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Financial Planning > Trusts and Estates > Trust Planning

Everson Eyes Nonprofits

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The head of the Internal Revenue Service is complaining about what he says are abuses of charitable remainder trusts and other charitable-funding vehicles.[@@]

IRS Commissioner Mark Everson recently addressed his concerns about those issues at a U.S. Senate Finance Committee hearing on tax-exempt organizations.

Everson talked mostly about issues, such as tax breaks for used cars, which hold little interest for life insurance and estate planning specialists, but he did mention some topics that come up in estate planning discussions.

Everson told Senate Finance Committee members that some tax shelter promoters have set up “purported charitable or split-interest trusts that can be used for the taxpayer’s personal benefit,” according to a written version of Everson’s testimony.

“There are a variety of schemes, without legal merit, designed to allow individuals to deduct amounts that ultimately will be used for their personal expenses,” Everson said. “The charitable trust typically is a nonexempt charitable trust that serves as a holding entity of an individual’s assets. Individuals retrieve these assets at will, generally through loan transactions, gifts or by having the trust pay for expenses directly.”

Everson also complained about charitable remainder trusts, which wealthy taxpayers may use to leave assets to at least 2 different beneficiaries, at least 1 of which is not a charity. After a specified number of years or the end of the life (or lives) of the human beneficiaries, the remainder of the trust assets must be contributed to charity.

Abusive CRT arrangements “are typically funded with highly appreciated property,” Everson said. “One marketed scheme attempts to abuse the tax rules governing the character of distributions from the trust to the transferor by timing distributions in a year when the trust has little or no ordinary income or capital gain. The claim is that the transferor thus avoids any significant tax liability from the sale of the trust’s appreciated property.”

But the U.S. Treasury Department prohibits that kind of use of charitable remainder trusts, Everson said.

Everson also attacked charities that give donors too much say over “donor-advised funds,” or funds that contributors set up in an effort to guide disposition of donations to existing charities.

At a legitimate donor-advised fund program, “although the donor may recommend charitable distributions from the account, the charity must be free to accept or reject the donor’s recommendations,” Everson said.

In addition, Everson questioned whether some tax-exempt health care organizations really deserve their nonprofit status.

“Some tax-exempt health care providers may not differ markedly from for-profit providers in their operations, their attention to the benefit of the community, or their level of charity care,” Everson said.

Another witness at the hearing, George Yin, chief of staff at the congressional Joint Committee on Taxation, suggested that Congress might be able to discourage abuses at private foundations by doubling the excise taxes that the IRS imposes on private foundations that violate the rules governing private foundations.

The Senate Finance Committee has posted written versions of the testimony delivered by the tax-exempt organization hearing witnesses at


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