Today I'd like to tell you about a tool on our website that can help you understand the financial implications of a planned gift.
Our planned gifts calculators will help you figure your possible income tax deductions and savings, possible capital gains savings, and estimated payouts (for certain types of gifts). After you enter your information, you can view a personalized presentation that shows the benefits of a planned gift based on your property and goals.
To learn more, visit our planned gifts calculator page on our website. Or, contact us at913.577.2983 or info@nazarenefoundation.org. To read more about our services, visitwww.NazareneFoundation.org.
Blessings,
Kenneth R. Roney, J.D.
President
PERSONAL PLANNER
Loans and Sales to Children
Parents are frequently approached by children who desire loans for various purposes. Parents may make a loan to a child for the down payment on a home, to start a new business, to cover costs for a personal emergency or for education.
One of the considerations for parents who make a loan is whether they are treating all children fairly. Most parents hope to treat their children equally. But the need for a loan will probably exist with one child and not with the others.
As a result, parents may consider making the loan to a child and then planning to forgive that loan in the estate plan. If this is the case, a parent frequently will create a similar benefit for other children in the estate plan. By forgiving the loan to one child and passing a similar benefit through the estate to the other children, everyone is treated fairly.
Family Loan Guidelines
An "oral agreement" family loan may cause serious conflict. Parents or children may forget the loan amount, the loan duration and the interest rate. Therefore, the loan document should be written.
It frequently is either a "demand" note or a term note. A term note is for a fixed number of years, in a manner similar to most notes for the mortgage on a home. A demand note allows the parent to request full payment at any time. Many family loans are made on demand notes and there may not be an expectation that the principal will be repaid.
Will There Be Taxes?
If the demand note does not require any interest or specifies an interest rate that is below the market rate, then there is assumed income to the parent. In effect, the child is treated as if he or she is making payments of the interest to the parent at the appropriate rate. Even though no interest may be paid, the parent will be required to report income in that amount. If the loan interest is deductible by the child, he or she may take that deduction.
With a no-interest demand note, the parent also is making a gift. However, the annual exclusion ($14,000 in 2015) is frequently sufficient to cover the gift of the parent in forgiving interest payments by the child. If there are two parents, the gift exclusion amount is doubled.
In many cases the note will be written at the applicable federal rate for the month it is created. The IRS publishes a revenue ruling each month with applicable rates for loans of various duration. So long as the note bears an interest rate at that rate, there will not be a gift.
It is beneficial if the child actually makes payments to the parent at the applicable interest rate each year. Even if the parent has used annual gift exclusions to provide funds to the child, a written note with payments by the child shows that the parents and child are treating the note in an appropriate businesslike manner. This makes it much more difficult for the IRS to claim that the principal value of the note was an immediate gift to the child.
Family Loan Exceptions
There are two general family loan exceptions. First, a loan of $10,000 or less is not covered by the "market interest rate" rules. A parent may make an interest-free loan of that amount without any impact.
Second, if the loan is from a parent to a child and is $100,000 or less, there may be another exception that reduces the amount of the assumed income interest reported by the parent. For these loans, the parent may report income that is the lower of the applicable federal rate or the child's actual net investment income for the year. This may reduce the income reported by the parent.
Mother Carol Helps Daughter Susan Purchase a Home
Mother Carol wanted to help daughter Susan purchase a home. Mother Carol lent Susan $100,000 on a written demand note. The applicable federal interest rate that month was 3.2%. Susan does not pay interest on the note and therefore Carol has assumed income. Her income each year is 3.2% or $3,200. In addition, Carol is making a gift of $3,200 to Susan each year. Fortunately, there is no gift tax because it is less than the annual gift exclusion amount.
If Susan records the $100,000 loan as a second mortgage against the home that she purchases, she will be able to deduct the $3,200 of income that Carol reports. However, because Susan is likely to be in a lower tax bracket, Carol will still pay a substantial tax that is likely to exceed Susan's tax savings.
Bill Helps Son Joe Start a Business
Bill would like to assist his son Joe who is starting a business. Bill lends Joe $50,000 on a demand note. The note requires an annual payment of 2.0%, which is the applicable federal rate on the date the note is created. Under the note terms, at the end of each year, Joe must pay $1,600 of interest to Bill.
Joe starts the business and makes the payment of $1,600 each year to Bill. Joe's CPA deducts the payment on Joe's tax return as an ordinary and necessary expense of the business.
Family Sales
There are a number of circumstances in which a parent may wish to sell real estate or stock in a family business to a child.
Many parents also choose to make gifts of land or stock to children. However, a parent may have already used the annual exclusion and his or her gift exemption. Alternatively, the parent may desire the economic security of payments on the property. Some parents prefer to sell assets to children and then have the payments available for retirement income.
Finally, a parent may give part of the land or stock to a child and then sell the balance. This transfer enables the child to own the investment or business. However, the child benefits from the self worth that results from the process of making payments on the note. While the child has been given part of the property or business, he or she has the self confidence that comes with making the business productive and paying on the note.
Installment Sale
Because children who purchase assets are frequently in the initial years of their careers, they usually lack the funds to purchase the entire property or stock in the business. As a result, it is quite common to use an installment sale.
From the perspective of a parent, the installment sale also has the benefit of spreading out the capital gain. He or she probably has a high level of appreciation in the land or stock. Using an installment sale will allow that gain to be recognized over a term of many years. Because the tax on the gain is not dueuntil each portion is recognized, the total cost of the capital gains tax may be significantly reduced.
The parents also may be thinking of the impact on their estate plan. It may be quite desirable to "freeze" the value of a particular asset through an installment note. If the parents owned a parcel of land until they pass away, that property could greatly increase in value by the time of their death. However, if they freeze the value by selling it at a fair price on an installment note, then the growth in value of the land will benefit the children's estates.
Installment Sale Taxation
The primary benefit of an installment sale to the parent is that the capital gain is prorated. The CPA for the parent will develop a schedule showing the amount of the interest (which is ordinary income to the parent) and the amount of the capital gain each year. The payments by the children will be in part ordinary income on the interest portion and capital gain on that portion for the parent each year. If the parent has a tax basis in the property, a portion of each payment will be returned with no tax.
There is an important limitation on the installment sale to the child. If the parent transfers the property to the child, the child should not sell within two years. If the child were to sell the property prior to the two year limit, then in most cases the gain will immediately be taxed to the parent. Therefore, if a parent sells assets to a child on an installment note, the child should plan to hold the property for a minimum of two years.
Joe and Mary Sell to Daughter Linda
Joe and Mary have a commercial building and lot that is valued at $200,000. They have taken straight-line depreciation and the adjusted basis is now down to $20,000. They would like to sell this building to their daughter Linda. She will make payments to Joe and Mary and will immediately lease the building to a tenant who is waiting in the wings.
Because the applicable federal rate is 3%, Joe and Mary set up a 20 year installment sale to Linda using the 3% interest rate.
Each year, Linda will make a payment of the interest plus principal as set forth in the note that has been developed by the family's CPA. Joe and Mary will report the interest as ordinary income and a portion of the capital gain. Their prorated part of the $20,000 of basis is tax-free. Because Linda plans to hold the building and will not sell within two years, there will be no acceleration of the capital gain for Joe and Mary.
Joe and Mary also considered other options with their CPA. One possibility is for there to be a provision in the 20 year note that would eliminate the debt if both Mary and Joe pass away prior to the end of 20 years. This provision to cancel the debt if the parents die early is called a "self-canceling installment note."
Another option is to use an alternative to the installment note called a private annuity. With the private annuity, Joe and Mary would receive payments from Linda for their lifetimes, rather than the fixed term of the installment note.
After discussing these two other concepts with their CPA, Joe and Mary decided to use the 20-year installment note. This will freeze the value and gives Linda a clear picture of the payment amounts and schedule.
SAVVY LIVING
How Medicare Covers In-Home Care
One of the considerations for parents who make a loan is whether they are treating all children fairly. Most parents hope to treat their children equally. But the need for a loan will probably exist with one child and not with the others.
As a result, parents may consider making the loan to a child and then planning to forgive that loan in the estate plan. If this is the case, a parent frequently will create a similar benefit for other children in the estate plan. By forgiving the loan to one child and passing a similar benefit through the estate to the other children, everyone is treated fairly.
Family Loan Guidelines
An "oral agreement" family loan may cause serious conflict. Parents or children may forget the loan amount, the loan duration and the interest rate. Therefore, the loan document should be written.
It frequently is either a "demand" note or a term note. A term note is for a fixed number of years, in a manner similar to most notes for the mortgage on a home. A demand note allows the parent to request full payment at any time. Many family loans are made on demand notes and there may not be an expectation that the principal will be repaid.
Will There Be Taxes?
If the demand note does not require any interest or specifies an interest rate that is below the market rate, then there is assumed income to the parent. In effect, the child is treated as if he or she is making payments of the interest to the parent at the appropriate rate. Even though no interest may be paid, the parent will be required to report income in that amount. If the loan interest is deductible by the child, he or she may take that deduction.
With a no-interest demand note, the parent also is making a gift. However, the annual exclusion ($14,000 in 2015) is frequently sufficient to cover the gift of the parent in forgiving interest payments by the child. If there are two parents, the gift exclusion amount is doubled.
In many cases the note will be written at the applicable federal rate for the month it is created. The IRS publishes a revenue ruling each month with applicable rates for loans of various duration. So long as the note bears an interest rate at that rate, there will not be a gift.
It is beneficial if the child actually makes payments to the parent at the applicable interest rate each year. Even if the parent has used annual gift exclusions to provide funds to the child, a written note with payments by the child shows that the parents and child are treating the note in an appropriate businesslike manner. This makes it much more difficult for the IRS to claim that the principal value of the note was an immediate gift to the child.
Family Loan Exceptions
There are two general family loan exceptions. First, a loan of $10,000 or less is not covered by the "market interest rate" rules. A parent may make an interest-free loan of that amount without any impact.
Second, if the loan is from a parent to a child and is $100,000 or less, there may be another exception that reduces the amount of the assumed income interest reported by the parent. For these loans, the parent may report income that is the lower of the applicable federal rate or the child's actual net investment income for the year. This may reduce the income reported by the parent.
Mother Carol Helps Daughter Susan Purchase a Home
Mother Carol wanted to help daughter Susan purchase a home. Mother Carol lent Susan $100,000 on a written demand note. The applicable federal interest rate that month was 3.2%. Susan does not pay interest on the note and therefore Carol has assumed income. Her income each year is 3.2% or $3,200. In addition, Carol is making a gift of $3,200 to Susan each year. Fortunately, there is no gift tax because it is less than the annual gift exclusion amount.
If Susan records the $100,000 loan as a second mortgage against the home that she purchases, she will be able to deduct the $3,200 of income that Carol reports. However, because Susan is likely to be in a lower tax bracket, Carol will still pay a substantial tax that is likely to exceed Susan's tax savings.
Bill Helps Son Joe Start a Business
Bill would like to assist his son Joe who is starting a business. Bill lends Joe $50,000 on a demand note. The note requires an annual payment of 2.0%, which is the applicable federal rate on the date the note is created. Under the note terms, at the end of each year, Joe must pay $1,600 of interest to Bill.
Joe starts the business and makes the payment of $1,600 each year to Bill. Joe's CPA deducts the payment on Joe's tax return as an ordinary and necessary expense of the business.
Family Sales
There are a number of circumstances in which a parent may wish to sell real estate or stock in a family business to a child.
Many parents also choose to make gifts of land or stock to children. However, a parent may have already used the annual exclusion and his or her gift exemption. Alternatively, the parent may desire the economic security of payments on the property. Some parents prefer to sell assets to children and then have the payments available for retirement income.
Finally, a parent may give part of the land or stock to a child and then sell the balance. This transfer enables the child to own the investment or business. However, the child benefits from the self worth that results from the process of making payments on the note. While the child has been given part of the property or business, he or she has the self confidence that comes with making the business productive and paying on the note.
Installment Sale
Because children who purchase assets are frequently in the initial years of their careers, they usually lack the funds to purchase the entire property or stock in the business. As a result, it is quite common to use an installment sale.
From the perspective of a parent, the installment sale also has the benefit of spreading out the capital gain. He or she probably has a high level of appreciation in the land or stock. Using an installment sale will allow that gain to be recognized over a term of many years. Because the tax on the gain is not dueuntil each portion is recognized, the total cost of the capital gains tax may be significantly reduced.
The parents also may be thinking of the impact on their estate plan. It may be quite desirable to "freeze" the value of a particular asset through an installment note. If the parents owned a parcel of land until they pass away, that property could greatly increase in value by the time of their death. However, if they freeze the value by selling it at a fair price on an installment note, then the growth in value of the land will benefit the children's estates.
Installment Sale Taxation
The primary benefit of an installment sale to the parent is that the capital gain is prorated. The CPA for the parent will develop a schedule showing the amount of the interest (which is ordinary income to the parent) and the amount of the capital gain each year. The payments by the children will be in part ordinary income on the interest portion and capital gain on that portion for the parent each year. If the parent has a tax basis in the property, a portion of each payment will be returned with no tax.
There is an important limitation on the installment sale to the child. If the parent transfers the property to the child, the child should not sell within two years. If the child were to sell the property prior to the two year limit, then in most cases the gain will immediately be taxed to the parent. Therefore, if a parent sells assets to a child on an installment note, the child should plan to hold the property for a minimum of two years.
Joe and Mary Sell to Daughter Linda
Joe and Mary have a commercial building and lot that is valued at $200,000. They have taken straight-line depreciation and the adjusted basis is now down to $20,000. They would like to sell this building to their daughter Linda. She will make payments to Joe and Mary and will immediately lease the building to a tenant who is waiting in the wings.
Because the applicable federal rate is 3%, Joe and Mary set up a 20 year installment sale to Linda using the 3% interest rate.
Each year, Linda will make a payment of the interest plus principal as set forth in the note that has been developed by the family's CPA. Joe and Mary will report the interest as ordinary income and a portion of the capital gain. Their prorated part of the $20,000 of basis is tax-free. Because Linda plans to hold the building and will not sell within two years, there will be no acceleration of the capital gain for Joe and Mary.
Joe and Mary also considered other options with their CPA. One possibility is for there to be a provision in the 20 year note that would eliminate the debt if both Mary and Joe pass away prior to the end of 20 years. This provision to cancel the debt if the parents die early is called a "self-canceling installment note."
Another option is to use an alternative to the installment note called a private annuity. With the private annuity, Joe and Mary would receive payments from Linda for their lifetimes, rather than the fixed term of the installment note.
After discussing these two other concepts with their CPA, Joe and Mary decided to use the 20-year installment note. This will freeze the value and gives Linda a clear picture of the payment amounts and schedule.
SAVVY LIVING
How Medicare Covers In-Home Care
How does Medicare cover home health care? Because of my illness, my doctor suggested I get home health care, but I want to find out how it's covered before I proceed.
Medicare covers a wide variety of intermittent in-home health care services (usually up to 28 hours per week) if you meet specific requirements. Here's how it works.
First, in order to secure home health care coverage you must be homebound. Being homebound means that you need help from a device (like a wheelchair or walker) or a person in order to leave your home.
Second, you will need your doctor to approve a "plan of care" confirming that you need skilled-nursing care or skilled-therapy services from a physical or speech therapist on a part-time basis. Your doctor can also request the services of an occupational therapist or a home health aide to assist with activities of daily living such as bathing, dressing and using the bathroom. Your doctor must renew the "plan of care" once every 60 days.
Third, you will need to use a home health agency that is certified by Medicare. If you meet all of the requirements, Medicare should pay for your in-home care.
Be aware that Medicare will not pay for home health aide services (such as bathing, dressing or using the bathroom) if you do not need skilled-nursing or skilled-therapy services too. Homemaker services, such as shopping, meal preparation and cleaning are also not covered.
It is important to note that Medicare has recently changed their home health care policy regarding degenerative diseases. They will now pay for in-home physical therapy, nursing care and other services to beneficiaries with chronic conditions like multiple sclerosis, Parkinson's or Alzheimer's disease in order to maintain their condition and prevent deterioration. In the past, Medicare would only coverhome health services if the patient was expected to make a full recovery.
If you have original Medicare, you can locate a Medicare-certified home health agency by calling 800-633-4227 or by visiting medicare.gov/homehealthcompare. If you have a Medicare Advantage plan, you should contact your plan administrator directly and ask which home health agencies work with the plan and are within the plan's network of providers.
For more detailed information on how Medicare covers in-home health, see the "Medicare and Home Health Care" online booklet at medicare.gov/pubs/pdf/10969.pdf.
Other Options
If you don't qualify for Medicare coverage, there are other coverage options depending on your situation, including:
Insurance: If you have long-term care insurance, check to see if it covers in-home care. If you have a life insurance policy, see if it can be utilized to pay for care.
Medicaid: If your income is low enough, all states offer Medicaid programs that will pay for some forms of in-home care. To investigate this, contact your local Medicaid office.
Veterans Assistance: If you're a veteran, some communities have a Veteran-Directed Home and Community Based Service program. This program gives veterans a flexible budget to pay for in-home care.
Also, a benefit called "Aid and Attendance" is available to wartime veterans and their spouses. Aid and Attendance helps pay for in-home care as well as assisted living and nursing home care.
To be eligible, you must need assistance with daily living activities like bathing, dressing or going to the bathroom. Also, your annual income must be under $21,466 - minus medical and long-term care expenses. If you're a surviving spouse of a veteran, your income must be below $13,794 to be eligible. Your assets must also be less than $80,000 excluding your home and car.
To learn more, see va.gov/geriatrics or call 800-827-1000.
Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Senior" book. The articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070.
YOUR PLAN
Deferred Gift Annuity
Medicare covers a wide variety of intermittent in-home health care services (usually up to 28 hours per week) if you meet specific requirements. Here's how it works.
First, in order to secure home health care coverage you must be homebound. Being homebound means that you need help from a device (like a wheelchair or walker) or a person in order to leave your home.
Second, you will need your doctor to approve a "plan of care" confirming that you need skilled-nursing care or skilled-therapy services from a physical or speech therapist on a part-time basis. Your doctor can also request the services of an occupational therapist or a home health aide to assist with activities of daily living such as bathing, dressing and using the bathroom. Your doctor must renew the "plan of care" once every 60 days.
Third, you will need to use a home health agency that is certified by Medicare. If you meet all of the requirements, Medicare should pay for your in-home care.
Be aware that Medicare will not pay for home health aide services (such as bathing, dressing or using the bathroom) if you do not need skilled-nursing or skilled-therapy services too. Homemaker services, such as shopping, meal preparation and cleaning are also not covered.
It is important to note that Medicare has recently changed their home health care policy regarding degenerative diseases. They will now pay for in-home physical therapy, nursing care and other services to beneficiaries with chronic conditions like multiple sclerosis, Parkinson's or Alzheimer's disease in order to maintain their condition and prevent deterioration. In the past, Medicare would only coverhome health services if the patient was expected to make a full recovery.
If you have original Medicare, you can locate a Medicare-certified home health agency by calling 800-633-4227 or by visiting medicare.gov/homehealthcompare. If you have a Medicare Advantage plan, you should contact your plan administrator directly and ask which home health agencies work with the plan and are within the plan's network of providers.
For more detailed information on how Medicare covers in-home health, see the "Medicare and Home Health Care" online booklet at medicare.gov/pubs/pdf/10969.pdf.
Other Options
If you don't qualify for Medicare coverage, there are other coverage options depending on your situation, including:
Insurance: If you have long-term care insurance, check to see if it covers in-home care. If you have a life insurance policy, see if it can be utilized to pay for care.
Medicaid: If your income is low enough, all states offer Medicaid programs that will pay for some forms of in-home care. To investigate this, contact your local Medicaid office.
Veterans Assistance: If you're a veteran, some communities have a Veteran-Directed Home and Community Based Service program. This program gives veterans a flexible budget to pay for in-home care.
Also, a benefit called "Aid and Attendance" is available to wartime veterans and their spouses. Aid and Attendance helps pay for in-home care as well as assisted living and nursing home care.
To be eligible, you must need assistance with daily living activities like bathing, dressing or going to the bathroom. Also, your annual income must be under $21,466 - minus medical and long-term care expenses. If you're a surviving spouse of a veteran, your income must be below $13,794 to be eligible. Your assets must also be less than $80,000 excluding your home and car.
To learn more, see va.gov/geriatrics or call 800-827-1000.
Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Senior" book. The articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070.
YOUR PLAN
Deferred Gift Annuity
Several years ago Larry and Allison invested $30,000 in what they believed to be an attractive stock. It turned out to be a very wise decision, because the value of the stock increased to $100,000 a few years later. Though they were not in need of additional income at the time, the couple decided to cash in on this growth and began considering selling the stock.
Allison: We had had a good year and were looking for ways to maximize deductions and reduce what we owed in taxes. At the same time, we had been exploring the best way to make a gift to our favorite charity.
Larry: Allison and I were both age 50 at the time, in good health and still working. And though we didn't really need extra current income, we were planning to retire at age 65 so we were always interested in smart retirement planning. Our goal was to be able to live comfortably and travel in our motorhome to visit friends and family.
Allison: I remember when we met with a gift planner. He explained the benefits of setting up a deferred gift annuity. Instead of selling, we could give our stock to our favorite charity and receive an immediate charitable tax deduction. Plus, when we turn 65, the deferred gift annuity would make annualretirement income payments to us for our lifetime.
Larry: We decided to set up the deferred gift annuity. And we experienced first hand each of the benefits Allison mentioned: we received a charitable tax deduction and tax savings immediately. And now that we're retired, we receive income each year that helps make our retirement travel possible. On top of all of this, the deferred gift annuity makes a portion of the income payments we receive tax free.
*Please note: The name and image above is representative of a typical donor and may or may not be an actual donor to our organization. Since your gift annuity benefits may be different, you may want to click here to view a color example of your benefits.WASHINGTON NEWS
IRS 'Treat Taxpayers Nice' Rules
Allison: We had had a good year and were looking for ways to maximize deductions and reduce what we owed in taxes. At the same time, we had been exploring the best way to make a gift to our favorite charity.
Larry: Allison and I were both age 50 at the time, in good health and still working. And though we didn't really need extra current income, we were planning to retire at age 65 so we were always interested in smart retirement planning. Our goal was to be able to live comfortably and travel in our motorhome to visit friends and family.
Allison: I remember when we met with a gift planner. He explained the benefits of setting up a deferred gift annuity. Instead of selling, we could give our stock to our favorite charity and receive an immediate charitable tax deduction. Plus, when we turn 65, the deferred gift annuity would make annualretirement income payments to us for our lifetime.
Larry: We decided to set up the deferred gift annuity. And we experienced first hand each of the benefits Allison mentioned: we received a charitable tax deduction and tax savings immediately. And now that we're retired, we receive income each year that helps make our retirement travel possible. On top of all of this, the deferred gift annuity makes a portion of the income payments we receive tax free.
*Please note: The name and image above is representative of a typical donor and may or may not be an actual donor to our organization. Since your gift annuity benefits may be different, you may want to click here to view a color example of your benefits.WASHINGTON NEWS
IRS 'Treat Taxpayers Nice' Rules
In 1998, Congress passed the IRS Restructuring and Reform Act, which included a list of ten guidelines to require IRS employees to treat taxpayers fairly. A failure of an IRS employee to follow these rules could lead to loss of his or her position. The ten current rules for “Treating Taxpayers Nicely” include the following:
Willful failure to obtain required approval signatures to authorize seizure of a taxpayer’s home, personal belongings or business assets.
Providing a false statement under oath on a material matter involving a taxpayer or taxpayer representative.
Violating the rights protected under the Constitution or the civil rights of a taxpayer or taxpayer representative.
Falsifying or destroying documents to conceal mistakes made by any employee with respect to a taxpayer or taxpayer representative.
Assault or battery of a taxpayer or taxpayer representative if there is a criminal conviction or a final judgment by a court in a civil case.
Violating the Internal Revenue Code, Department of the Treasury regulations or policies of the IRS (including the Internal Revenue Manual) for the purpose of retaliating against or harassing a taxpayer or taxpayer representative.
Willful misuse of the provisions of Section 6103 of the Internal Revenue Code for the purpose of concealing information from Congress.
Willful failure to file a personal tax return, unless such failure is due to reasonable cause and not to willful neglect.
Willful understatement of federal tax liability, unless such failure is due to reasonable cause and not to willful neglect.
Threatening to audit a taxpayer for the purpose of extracting personal gain or benefit.
On March 26 the House Ways and Means Committee passed the Prevent Targeting at the IRS Act. This bill instructs the IRS not to target a taxpayer based upon political beliefs. Sponsor Jim Renacci (R-OH) stated, “If someone at the IRS targets taxpayers based on their political beliefs, he or she should be held accountable. It’s that simple. I was proud to see the Ways & Means Committee unanimously approve this commonsense legislation as it is a step in the right direction to restoring a federal government that is accountable to the American people – and not the other way around.”
Estate Tax Repeal Bill Passes Ways and Means Committee
On March 26 the House Ways and Means Committee passed a bill to repeal the estate tax. The party-line vote on the Death Tax Repeal Act (H.R. 1105) was 22-10. The bill also repeals generation-skipping transfer tax and lowers the gift tax rate to 35%. The Joint Committee on Taxation (JCT) estimates the ten year cost to be $269 billion.
Sen. John Thune (R-SD) is expected to introduce a similar bill for consideration by the Senate Finance Committee within the next week.
In his opening statement, House Ways and Means Chairman Paul Ryan (R-WI) highlighted the “unfairness and frustration” associated with the tax system. Ryan continued, “Sometimes it even punishes people from beyond the grave. That's why today we're here to repeal the death tax. People work hard and pay taxes all their lives. They've earned the right to leave something for their kids—often a family business—without being penalized for it. And this tax doesn't just hit the big guy. It hits the little guy—like the small business and the family farm. It is both unwise and unfair, and it needs to go.”
Ways and Means Ranking Member Sander Levin (D-MI) pointed to the JCT claim that the tax savings from estate tax repeal would benefit only 5,500 households per year. In addition, 75% of the tax savings would go to estates over $20 million. Levin noted, “Americans already overwhelmingly believe that the tax code is stacked in favor of a select few. This irresponsible legislation simply reinforces that perception. This amounts to a massive tax cut for a tiny number of the wealthiest households. This isn’t middle class economics, it is estate economics.”
Editor’s Note: The Senate bill will normally require 60 votes for passage. Sen. Thune will attempt to reach that number through persuading farm belt Senators to support his bill. If the White House continues to oppose repeal of estate taxes, the bill will require 67 Senate votes for passage.
FINANCES
Willful failure to obtain required approval signatures to authorize seizure of a taxpayer’s home, personal belongings or business assets.
Providing a false statement under oath on a material matter involving a taxpayer or taxpayer representative.
Violating the rights protected under the Constitution or the civil rights of a taxpayer or taxpayer representative.
Falsifying or destroying documents to conceal mistakes made by any employee with respect to a taxpayer or taxpayer representative.
Assault or battery of a taxpayer or taxpayer representative if there is a criminal conviction or a final judgment by a court in a civil case.
Violating the Internal Revenue Code, Department of the Treasury regulations or policies of the IRS (including the Internal Revenue Manual) for the purpose of retaliating against or harassing a taxpayer or taxpayer representative.
Willful misuse of the provisions of Section 6103 of the Internal Revenue Code for the purpose of concealing information from Congress.
Willful failure to file a personal tax return, unless such failure is due to reasonable cause and not to willful neglect.
Willful understatement of federal tax liability, unless such failure is due to reasonable cause and not to willful neglect.
Threatening to audit a taxpayer for the purpose of extracting personal gain or benefit.
On March 26 the House Ways and Means Committee passed the Prevent Targeting at the IRS Act. This bill instructs the IRS not to target a taxpayer based upon political beliefs. Sponsor Jim Renacci (R-OH) stated, “If someone at the IRS targets taxpayers based on their political beliefs, he or she should be held accountable. It’s that simple. I was proud to see the Ways & Means Committee unanimously approve this commonsense legislation as it is a step in the right direction to restoring a federal government that is accountable to the American people – and not the other way around.”
Estate Tax Repeal Bill Passes Ways and Means Committee
On March 26 the House Ways and Means Committee passed a bill to repeal the estate tax. The party-line vote on the Death Tax Repeal Act (H.R. 1105) was 22-10. The bill also repeals generation-skipping transfer tax and lowers the gift tax rate to 35%. The Joint Committee on Taxation (JCT) estimates the ten year cost to be $269 billion.
Sen. John Thune (R-SD) is expected to introduce a similar bill for consideration by the Senate Finance Committee within the next week.
In his opening statement, House Ways and Means Chairman Paul Ryan (R-WI) highlighted the “unfairness and frustration” associated with the tax system. Ryan continued, “Sometimes it even punishes people from beyond the grave. That's why today we're here to repeal the death tax. People work hard and pay taxes all their lives. They've earned the right to leave something for their kids—often a family business—without being penalized for it. And this tax doesn't just hit the big guy. It hits the little guy—like the small business and the family farm. It is both unwise and unfair, and it needs to go.”
Ways and Means Ranking Member Sander Levin (D-MI) pointed to the JCT claim that the tax savings from estate tax repeal would benefit only 5,500 households per year. In addition, 75% of the tax savings would go to estates over $20 million. Levin noted, “Americans already overwhelmingly believe that the tax code is stacked in favor of a select few. This irresponsible legislation simply reinforces that perception. This amounts to a massive tax cut for a tiny number of the wealthiest households. This isn’t middle class economics, it is estate economics.”
Editor’s Note: The Senate bill will normally require 60 votes for passage. Sen. Thune will attempt to reach that number through persuading farm belt Senators to support his bill. If the White House continues to oppose repeal of estate taxes, the bill will require 67 Senate votes for passage.
FINANCES
Stocks - Sonic Reports Strong Sales Growth
Sonic Corporation (SONC), which operates drive-in restaurants throughout the U.S., announced its second quarter results on Tuesday, March 24. The company impressed investors with double-digit same-store sales growth during the quarter.
Sonic reported that revenue during the quarter increased from $109.7 million to $126.2 million. The revenue gain resulted from 11.5% same-store sales growth.
"Successful company initiatives combined with an improving macro environment resulted in an exceptionally strong second fiscal quarter with 11.5% same-store sales growth," said Sonic Corporation CEO Cliff Hudson. "This increase is primarily a result of growth in our core menu items and product innovation, complemented by our national media strategy."
Net income during the quarter was $7.7 million or $0.14 per share. This was an increase over the comparable period last year when net income was $4.1 million or $0.07 per share.
Unlike other fast food competitors, Sonic has been able to produce earnings that have impressed investors. Sonic's success has led analysts to claim that the company is a better bet than rival upstart Shake Shack, Inc. Much of the company's success appears to be a result of the authentic menu Sonic provides. For example, since 2012 Sonic has made all of its shakes with real ice cream. As a result, ice cream sales have increased close to 50% since that time.
Sonic Corporation (SONC) shares ended the week at $32.06, down 8.5% for the week.
Scholastic Reports Quarterly Loss
Scholastic Corporation (SCHL), a children's publishing and media company, announced its third quarter results on Thursday, March 26. The company recorded a quarterly loss but announced that it expects full-year earnings to be in the black.
The company reported that revenue during the quarter was $382.1 million. This was a 2% increase from the $373.5 million earned during the same period last year.
"We continued our positive trajectory of profitable year-over-year sales growth in the third quarter, which is typically a lower revenue quarter for the Company," said Scholastic Corporation Chairman, President and CEO Richard Robinson. "Also during the quarter, we continued with a number of targeted restructuring initiatives aimed at enhancing the margin contribution of our operating businesses, including our media unit."
Scholastic reported that it recorded a net loss during the quarter of $0.68 per share. This was worse than the $0.38 loss per share reported during the comparable period last year.
Despite the quarterly loss, Scholastic expects full-year earnings will be in the range of $1.80 to $2 per share. That is good news for investors. So far this year Scholastic has seen its share price rise 5%. Over the past twelve months the company's share price has risen 11%.
Scholastic Corporation (SCHL) shares ended the week at $40.56, up 0.07% for the week.
ConAgra's Earnings Exceed Expectations
ConAgra Foods (CAG), a provider of packaged foods, announced its third quarter results on Thursday, March 26. The company reported earnings that beat expectations.
The company reported that net sales during the quarter were $3.88 billion. This was a 2% decline from the $3.95 billion reported during the same period last year.
"We are pleased with the performance of our Consumer Foods segment and our domestic Commercial Foods business, as well as the robust efficiencies we are generating across the company," said ConAgra Foods CEO Gary Rodkin. "Our Private Brands segment, however, is significantly below expectations; we are in the midst of implementing initiatives to improve execution to drive better performance starting in fiscal 2016."
ConAgra reported that earnings during the quarter were $0.59 per share. While this was a decline from $0.62 per share during the comparable period last year, it was above expectations.
ConAgra is the producer of recognizable packaged products such as Marie Callender's, Egg Beaters and Healthy Choice. The company is in the midst of a management transition as current CEO Gary Rodkin is set to retire on April 6, 2015. While ConAgra's quarterly results have been up and down over the past couple years, it has continued to pay out a quarterly dividend of $0.25.
ConAgra Foods (CAG) shares ended the week at $36.76, up 5.3% for the week.
The Dow started the week of 3/23 at 18,137 and closed at 17,713 on 3/27. The S&P 500 started the week at 2,108 and closed at 2,061. The NASDAQ started the week at 5,021 and closed at 4,891.
Bonds - Treasuries Continue Zig-Zag Pattern
Sonic reported that revenue during the quarter increased from $109.7 million to $126.2 million. The revenue gain resulted from 11.5% same-store sales growth.
"Successful company initiatives combined with an improving macro environment resulted in an exceptionally strong second fiscal quarter with 11.5% same-store sales growth," said Sonic Corporation CEO Cliff Hudson. "This increase is primarily a result of growth in our core menu items and product innovation, complemented by our national media strategy."
Net income during the quarter was $7.7 million or $0.14 per share. This was an increase over the comparable period last year when net income was $4.1 million or $0.07 per share.
Unlike other fast food competitors, Sonic has been able to produce earnings that have impressed investors. Sonic's success has led analysts to claim that the company is a better bet than rival upstart Shake Shack, Inc. Much of the company's success appears to be a result of the authentic menu Sonic provides. For example, since 2012 Sonic has made all of its shakes with real ice cream. As a result, ice cream sales have increased close to 50% since that time.
Sonic Corporation (SONC) shares ended the week at $32.06, down 8.5% for the week.
Scholastic Reports Quarterly Loss
Scholastic Corporation (SCHL), a children's publishing and media company, announced its third quarter results on Thursday, March 26. The company recorded a quarterly loss but announced that it expects full-year earnings to be in the black.
The company reported that revenue during the quarter was $382.1 million. This was a 2% increase from the $373.5 million earned during the same period last year.
"We continued our positive trajectory of profitable year-over-year sales growth in the third quarter, which is typically a lower revenue quarter for the Company," said Scholastic Corporation Chairman, President and CEO Richard Robinson. "Also during the quarter, we continued with a number of targeted restructuring initiatives aimed at enhancing the margin contribution of our operating businesses, including our media unit."
Scholastic reported that it recorded a net loss during the quarter of $0.68 per share. This was worse than the $0.38 loss per share reported during the comparable period last year.
Despite the quarterly loss, Scholastic expects full-year earnings will be in the range of $1.80 to $2 per share. That is good news for investors. So far this year Scholastic has seen its share price rise 5%. Over the past twelve months the company's share price has risen 11%.
Scholastic Corporation (SCHL) shares ended the week at $40.56, up 0.07% for the week.
ConAgra's Earnings Exceed Expectations
ConAgra Foods (CAG), a provider of packaged foods, announced its third quarter results on Thursday, March 26. The company reported earnings that beat expectations.
The company reported that net sales during the quarter were $3.88 billion. This was a 2% decline from the $3.95 billion reported during the same period last year.
"We are pleased with the performance of our Consumer Foods segment and our domestic Commercial Foods business, as well as the robust efficiencies we are generating across the company," said ConAgra Foods CEO Gary Rodkin. "Our Private Brands segment, however, is significantly below expectations; we are in the midst of implementing initiatives to improve execution to drive better performance starting in fiscal 2016."
ConAgra reported that earnings during the quarter were $0.59 per share. While this was a decline from $0.62 per share during the comparable period last year, it was above expectations.
ConAgra is the producer of recognizable packaged products such as Marie Callender's, Egg Beaters and Healthy Choice. The company is in the midst of a management transition as current CEO Gary Rodkin is set to retire on April 6, 2015. While ConAgra's quarterly results have been up and down over the past couple years, it has continued to pay out a quarterly dividend of $0.25.
ConAgra Foods (CAG) shares ended the week at $36.76, up 5.3% for the week.
The Dow started the week of 3/23 at 18,137 and closed at 17,713 on 3/27. The S&P 500 started the week at 2,108 and closed at 2,061. The NASDAQ started the week at 5,021 and closed at 4,891.
Bonds - Treasuries Continue Zig-Zag Pattern
Treasury yields fell during early Friday trading on March 27. With uncertainty surrounding the Federal Reserve's plans to hike interest rates, Treasury yields have risen and fallen on a weekly basis.
On Tuesday, March 24, Treasury yields fell on concerns that low inflation will encourage the Federal Reserve to hold off on increasing interest rates. But the fall in Treasury yields came to a halt on Wednesday and Thursday as the 10-year yield closed at 1.92% and 2.01%, respectively.
Following the two-day rally, the 10-year Treasury yield once again declined on Friday. During early trading it had fallen five basis points to 1.96%.
The up and down nature of yields this week is representative of the Treasury market during the first quarter of 2015. The 10-year yield reached a low of 1.70% on February 2 and a high of 2.24% on March 6.
Driving the bond market has been continued uncertainty in the economy, which will impact the Federal Reserve's decision to raise interest rates. Last week the Federal Reserve removed the word "patient" from its guidance on interest rate increases. As a result, continued improvement in the U.S. economy could bring about an increase in rates.
If the statements of St. Louis Fed President James Bullard in Frankfurt this week are any indication, the Fed may take quick action to raise rates once the economy experiences sustained recovery. "By removing ‘patient,' the . . . [Federal Open Market Committee] can return to more standard monetary policy decision-making, under which an appropriate policy rate is decided at each meeting," he said.
The 10-year Treasury note yield finished the week of 3/23 at 1.95% while the 30-year Treasury note yield finished the week at 2.53%.
CDs and Mortgages - Interest Rates Decline
On Tuesday, March 24, Treasury yields fell on concerns that low inflation will encourage the Federal Reserve to hold off on increasing interest rates. But the fall in Treasury yields came to a halt on Wednesday and Thursday as the 10-year yield closed at 1.92% and 2.01%, respectively.
Following the two-day rally, the 10-year Treasury yield once again declined on Friday. During early trading it had fallen five basis points to 1.96%.
The up and down nature of yields this week is representative of the Treasury market during the first quarter of 2015. The 10-year yield reached a low of 1.70% on February 2 and a high of 2.24% on March 6.
Driving the bond market has been continued uncertainty in the economy, which will impact the Federal Reserve's decision to raise interest rates. Last week the Federal Reserve removed the word "patient" from its guidance on interest rate increases. As a result, continued improvement in the U.S. economy could bring about an increase in rates.
If the statements of St. Louis Fed President James Bullard in Frankfurt this week are any indication, the Fed may take quick action to raise rates once the economy experiences sustained recovery. "By removing ‘patient,' the . . . [Federal Open Market Committee] can return to more standard monetary policy decision-making, under which an appropriate policy rate is decided at each meeting," he said.
The 10-year Treasury note yield finished the week of 3/23 at 1.95% while the 30-year Treasury note yield finished the week at 2.53%.
CDs and Mortgages - Interest Rates Decline
Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, March 26. The results show mortgage rates falling this week, a trend that should help home buyers.
The 30-year fixed rate mortgage averaged 3.69% this week. This was down from last week when it averaged 3.78%.
This week, the 15-year fixed rate mortgage averaged 2.97%. This number was down from last week when it averaged 3.06%.
"The average 30-year fixed mortgage rate fell to 3.69% this week following a decline in 10-year Treasury yields," said Len Kiefer, Deputy Chief Economist at Freddie Mac. "Low mortgage rates are a welcome sign for those in the market to buy a home this spring season and will help to support homebuyer affordability. Existing home sales in February increased slightly, but less than expected, to a seasonally adjusted annual rate of 4.88 million units. Meanwhile, new home sales outperformed expectations and surged 7.8% to an annual pace of 539,000 units."
The money market fund finished the week of 3/23 at 0.4%. The 1-year CD finished at 0.7%.
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Are you a Nazarene Legacy Partner (NLP)? The answer is “YES” if you have designated any gift to a Nazarene ministry in your will, bequest, or estate plan. This could be a tithe on your estate, an insurance beneficiary designation to your local church, college, global mission, or any other Nazarene ministry you support.
Send us your name and contact information by reply email and indicate “I am a Nazarene Legacy Partner” and we will add your name to our NLP honor roll. To model generosity inspires others to do the same. Thank you for your interest in gift planning. To access any of this updated financial and gift planning information, please select our website.
Global Church of the Nazarene Foundation
The 30-year fixed rate mortgage averaged 3.69% this week. This was down from last week when it averaged 3.78%.
This week, the 15-year fixed rate mortgage averaged 2.97%. This number was down from last week when it averaged 3.06%.
"The average 30-year fixed mortgage rate fell to 3.69% this week following a decline in 10-year Treasury yields," said Len Kiefer, Deputy Chief Economist at Freddie Mac. "Low mortgage rates are a welcome sign for those in the market to buy a home this spring season and will help to support homebuyer affordability. Existing home sales in February increased slightly, but less than expected, to a seasonally adjusted annual rate of 4.88 million units. Meanwhile, new home sales outperformed expectations and surged 7.8% to an annual pace of 539,000 units."
The money market fund finished the week of 3/23 at 0.4%. The 1-year CD finished at 0.7%.
____________________________
Are you a Nazarene Legacy Partner (NLP)? The answer is “YES” if you have designated any gift to a Nazarene ministry in your will, bequest, or estate plan. This could be a tithe on your estate, an insurance beneficiary designation to your local church, college, global mission, or any other Nazarene ministry you support.
Send us your name and contact information by reply email and indicate “I am a Nazarene Legacy Partner” and we will add your name to our NLP honor roll. To model generosity inspires others to do the same. Thank you for your interest in gift planning. To access any of this updated financial and gift planning information, please select our website.
Global Church of the Nazarene Foundation
17001 Prairie Star Parkway, Suite 200
Lenexa, Kansas 66220 United States
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