“We [Judges of the U.S. Tax Court] have from time-to-time complained about the complexity of our revenue laws and the almost impossible challenge they present to taxpayers . . . . Our complaints have obviously fallen upon deaf ears.”— Arnold Raum
Power Contest Looms at House Ways and Means
With the retirement of House Chairman Bill Thomas (R-CA) at the end of 2006, the power contest for his position has already started. Since the House Ways and Means Chairman has great influence over all tax laws, it is one of the most powerful positions in Washington. As Chairman Thomas noted in his resignation speech, the Ways and Means Committee has direct impact on the personal budget of every American.
If the Republicans maintain control of the House after the November elections, then three House Republicans will join the contest for Chairman. They are Jim McCrery (R-LA), Clay Shaw (R-FL) and Nancy Johnson (R-CT).
Jim McCrery is the most likely successor. He is a 10-term member of Congress from Shreveport, Louisiana and Chair of the Social Security Subcommittee. While he has less seniority than the other two contenders, he likely will be the choice of Rep. Thomas.
Clay Shaw is the senior of the three candidates. He has represented south Florida since 1981 and is a CPA. Presently, he chairs the Trade Subcommittee. Shaw stated in a press release, “Looking ahead to the next Congress, the Ways and Means Committee has the opportunity to continue to advance aggressive policy, and I hope to lead the effort as the full committee Chairman.”
Nancy Johnson was elected in 1982 and holds the honor of being the first woman to be Chair of a Ways and Means Subcommittee. She is a member of the moderate Republican Main Street Partnership group. She stated an interest in the Chair position, noting, “At this point, I certainly am an interested and eligible member.”
IRS Highlights Top Seven Form 990 Errors
In a Washington forum, the IRS highlighted several problems with the Form 990s filed annually by charities. About one-third of the Form 990s had one or more of the following errors.
- Wrong Charity Name – Some charities “do business as” with a different name than their legal name. The “doing business as” name should be added in parentheses after the legal name.
- Wrong Accounting Method – Most states require an accrual accounting method. The IRS permits an accounting method that clearly shows income. With the state requirements, most charities will want to use an accrual method.
- Support Schedule A — must use the cash method.
- Organization Type – most public charities are a Sec. 501(c)(3).
- Receipts Under $25,000 – Form 990 is not required, but if submitted, it must be complete.
- Names and Compensation – Both officers and board members must be listed.
- Home Addresses – The officers and board members may use the address of the charity, rather than home addresses.
AICPA Recommends Proposed Regulations for CRT Spousal Waiver
In Notice 2006-15, 2006-8 I.R.B. 1, the IRS suspended the CRT spousal waiver requirement of Rev. Proc. 2005-24, 2005-16 I.R.B. 909. The CRT spousal waiver requirement drew a firestorm of criticism, since it was drafted without any input from the estate planning community.
In a letter to IRS Commissioner Mark Everson, the American Institute of Certified Public Accountants thanked the IRS for suspending Rev. Proc. 2005-24. However, AICPA suggested that the IRS permit the estate planning community to have input. The preferred method for proceeding is for the IRS to issue proposed regulations on the waiver.
Editor’s Note: Most estate planners are open to some changes to protect the unitrust or annuity trust corpus. However, since there is no recorded case of any unitrust or annuity trust being invaded under a spousal power of election, the changes should recognize the low risk to the charitable remainder recipient. In the future regulations, the IRS should consider the practical requirements and offer a reasonable and workable solution.
Applicable Federal Rate of 5.6% for April. Rev. Rul. 2006-22; 2006-22 IRB 1 (17 Mar 2006)
The IRS has announced the Applicable Federal Rate (AFR) for April of 2006. The AFR under Sec. 7520 for the month of April will be 5.6%. The rates for March of 5.4% or February 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 2006, pooled income funds in existence less than three tax years must use a 3.8% deemed rate of return.