Tuesday October 3, 2023
Child Tax Credit Helps Families
The survey suggests that the increased child tax credit last year was helpful for many families. The credit was expanded from $2,000 in 2020 to $3,000 in 2021 for children under age 18 and $3,600 for children under age 6. It was phased out for single individuals with incomes over $75,000 and joint filers with more than $150,000 in income.
This Federal Reserve survey is a good picture of the financial status of families in America.
1. Financial Well-Being — Seventy-eight percent of adults were living an acceptable or comfortable life. This is the highest level reported since 2013. Three fourths of parents stated they were doing at least "okay" in 2021, this was eight points higher than the prior year.
2. Family Income — The survey asked parents for their primary budget expense. Housing was the top reported expense at 30%, 20% spent the largest amount on a child or children and 15% reported their largest budget expenditure was for food. About 15% who had incomes of less than $50,000 were struggling to pay bills. This number who are struggling was 27% for low-income parents who responded to the survey.
3. Employment — Many individuals changed jobs in 2021. The survey reported 15% of workers were in a new job and 60% of those who changed jobs felt they now had a better employment situation. The responses indicated 77% of employees thought their employers were taking appropriate precautions for COVID-19. For the 7% of adults who reported they were not working, COVID-19 was a substantial factor in that decision.
4. Unexpected Expenses — About 60% of adults indicated they have the cash available to cover a $400 emergency. This is an increase from 50% who were able to cover a $400 emergency when the survey started in 2013. Twenty percent of adults reported they had an unexpected medical expense between $1,000 and $2,000 during the past year.
5. Housing — There was a substantial increase in refinancing in 2021 — about one fourth of homeowners refinanced. Those who were renting included 17% who were behind on rent at some point in 2021 and 8% who reported they were behind on rent at the end of 2021. The total outstanding back rent was approximately $10 billion.
6. Education — Most parents of children enrolled in K-12 classes reported that their children were now attending completely in person. Only 7% of parents stated their K-12 child was attending through a remote or hybrid plan. The survey indicated 56% of parents believed that their children's academic performance was better in 2021 than prior years. Higher-education students indicated they prefer online or hybrid education until the pandemic is declared over.
7. Retirement Investments — Forty percent of employed individuals thought their retirement saving plan was on track. This is up slightly from 36% in 2020. About 25% of adults who retired during the past year indicated COVID-19 was a substantial factor in that decision.
Accelerating Charitable Efforts (ACE) Act May Chill Donations
On May 18, 2022, fourteen state attorneys general sent a letter to House and Senate Leaders. The letter expressed concern about the Accelerating Charitable Efforts (ACE) Act reducing charitable giving.
The ACE Act would create new restrictions on donor advised funds (DAFs). The attorneys general stated, "The Act's disclosure requirements would cause donors who might otherwise anonymously contribute to a preferred charity through a DAF to not donate at all. This harms not just the donor, but the charity itself."
DAFs enable individuals to receive an immediate tax deduction and recommend grants. This is "an attractive option to maximize their charitable giving." Public charities often allow anonymous DAF contributions and use these gifts to show that they have the required broad public support. Under current law, private foundations may also contribute to a DAF and fulfill their required 5% annual distribution.
The letter stated that the ACE Act will "chill donations and frustrate the ability of charities to receive funding." It would prohibit public charities from using anonymous DAF donations to fulfill the public-support test. Only if individual donors are named will charities be able to use the DAF gifts to satisfy this test.
The attorneys general believe that there are many "sound reasons why donors may wish to remain anonymous." These may include religious beliefs, modesty or concern that the charity is considered controversial by other individuals. The disclosure requirements proposed in the ACE Act may cause donors who would otherwise contribute anonymously to refrain from making any gifts. The letter's authors believe the ACE Act's mandatory disclosure provision harms both the donor and the charity.
In addition, private foundations would be damaged, the letter suggested. If a private foundation is not able to make a gift to a donor advised fund and count that as part of its 5% mandatory distribution, there will be fewer gifts to DAFs.
The attorneys general conclude, "While these proposed changes are likely to chill charitable giving, there is no indication that they further any public good or prevent abuse."
These attorneys general are concerned about protecting the privacy of citizens. In their view, the right to make anonymous charitable gifts is an important element of that privacy. Therefore, the 14 attorneys general oppose the ACE Act and suggests that it would harm donors and nonprofits.
Editor's Note: The 14 attorneys general view their role as advocates for privacy rights. They are concerned that the ACE Act would reduce the privacy right of donors to make anonymous contributions.
Gift of Collection to Native American Museum Is Not Deductible
In Martha L. Albrecht v. Commissioner; No. 13314-20; T.C. Memo. 2022-53, the Tax Court determined that a gift of a collection of Native American jewelry to a museum was not deductible because the document did not fulfill the contemporaneous written acknowledgment requirements.
Mrs. Albrecht was a resident of New Mexico. She and her late husband collected Native American jewelry and artifacts. On December 19, 2014, Albrecht gave 120 items from the collection to the Wheelwright Museum of the American Indian. The Museum and the donor signed a five page "Deed of Gift." The ""Conditions Governing Gifts to the Wheelwright Museum of the American Indian" section stated, "the donation is unconditional and irrevocable; that all rights, titles and interests held by the donor in the property are included in the donation, unless otherwise stated in the Gift Agreement." However, there was no accompanying "Gift Agreement."
Albrecht filed IRS Form 1040 and attached a copy of the Deed of Gift to her return. The IRS issued a notice of deficiency and disallowed the deduction for failure to comply with the required document provisions.
An individual who makes a gift of $250 or more must obtain a "contemporaneous written acknowledgment" (CWA). See Section 170(f)(8)(A).
A CWA must include an amount of cash or a description of noncash property, state whether the donee organization provided any goods or services and provide a good faith estimate of the value of these goods or services. The CWA must be received by the donor prior to filing his or her tax return.
The CWA may follow different formats, but it is a strict requirement to substantiate a charitable deduction. If the document does not meet those standards, there is no deduction. The substantial compliance doctrine will not save a deduction with an improper or missing CWA.
The Deed of Gift from the Wheelwright Museum was received before Albrecht filed her return. However, it did not specify whether the nonprofit provided any goods or services in return for the gift.
The Deed of Gift did not explain whether consideration had been received and did not state that this deed was the entire agreement of the parties. The Deed of Gift made reference to an additional document with the title "Gift Agreement," however, this other document was not received prior to Albrecht filing her tax return.
The taxpayer claimed the Gift Agreement was not required, but the IRS stated that the Gift Agreement may have permitted the donor to retain an interest in the gifted property.
While the Court notes that the donor appears to have made "a good faith attempt" to comply with the code, she failed in that effort. The document did not comply with the strict requirements of Section 170(f)(8) and the deduction was denied.
Applicable Federal Rate of 3.6% for June — Rev. Rul. 2022-10; 2022-23 IRB 1 (16 May 2022)
The IRS has announced the Applicable Federal Rate (AFR) for June of 2022. The AFR under Section 7520 for the month of June is 3.6%. The rates for May of 3.0% or April of 2.2% 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 2022, pooled income funds in existence less than three tax years must use a 1.6% deemed rate of return.