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Monday, September 20, 2010

Its Complicated.

A GRAT is a trust that pays an annuity to the trust creator (the grantor) for a fixed term, then pays the trust balance to remainder beneficiaries, typically the grantor's children or trusts for their benefit. So long as the annuity payable to the grantor is a “qualified interest” under Internal Revenue Code Section 2702, the only amount subject to gift tax is the value of the gift to the remainder beneficiaries — that is to say, the amount transferred to the GRAT by the grantor, less the value of the annuity (determined under IRC Section 7520.)

Section 7520 Interest Rates

To be used to value certain charitable interests in trusts. Pursuant to Internal Revenue Code 7520, the interest rate for a particular month is the rate that is 120 percent of the applicable federal midterm rate (compounded annually) for the month in which the valuation date falls. That rate is then rounded to the nearest two-tenths of one percent. For example, the rate that is 120 percent of the applicable federal rate (compounded annually) for January 1998 is 7.13 percent. That rate is then rounded to the nearest two-tenths of one percent or 7.2 percent for purposes of IRC 7520.

**Section 7520 Interest Rates**
Valuation Month	120% of Applicable Federal Midterm Rate	Section 7520 Interest Rate	Revenue Ruling
January - 2010	2.95%	3.0%	2010-1
February - 2010	3.39%	3.4%	2010-6
March - 2010	3.23%	3.2%	2010-8
April - 2010	3.25%	3.2%	2010-11
May - 2010	3.45%	3.4%	2010-12
June - 2010	3.27%	3.2%	2010-15
July - 2010	2.83%	2.8%	2010-18
August - 2010	2.62%	2.6%	2010-19
September - 2010	2.33%	2.4%	2010-20

For prior years' rates, please refer to Section 7520 Interest Rates for Prior Years.

Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.

Transactions affected by the Code Section 7520 Rate and the Applicable Federal Rates include:
- Interest rates on promissory notes
- GRATS
- QPRTS
- Charitable Remainder Trusts

5:44 pm hst

Tuesday, September 14, 2010

Estate Tax Breaking News!!

Treasury Assistant Secretary for Tax Policy Michael Mundaca said in a C-SPAN interview that the Obama administration would like to make permanent the 2009 iteration of the now-expired estate tax. The estate tax was allowed to lapse for 2010, and Congress has not agreed on a fix. Allowing taxpayers to retroactively apply the 2009 rates to their 2010 taxes is one possibility being considered, Mundaca said.

The option could prove appealing to taxpayers who have inherited estates worth less than the $3.5 million estate tax exemption for 2009 but more than $1.3 million. The current law repeals the estate tax entirely but allows a basis step-up for only $1.3 million of the estate's assets, not for the entirety of the estate as under the 2009 law. Thus, heirs of decedents dying in 2010 may exempt only $1.3 million of capital gains when they dispose of the property and must calculate capital gains tax using the decedent's basis in the property.

6:50 am hst

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