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Monday November 12, 2018

Washington News

Washington Hotline

Increased Child Tax Credit for 2018

In IR-2018-217, the IRS reminded taxpayers of the benefit of the increased Child Tax Credit. The Tax Cuts and Jobs Act doubled the Child Tax Credit from $1,000 in 2017 to $2,000 in 2018.

IRS Commissioner Chuck Rettig urged taxpayers to check their eligibility for the tax credit. He stated, "As we approach the 2019 tax-filing season, I want to remind taxpayers to take advantage of this valuable tax credit if they are eligible to claim it. Tax reform changed the tax code significantly and doubling the Child Tax Credit is an example of how the changes impact taxpayers."

The $2,000 tax credit is available for children who are under age 17 on December 31, 2018. The child must be your qualified dependent and have lived with you for at least six months of 2018. He or she must have a valid Social Security Number by the end of this year.

With the increased standard deduction of $24,000 for couples and $12,000 for individuals, many Americans will owe little or no federal income tax this year. If you have little or no federal income tax and a qualifying child, up to $1,400 of the Child Tax Credit is refundable. You may file a tax return and obtain this refund even if you owe no federal income tax.

The Child Tax Credit phases out for couples or individuals with higher incomes. The phaseout starts at $400,000 for married couples filing jointly and $200,000 of modified adjusted gross income (MAGI) for individual taxpayers.

SALT and State Charitable Tax Credits

On November 5, 2018, Scott K. Dinwiddie, IRS Associate Chief Counsel for Income Tax and Accounting, chaired a hearing on the Proposed Regulations, Contributions in Exchange for State or Local Tax Credits. Six IRS and Treasury Department attorneys heard testimony from 28 witnesses.

The witnesses represented a wide range of nonprofit organizations and generally held three different perspectives. They supported the proposed regulations that create a "quid pro quo" benefit for state tax credits over 15%, requested an exception for existing state tax credit programs or opposed the entire $10,000 state and local tax (SALT) limit.

Several witnesses supported the proposed "quid pro quo" regulations. Professor Lawrence Zelenak spoke on his own behalf and was positive toward the regulations. He stated, "Although private charity state tax credit programs predate the $10,000 SALT ceiling, and thus obviously were not created as SALT ceiling workarounds, in the absence of new regulations, they will now serve as SALT ceiling workarounds."

Zelenak urged the IRS to follow the proposed regulations and concluded, "It would be much better, I think, to have a new general rule that all third-party benefits reduce the amount of a charitable deduction subject to only a de minimis exception."

Sasha Pudelski represented the School Superintendents Association. She supported the IRS for "proposing a fair and common sense approach to tax credit programs." Pudelski continued, "We appreciate that the IRS has chosen to treat all tax credit programs that enable an individual to exploit the charitable deduction the same way regardless of whether these are new programs or preexisting ones, and regardless of whether the credits benefit private entities or public ones."

Dr. David Sovine is Superintendent of schools in Frederick County, Virginia. He also supported the proposed regulations because the tax credits could create an excessive benefit if the donor gives appreciated properties. Under previous rules, that donor could receive a charitable contribution deduction, bypass capital gain and receive the state tax credit. Sovine notes, "I believe that a donation made in exchange for a 100% tax credit should be treated as equivalent to a sale at market value and the taxpayer should either owe tax on the portion of that sale that represents that gain, or recognize a loss if appropriate."

Carl Davis represented the Institute on Taxation and Economic Policy (ITEP). Davis explained that "ITEP opposes carve-outs for any charitable credit above the 15% de minimis thresholds, but in my remarks today, I am going to focus largely on tax credits for donations that support private K-12 scholarships, also known as school vouchers."

Several speakers represented charitable organizations with preexisting tax credit programs. These speakers urged the IRS to create exceptions for the preexisting programs.

Andrew Bowman is President of the Land Trust Alliance. He understood that proposed regulations on the SALT limit were "initiated by a desire to prevent state governments from allowing their citizens to avoid the effects of the Internal Revenue Code 164(b)." Bowman continued that the proposed regulations are too sweeping an application "because conservation donations and other true charitable donations are in no way tax avoidance. Stated another way, they are not donations in lieu of a state tax bill that otherwise must be paid. They are entirely voluntary donations."

Allen Fagin represented the Union of Orthodox Jewish Congregations of America. He suggests that the regulations should "apply solely to contributions made to a state under Section 170(c)(1) for public purposes only. In this way, the new regulations would not apply to contributions made to other charities, legitimate charities, including scholarship granting organizations." His proposed exception would permit tax credit programs to benefit Jewish and other private schools.

Rex Linville represented the Piedmont Environmental Council and the Virginia United Land Trust. He had "grave concerns with the proposed regulatory change to treat a state income tax credit as a quid pro quo for land conservation donations. As drafted, this is an overly broad proposal that uses a sledge hammer to fix the problem where a scalpel would be more appropriate."

Former Indiana Senate Majority Leader Brandt Hershman spoke in favor of creating an exception. He noted that when the state of Indiana created a tax credit, "we were fully aware that the effectiveness of such credits was leveraged by the deductibility of the donation at the federal level, and created our system with that synergy in mind." Hershman urged the IRS to create an exception for donations benefiting private schools.

Rabbi Aba Cohen of Agudath Israel of America also supported the concept of the exception. He stated, "We do agree with those who believe that the proposed regulations are overbroad; they were intended to target a specific problem dealing with a specific workaround, SALT workarounds, and yet those go much broader than that specific problem." Cohen urged the discussion to avoid the term "tax shelter" and not to consider this a test of the merits of school choice.

Steven Bellone, County Executive for Suffolk County, New York, defended the New York statute that creates a substantial tax credit. Bellone opposed both the regulations and the concept of the $10,000 SALT limitation. He stated, "It is not fair; it is not rational; and it is not tenable; and I believe it is not legal." In his view, the New York statute is a "perfectly and accepted mechanism to achieve tax benefits." The IRS proposed regulations and the entire SALT limitation are "an arbitrary and capricious use of regulations."

Editor's Note: The proposed regulations had an effective date of August 27, 2018. While there is clearly a wide range of opinions on the "quid pro quo" rule and the 15% de minimis exception, the IRS may choose to make the final rules effective as of August 27, 2018. Until the IRS publishes final regulations and the potential exceptions are clarified, many tax professionals will urge donors to exercise caution by following the proposed regulations and effective date.

Excise Tax Payments for Exempt Organizations

In Reg-107163-18; 83 F.R. 55653-55656 (7 Nov. 2018), the IRS published proposed regulations that explain the filing requirements for different types of excise taxes payable by exempt organizations.

Exempt organizations must file IRS Form 990 each year. If the exempt organization is subject to excise tax, it also must file IRS Form 4720 by the 15th day of the fifth month at the end of the tax year. The proposed regulations cover the principal IRS code sections that may require a nonprofit to pay excise tax.
  1. Taxable Distributions — Section 4966(a)(1) levies a 20% tax on distributions from a donor advised fund that are not for a Section 170(c)(2)(B) charitable purpose.
  2. DAF More Than Incidental Benefit — Under Section 4967(a)(1), a payment to a donor that is more than incidental is a prohibited benefit that could require a tax equal to 125% of the amount distributed. Section 4967(a)(2) may require a fund manager to pay a 10% tax on the amount of the prohibited benefit.
  3. Excess Parachute Payments — Section 4960 and Section 4968 require payment of a 21% excise tax on most nonprofits with executive compensation over $1 million. The compensation limits exclude various payments and some types of employment.
  4. Net Investment Income — Institutions with over 500 students and endowments over specific levels may be subject to an excise tax on net investment income under Section 4968.
For institutions that file based upon a calendar year, IRS Form 4720 and any applicable tax is due by May 15, 2019. The proposed regulations will apply on the date the final rule is published in the Federal Register.

Applicable Federal Rate of 3.6% for November -- Rev. Rul. 2018-28; 2018-45 IRB 1 (18 October 2018)

The IRS has announced the Applicable Federal Rate (AFR) for November of 2018. The AFR under Section 7520 for the month of November is 3.6%. The rates for October of 3.4% or September of 3.4% 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 2018, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return.

Published November 9, 2018
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Shelby Harder, 2018
Dr. Irving Auld and Dorothy
Roher Auld Scholarship

"Many students take for granted what a university has to offer. However, I am thankful every single day for the opportunity to attend this prestigious school. At Lawrence, you have the ability to engage in Socratic debates about the world we live in at dinner, play recreational or NCAA sports, and talk one on one with brilliant professors. At Lawrence, you don't just 'learn' a subject, you are immersed in it. You dive into the liberal arts and these professors show you the beauty in it all, and how everything is tied together. I am a Biochemistry major with a soft spot for rocket science, philosophy, and evolution. Lawrence is my dream school, and it would have never been possible without the Dr. Irving Auld and Dorothy Roher Auld Scholarship. I am forever grateful for their generosity."

Juliana E. Olsen-Valdez, 2018
Carroll Family Scholarship

"Lawrence University is a great place for students looking to embrace their multi-interested approach to learning. As a Geology major, I have spent many long hours in laboratories. But, I have also had the opportunity to organize and lead students on outdoor backpacking trips, help build a stronger community for International students, participate in dialogues on campus initiatives, attend dozens of musical events, and study abroad in a field-based geology program, all while taking classes in a variety of academic spheres on campus. Lawrence, as an institution and student body, creates a collective of learners, listeners, and leaders who are continuously evolving their understanding of the world around them. I am fortunate to have the support of the Carroll Family Scholarship, so that I can say I am a part of this exceptional community too!"

Weiqi "Vicky" Liang, 2019
Marian H. Cuff Endowed Scholarship

"Lawrence is a special institution with nice people around the campus. I better myself by trying out different things and using new ways to think critically. Even though I am a Philosophy major, I have successfully taken classes in Anthropology, Biology, Economics, and Government. In addition, I still find many great extracurricular opportunities to explore, such as singing with Viking Chorale, even though I am not a music major. While having the great experience of volunteering at the elderly center last year, I became an elder advocacy coordinator at the Volunteer Community Service Center. At Lawrence, I've learned to handle difficult academic problems while looking forward to exploring possible opportunities. I am very grateful to be awarded the Marian H. Cuff Endowed Scholarship for every year I have been here, and appreciate that the scholarship has provided this wonderful Lawrence experience to me."

Anthony Cardella, 2018
Ansorge Family Scholarship

"I am so excited that I am able to attend Lawrence University. I know that I will make great progress studying piano with Dr. Michael Mizrahi. Since being at Lawrence I've already made a lot of progress and I really love it here. I am so grateful for the Ansorge Family Scholarship that made it possible for me to come to Lawrence because without it, I might not have been able to afford the cost of attending a school that is a great fit for me and a place where I will learn so much and go so far."

Milwaukee-Downer Scholarships and Professorships

Some of the many recipients of Milwaukee-Downer scholarships gather for a photo with Carolyn King Stephens M-D'62 and Marlene Crupi-Widen M-D'55 in January 2014 at the annual scholarship luncheon.

Rosamund Victoria Bille Adler Scholarship
Dr. Charles E. Albright Scholarship
Helen Daniels Bader Scholarship
James G. and Ethel M. Barber Scholarship
Catharine Beecher Endowed Fund for Downer Women
Bessie A. Bell Scholarship
Berk Scholarship
Frederick C. Best Scholarship
Beta Study Club Scholarship
Lynde Bradley Scholarship
Lucia R. Briggs-Alumnae Scholarship
Edith Lange Brooks Scholarship
Anne Barman Caldwell Scholarship
Alice Miller Chester Scholarship
City of Milwaukee Student Funds Scholarship
Milwaukee-Downer Class of 1940 Fund
Milwaukee-Downer Class of 1942 Fund
College Endowment Association Scholarship
Janet Cope Crawford Scholarship
Jessie Mabbott Daniels Scholarship
F. T. Day Scholarship
Rufus Dodge Scholarship
Julia P. Ely and Hannah R. Vedder Memorial Scholarship
General Endowed Scholarship - M-D College
Dr. Alfred W. and Mrs. Ada F. Gray Scholarship
Berenice E. Hess Scholarship Endowment
Lucille Ray Hibbard Scholarship
Belle Austin Jacobs Scholarship
Helen McDermott Jurack and Ronald J. Mason Scholarship
Marjorie S. Logan Scholarship
Nellie Maxwell Scholarship
S. Annabelle & Paul McGuire Scholarship
Memorial Scholarship Fund - Milwaukee-Downer
Milwaukee-Downer Class of 1953 Scholarship
Milwaukee-Downer Class of 1955 Scholarship
Milwaukee-Downer Class of 1956 Scholarship
Milwaukee-Downer Class of 1957 Scholarship
Milwaukee-Downer Class of 1958 and 1959 50th Reunion Scholarship
Milwaukee-Downer Club Scholarship
Milwaukee-Downer/Lawrence College Consolidation 50th Anniversary Scholarship
Francis Evelyn Kelley Morgan Memorial Scholarship
O'Neill-Anderson Family Scholarship Endowment
Elizabeth A. Olson Scholarship
Gilbert Haven Peirce, Sr. and Emma Elizabeth Manor Peirce Milwaukee-Downer Scholarship
Aleida J. Pieters Scholarship
Matilda Siefert Puelicher Scholarship
Elizabeth Ann Richardson Scholarship
William M. Ross Memorial Scholarship
Elizabeth Rossberg Scholarship
Charles Frederic Sammond Scholarship
Mildred L. Schroeder Scholarship
Sivyer Educational Fund for Women
Marion Merrill Smith Scholarship
Dr. Elizabeth A. Steffen Scholarship
W. Mead and Elizabeth McKone Stillman Scholarship
Strzelczyk Family Scholarship
Clare Scherf Sweetman Scholarship
Raymond H. and Jane K. Taylor Scholarship
Jerline E. Walfoort Memorial Scholarship
Barbara E. Wehr Fund
Harmony Weissbach Scholarship
Martha and Frances Wheelock Scholarship
James G. and Ethel M. Barber Professorship of Theatre and Drama
T. A. Chapman Professorship in Music
Alice G. Chapman Professorship in Physics
Alice G. Chapman Librarianship
Milwaukee-Downer College and College Endowment Association Professorship

Angela Small Fry Intia, 2019
Maurine Campbell Scholarship

"Thanks to the Maurine Campbell scholarship, I have been able to attend the amazing school that is Lawrence University. With the help from this scholarship, I have been able to pursue my dream career in chemistry working with the outstanding and extremely helpful faculty here. Even outside of chemistry I take the time for exploration into my interests and want to give back through my work as a resident life advisor, stock room assistant, and student supervisor at Bon Appetit. Everything I have learned here, academically or not has forever molded the person I am today."

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