issues that arise with benefit corporations and partnerships.
Improper Caregiver Payments Taxable
In Angelina Alhadi v. Commissioner; T.C. Memo. 2016-74; No. 17696-10 (20 Apr 2016) the Tax Court held that over $900,000 in checks written by a 92-year-old doctor to his caregiver over two years were taxable income.
Dr. Arthur Marsh grew up in poverty near Plentywood, MT. After service in World War II, he attended college and became a Doctor of Optometry in Gilroy, California. He never married and accumulated approximately $3 million in Vanguard mutual funds.
After several years of retirement, at age 91 he had multiple health problems. His doctor insisted that he hire a home-healthcare person. Dr. Marsh hired Ms. Angelina Alhadi, a nursing assistant at his local hospital. During the next two years, Ms. Alhadi persuaded Dr. Marsh to write over $900,000 in checks to her.
When Dr. Marsh and Alhadi attempted to obtain funds with five additional $100,000 checks, the Vanguard company fraud team alerted the California Department of Health and Human Services. An investigation by Susan Fowle led to a petition by the Santa Clara Public Guardian and created a conservatorship for Dr. Marsh.
Alhadi also drove Dr. Marsh to attorney James Simoni during 2008. She sought to have a power of attorney created and also desired to be placed in Marsh’s will. Simoni declined to proceed and urged Alhadi to return the funds transferred by Marsh to her. Subsequently, Dr. Marsh passed away on Feb. 13, 2009.
Alhadi used the funds for a new home and other personal expenditures. At trial, she claimed that the $900,000 in payments were a personal gift and therefore not taxable. The IRS filed a deficiency and claimed that they were taxable.
The Tax Court noted that payments to an employee are generally compensation or salary. However, as caregiver, Alhadi would have the opportunity to prove that there was donative intent.
The weight of the evidence indicated elder abuse and that Alhadi had used her position to obtain large payments from a very senior person with severe health issues. In addition, she neglected quite seriously her responsibilities to provide Dr. Marsh with adequate care, cleanliness of his apartment and sufficient nutrition. Because there was no proof of donative intent by Dr. Marsh, the payments were deemed taxable.
Applicable Federal Rate of 1.8% for May — Rev. Rul. 2016-11; 2016-19 IRB 1 (18 Apr 2016)
The IRS has announced the Applicable Federal Rate (AFR) for May of 2016. The AFR under Section 7520 for the month of May will be 1.8%. The rates for April of 1.8% or March of 1.8% 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.