501c4s For The Wealthy

Year-End Tax Planning for the
Wealthy and 501(c)(4) Social Welfare

Organizations
Saturday, November 19, 2022
From 11:00 AM to 1:00 PM EST
( 120 minutes)
Presented By:
Brandon Ketron, JD, LL.M. (Taxation), CPA Karl Mill, JD

Alan Gassman, JD, LL.M. (Taxation), AEP® (Distinguished)
karl@mill.law
brandon@gassmanpa.com agassman@gassmanpa.com
1245 Court Street

Clearwater, FL 33756
If you want 1.0 CPE credit -
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agassman@gassmanpa.com
Year-End Tax Planning for the Wealthy and 501(c)(4)
Brandon@gassmanpa.com
Social Welfare Organizations| Saturday | 11.19.2022 2
Karl@mill.law Copyright © 2022 Gassman, Crotty & Denicolo, P.A
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Alan Gassman, Peter Haukebo, & Rebecca
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Section OPPORTUNITIES REVEALED UNDER HERE
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RECENT PROPOSED REGULATIONS &
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December 6, CPA's Annual BUSINESS ENTITY PLANNING
HERE
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Year-End Tax Planning for the Wealthy and 501(c)(4) Social Welfare Organizations | 11.19.2022 | Copyright © 2022 Gassman, Crotty & Denicolo, P.A | agassman@gassmanpa.com 7
FICPA
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Pinellas Alan Gassman Presents:
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Estate GREAT PLANNING STRATEGIES THAT ARE REGISTER
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December Lunch and ABOUT TBE BUT WERE AFRAID TO ASK
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13, 2022 Learns 12:00 PM to 1:30 PM ET
(90 Minutes)
Alan Gassman and Karl Mill Present:

Wednesday,
CPA SUPERPOWERED PHILANTHROPY: THE REGISTER
December
Academy 501(C)(4) ALTERNATIVE TO A FOUNDATION HERE
14, 2022
6:00 PM to 7:00 PM ET
Kettering Health Foundation

Free from
Alan Gassman, Johnathan Blattmachr, &
our Firm
Thursday, Marty Shenkman Present:
(Virtual REGISTER
December YEAR-END PLANNING: PICKING UP THE
Session - No HERE
15, 2022 PIECES AND SEIZING OPPORTUNTIES
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Hopkins All
Children's We are proud sponsors of this event.
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ESTATE AND ESTATE TAX PLANNING FOR
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Tuesday, Estate
PROPERTY TRUSTS, AND CREDITOR PROTECTION Coming Soon
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info@gassmanpa.com. Wednesday,
National PLANNING STRUCTURES WITH THE IRS IN
Association of MIND: AUDIT TRIGGERS &
October 11, Coming Soon
Estate Planners CONSIDERATIONS ASSOCIATED
2023
& Councils THEREWITH
3:00 PM to 4:00 PM EST
(60 minutes)
Alan Gassman and Brandon Ketron

Present:
Birmingham, AL
November, ESTATE TAX STRATEGIES, HOT TOPICS AND
Estate Planning Coming Soon
2023 YEAR-END PLANNING --- BETTER THAN
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BBQ, HOTTER THAN SUMMER
(100 minutes)
ALAN GASSMAN’S FREE
SATURDAY WEBINAR SERIES
Past Video Recordings Are Available
In Alan Gassman’s YouTube Library.
Click here to watch this recording
LETTER TO CLIENTS AND ADVISORS
Re: Insurance Claims for Hurricane and Property Damages
Dear Clients and/or Their Advisors:
Following every large storm, there are thousands of damaged homes and
corresponding insurance claims for property damage.
Insurance companies are understandably cautious in approaching claims

that are made, with a view towards limiting payments to what is reasonable
and necessary in view of insurance policy provisions and the circumstances
of each claim.
While many insurance carriers and their in-house personnel will pay a great
many claims at the full loss value without problem, this is not always the
case, and the adjusters who work for the insurance carriers or the agencies
that they hire, will often take a conservative, or sometimes unrealistic view
of the situation, and attempt to deny coverage, or to offer much less than
what is reasonable and appropriate.
This happens at a very high frequency for hurricane claims given the following factors:
1. Wear and Tear - Florida roofs wear out and can be damaged by small storms, hail and wind that
occur over time before a hurricane. As such, insurance carriers may attempt to claim that a roof
has already experienced significant “wear and tear” when taken down by the storm.
1. Interior Damage - Interior water damage that occurs as the result of a failed roof may be
significantly more serious and require additional money to be paid by the insurance company.
However, interior damage, including damage to insulation, ceilings, walls and other elements,
may not be acknowledged or brought to light as the insurance company and/or roofers focus
solely on the roof damage itself.
3. “Prompt” Notice - Damage due to a hurricane may not be immediately apparent. This results in
what the insurance companies consider “late” or “delayed” claims.
Most insurance policies require “prompt” or “timely” notice of a claim. However, “prompt” and
“timely” are not defined so the insurance companies utilize these terms as a reason to
deny or reduce payment on a claim based upon the fault of an insured.
4. Flood insurance vs. Windstorm/Hurricane Insurance - Insurance companies will indicate that
damage is not covered under your policy because it was due to flood (storm surge), not
hurricane. This may also occur in the reverse with a flood carrier as pointing to another
carrier is an easy way for insurance companies to get out of paying claims.
So now that Hurricane Ian has passed, what can you do to deal with these potential factors?
1. Wear and Tear – Shingle roofs have a life expectancy of approximately 15 years while tile roofs are expected to last
closer to 30 and metal roofs are expected to last even longer. To prove that your roof was in good working order at the
time of the storm and had years left before it required replacement, gather all reports, photographs, maintenance
receipts, and repair invoices. A four-point inspection or wind mitigation report can be very persuasive to show that
your roof had several years of life left. In addition, maintenance receipts and repair invoices provide support against
arguments that your roof was in disrepair before the storm.
1. Interior Damage – Look around your property and document any water stains, cracks, loose tape lines, nail pops,
baseboard separation, and anything that may look different from before the storm. In addition, make the interior of
your property available to the insurance company when they visit and encourage them to inpect for damage beyond
the roof. Do not keep them from inspecting any areas, even if you have not personally seen any damage in that room.
Further, if you have seen anything, please make sure you point it out to them and never indicate that there is “no
interior damage” unless you are sure.
Please note that you may also need to retain experts to perform an engineering study, along with potential
mold and water damage remediation, to determine the full amount of repairs needed to return the home or
property to its pre-loss condition. You do not have to rely solely on experts retained by the insurance
company.
3. “Prompt” Notice - To a lay person who is not trained, it may be difficult to see hurricane damage as it does not all
look the way that you expect. For example, cracks, separations, land that has pulled away from the property,
electronics that no longer function, and indentations may be evidence of hurricane damage.
In addition, lifted, loose or displaced roof tiles and shingles are very difficult to spot from the ground and
sometimes you cannot even tell they exist without further exploration. In fact, there have been properties
where a hurricane has lifted the entire roof and placed it right back in the same spot. As such, there was no
visible damage until an expert looked at the trusses in the attic to see what had occurred.
For these reasons, many homeowners and property owners may not discover they have hurricane damage
until much later when a bigger issue occurs, such as a significant water leak. Thus, you must be extremely
diligent in determining whether wind, fallen trees or other phenomenon may have occurred that resulted in
damage to your property that requires filing of an insurance claim. As soon as you notice anything that may
be considered damage, please be sure to notify your insurance company right away and if you are not sure,
please reach out to someone who can investigate for you.
4. Flood insurance vs. Windstorm/Hurricane Insurance – Storm surge and/or flooding usually leaves an interior water
line that may be more difficult to see as time goes on, and water as high as 12 feet outside does not mean
that water got up to 12 feet inside. As such, it is important to take photographs, make lists and document all
damage above and below that line while you can still see it. This is also true for any personal and business
property (contents). Please do not move any of these items until you are able to document where they were
located. Keep in mind that whether a particular item was on level one or two of a property can make a
significant difference in coverage when it comes to flood, so documentation is key.
In addition, please do not personally decide whether your damage is covered under flood or
windstorm/hurricane. If you have policies for both and experienced water inside your property, file claims
under both and allow the insurance companies to determine who covers what damage.
If you only have coverage for windstorm/hurricane, still file a claim with that carrier and allow them to
determine whether the damage is covered. You can then deal with whatever they decide and determine your
next steps accordingly. You pay insurance premiums for a reason and do not want to miss out on a covered
claim because you were not sure.
TAX RETURN FILING DEADLINES
The IRS gives affected taxpayers until February 15, 2023 to file most tax returns (including individual,
corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and
trust returns; estate, gift, and generation-skipping transfer tax returns; annual information returns of
tax-exempt organizations; and employment and certain excise tax returns), that have either an
original or extended due date occurring on or after September 23, 2022, and before February 15,
2023, will be abated as long as the tax deposits were made by February 15, 2023.
Tax Return Prior Deadline Extended Deadline
Individual Extended Return – Form October 17, 2022 February 15, 2023
1040
Gift Tax Extended Return – Form 709 October 17, 2022 February 15, 2023
Estate Tax Return – Form 706 Within 9 months of the decedent's death; additional 6 months February 15, 2023
with extension or 12 months if executor is out of country
Trusts and Estates Extended Return – September 30, 2022 February 15, 2023
Form 1041
C Corporation Extended Return – October 17, 2022 February 15, 2023
Form 1120
Tax Exempt Organization Extended November 15, 2022 February 15, 2023
Return – Form 990 Series
Employee Benefit Plan Extended October 17, 2022 February 15, 2023
Return – Form 5500 Series
Quarterly Payroll And Excise Tax October 31, 2022, and January 31, 2023 February 15, 2023
Returns
PAYMENT AND PENALTY DEADLINES
Any payment or penalty due on or after September 23, 2022, and before February 15, 2023, as long as such
payments are paid on or before February 15, 2023.
IMPORTANT NOTE: Individuals who had a valid extension to file their 2021 return due to run out on October 17,
2022, will now have until February 15, 2023, to file. However, because tax payments related to these 2021 returns
were due on April 18, 2022, those payments are not eligible for this relief.
Payment / Penalty Prior Deadline Extended Deadline
Quarterly Estimated Income Tax Normally due January 17, 2023; February 15, 2023
Payments extension includes any due on or
after September 23, 2022, and
before February 15, 2023
Penalties On Payroll and Excise Due on or after September 23, Abated as long as the deposits
Tax Deposits 2022, and before October 11, are made by October 11, 2022
2022
Businesses with an original or October 17, 2022 February 15, 2023
extended due date, including
calendar-year corporations
whose 2021 extensions run out
on October 17, 2022
Affected taxpayers who receive a On or after September 23, 2022, February 15, 2023 (The taxpayer
late filing or late payment and before February 15 should call the telephone
penalty notice from the IRS number on the notice to have
the IRS abate the penalty.)
§ 139 Qualified Disaster Payments to
Employees and Contractors Are Not
Taxable to the Recipient
• Employers should keep in mind that they can pay certain expenses for
employees under Internal Revenue Code Section 139 as deductible
expenses that the employee or independent contractor will not have to
include in income.
• The employer will be able to deduct such payments of employee
expenses and will not have to pay employment taxes, workers
compensation, unemployment compensation, or pension contributions
on the payments.
Taxable to the Recipient (Cont’d)
• Employers may therefore ask their tax advisors about providing qualified
disaster payments in lieu of future bonuses or other forms of
compensation.
• This can apply even when the only payments are made to an owner or
relatives of the owner of an S corporation or a C corporation.
• It may not apply to payments made by a partnership to a partner, but if
the partner puts his or her partnership interest into an S corporation
before the payment is made, then it may qualify.
Taxable to the Recipient (Cont’d)
• A qualified disaster relief payment is any amount paid to or for the benefit of a
person to reimburse or pay reasonable and necessary personal, family, living or
funeral expenses that are a result of a qualified disaster.
• In addition, amounts paid to reimburse or pay for reasonable and necessary
expenses incurred for the repair or rehabilitation of a personal residence or the
repair or replacement of the contents of a personal residence that is
attributable to the disaster will also qualify to the extent attributable to a
qualified disaster. This can be a vacation home, but probably not a home that is
rented to someone other than the employee or independent contractor.
• However, the above expenses qualify only to the extent that what was paid for
is not compensated by insurance or other sources, and amounts received as
Section 139 payments cannot be deducted as casualty losses, so there can be no
double dipping.
Employees and Contractors Are Not Taxable
to the Recipient (Cont’d)
• Revenue Ruling 53-131 held that payments to employees from a disaster fund established by a corporation to
assist in tornado relief (as explained in the excerpt below) were excluded from the employees’ gross income.
• “The taxpayer corporation is one of the largest employers in the disaster area. Most of its employees, who lived in
residential communities hardest hit by the tornado, suffered immediate losses including lives of family members,
injuries, and severe property damage extending, in some instances, to the complete destruction of their homes.
Hundreds of automobiles and other items of personal property were either completely or partially destroyed.”
• “A disaster committee was created immediately after the disaster, by a resolution of the board of directors of the
corporation, to assist in the rehabilitation of its employees and their families. A fund tentatively set at 500x dollars
was established from which contributions are to be made to employees and their families and pensioners. No
payment from the fund is to be made by the committee for injuries resulting from any act of the corporation nor
for any injuries normally occurring in the course of employment. The payments, which are to be made to
employees who are not directors or officers of the corporation, are for purposes of rehabilitation not actually
compensated for by insurance or other sources, and are to be made without regard to length or type of service.”
• A qualified disaster includes a federally declared disaster, and therefore applies to damages from hurricane Ian in
any and all counties in Florida, Georgia, and South Carolina.
IRC § 139 (d) COORDINATION WITH EMPLOYMENT TAXES For purposes of chapter 2 and subtitle
(a) GENERAL RULE Gross income shall not include any amount received by an C, qualified disaster relief payments and qualified disaster mitigation
individual as a qualified disaster relief payment. payments shall not be treated as net earnings from self-employment, wages,
or compensation subject to tax.
(b) QUALIFIED DISASTER RELIEF PAYMENT DEFINED For purposes of this section, the
term “qualified disaster relief payment” means any amount paid to or for the
(e) NO RELIEF FOR CERTAIN INDIVIDUALS Subsections (a), (f), and (g) shall not apply
benefit of an individual— with respect to any individual identified by the Attorney General to have been a
(1) to reimburse or pay reasonable and necessary personal, family, participant or conspirator in a terroristic action (as so defined), or a
living, or funeral expenses incurred as a result of a qualified disaster, representative of such individual.
(2) to reimburse or pay reasonable and necessary expenses incurred for (f) EXCLUSION OF CERTAIN ADDITIONAL PAYMENTS Gross income shall not include any
the repair or rehabilitation of a personal residence or repair or amount received as payment under section 406 of the Air Transportation Safety
replacement of its contents to the extent that the need for such repair, and System Stabilization Act.
rehabilitation, or replacement is attributable to a qualified disaster, (g) QUALIFIED DISASTER MITIGATION PAYMENTS
(3) by a person engaged in the furnishing or sale of transportation as a (1) IN GENERAL Gross income shall not include any amount received as
common carrier by reason of the death or personal physical injuries a qualified disaster mitigation payment.
incurred as a result of a qualified disaster, or (2) QUALIFIED DISASTER MITIGATION PAYMENT DEFINED For purposes of this
(4) if such amount is paid by a Federal, State, or local government, or section, the term “qualified disaster mitigation payment” means any
agency or instrumentality thereof, in connection with a qualified amount which is paid pursuant to the Robert T. Stafford Disaster Relief
disaster in order to promote the general welfare, and Emergency Assistance Act (as in effect on the date of the
but only to the extent any expense compensated by such payment is enactment of this subsection) or the National Flood Insurance Act (as in
not otherwise compensated for by insurance or otherwise. effect on such date) to or for the benefit of the owner of any property
(c) QUALIFIED DISASTER DEFINED For purposes of this section, the term “qualified for hazard mitigation with respect to such property. Such term shall not
disaster” means— include any amount received for the sale or disposition of any property.
(1) a disaster which results from a terroristic or military action (as (3) NO INCREASE IN BASIS Notwithstanding any other provision of this
defined in section 692(c)(2)), subtitle, no increase in the basis or adjusted basis of any property shall
(2) a federally declared disaster (as defined by section 165(i)(5)(A)), result from any amount excluded under this subsection with respect to
(3) a disaster which results from an accident involving a common such property.
carrier, or from any other event, which is determined by the Secretary (h) DENIAL OF DOUBLE BENEFIT Notwithstanding any other provision of this
to be of a catastrophic nature, or subtitle, no deduction or credit shall be allowed (to the person for
(4) with respect to amounts described in subsection (b)(4), a disaster whose benefit a qualified disaster relief payment or qualified disaster
which is determined by an applicable Federal, State, or local authority mitigation payment is made) for, or by reason of, any expenditure to the
(as determined by the Secretary) to warrant assistance from the extent of the amount excluded under this section with respect to such
Federal, State, or local government or agency or instrumentality expenditure.
thereof. agassman@gassmanpa.com
Checklist for High-Impact Planning
Opportunities for 2022
1. Maximize net operating losses by shifting income and income-producing entity ownership to
low-income individuals or entities.
2. Shift ownership to obtain Section 199(A) deductions for Specified Trade or Business or high-
income low-wage/qualified property situations where children or others may be in lower
brackets in 2022/2023 as compared to past situations.
3. Make charitable contributions:
a. Bunching for 2022 or a later year.
b. $300 is no longer deductible regardless of itemized deductions.
c. Defer charitable gifting until 2023 if a higher tax bracket is expected.
Opportunities for 2022, cont.
4. Put lower bracket children and other family members on the payroll if they
are now idle – Make them work!
5. The Kiddie tax applies at the bracket of the grandchild or great-grandchild’s

parents - No longer at the top bracket after approximately $13,051 of income.
6. Trigger accounts receivable by conveying them to owners to pay more income

tax in 2022 while brackets are lower if the entity is an S corporation, or if this
can be compensation paid from a C corporation.
7. Consider installing a Defined Benefit or Cash Balance Pension Plan.
Dollar Limitations on Benefits and
Contributions
Source: https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions
IRAs 2023 2022 2021

IRA Contribution Limit $6,500 $6,000 $6,000
IRA Catch-Up Contributions 1,000 1,000 1,000
Traditional IRA AGI Deduction Phase-out 2023 2022 2021
Starting at
Joint Return 116,000 109,000 105,000
Single or Head of Household 73,000 68,000 66,000
SEP 2023 2022 2021
SEP Minimum Compensation 750 650 650
SEP Maximum Contribution 66,000 61,000 58,000
SEP Maximum Compensation 330,000 305,000 290,000
SIMPLE Plans 2023 2022 2021
SIMPLE Maximum Contributions 15,500 14,000 13,500
Catch-up Contributions 3,500 3,000 3,000
Dollar Limitations on Benefits and
Contributions (Cont’d)
Source: https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions
401(k), 403(b), Profit-Sharing Plans, etc. 2023 2022 2021
Annual Compensation 330,000 305,000 290,000
Elective Deferrals 22,500 20,500 19,500
Defined Contribution Limits 66,000 61,000 58,000
ESOP Limits 1,330,000 1,230,000 1,165,000

265,000 245,000 230,000
Other 2023 2022 2021
HCE Threshold 150,000 135,000 130,000
Defined Benefit Limits 265,000 245,000 230,000
Key Employee 215,000 200,000 185,000
457 Elective Deferrals 22,500 20,500 19,500
Control Employee (board member or officer) 130,000 120,000 115,000
Control Employee (compensation-based) 265,000 245,000 235,000
Taxable Wage Base 160,200 147,000 142,800
IRAs 2023 2022 2021
IRA Contribution Limit $6,500 $6,000 $6,000
IRA Catch-Up Contributions 1,000 1,000 1,000
Traditional IRA AGI Deduction Phase-out Starting at 2023 2022 2021
Joint Return 116,000 109,000 105,000
Single or Head of Household 73,000 68,000 66,000
SEP 2023 2022 2021
SEP Minimum Compensation 750 650 650
SEP Maximum Contribution 66,000 61,000 58,000
SEP Maximum Compensation 330,000 305,000 290,000
SIMPLE Plans 2023 2022 2021
SIMPLE Maximum Contributions 15,500 14,000 13,500
401(k), 403(b), Profit-Sharing Plans, etc. 2023 2022 2021
Annual Compensation 330,000 305,000 290,000
Elective Deferrals 22,500 20,500 19,500
Defined Contribution Limits 66,000 61,000 58,000
ESOP Limits 1,330,000 1,230,000 1,165,000

265,000 245,000 230,000
Other 2023 2022 2021
HCE Threshold 150,000 135,000 130,000
Defined Benefit Limits 265,000 245,000 230,000
Key Employee 215,000 200,000 185,000
457 Elective Deferrals 22,500 20,500 19,500
Control Employee (board member or officer) 130,000 120,000 115,000
Control Employee (compensation-based) 265,000 245,000 235,000
Taxable WageTax
Year-End BasePlanning for the Wealthy and 501(c)(4) Social160,200
Welfare Organizations | 11.19.2022147,000 142,800
| Copyright © 2022 Gassman, Crotty & Denicolo, P.A | agassman@gassmanpa.com 27
Employee Census Form
Name of Employer:
Provide complete information for all employees employed during the year, even if they have terminated.
Date of Date of Date of Annualized W-2 Hours Ownership

Employee Name Birth Hire Termination Compensation per Week %
Opportunities for 2022, cont.
8. Convert vacation home into rental property. If the market tanks there will be a capital
loss to the extent that values go down after the date of conversion.
9. Avoid passive loss rules and real estate professional requirements by engaging in
short-term rentals - Airbnbs.
10. Consider ROTH IRA conversions.
11. Buy a boat or plane and use bonus depreciation to write off the purchase.
12. Use, or possibly lose, the increased estate and gift tax exclusion for high-net worth
clients (The “Biden Two Step Plan”).
13. Be prepared to implement Self-Cancelling Installment Note, SCGRAT or Private
Annuity if a wealthy client contracts COVID-19 or other health challenges.
Checklist for High-Impact Planning Opportunities
for 2022, cont.
14. Don’t forget creditor protection planning and discharge of indebtedness

protection (CREST).
15. Discharge from Income of Indebtedness Planning – Give assets to spouse or

others in order to be “insolvent,” if debt will be discharged.
16. Establish friendly creditors and give them liens, mortgages and first positions for
legitimate debt.
Cancellation of Indebtedness and S Corporations-
Convertible Real Estate S corporation Technique
(CREST)
• While LLCs owning real estate are normally best taxed as partnerships,
or to be disregarded for income tax purposes, there are significant
advantages to having leveraged real estate in an LLC that is taxed as an
S corporation if there is a possibility that there will be debt that exceeds
the value of the real estate, and a consequent loan workout to reduce
debt owed to a lender, in foreclosure, or due to a possible reduction in
debt due to future legislation.
• An S election can be made up to 75 days in arrears, but only if the
Operating Agreement or other corporate documents do not have
provisions that would not be permitted under the S corporation rules.
• Capital account language is normally contained in an Operating
Agreement that has been prepared for the purposes of being taxed as a
partnership or disregarded for income tax purposes and should now be
eliminated along with other changes if the entity may want to make a
retroactive S election.
Income Tax Planning
Opportunities
Strategies to Maximize Charitable Deduction Benefit
1. A donor may want to bunch his or her charitable deduction donations every other year, or
every third year or less frequently to assure that itemized deductions (which will include up
to $10,000 of real estate taxes and medical expenses exceeding 10% of AGI) exceed the
increased standard deduction so as to be able to itemize expenses.
Standard Deduction
Filing Status Tax Year 2022

Single $12,900
Married Jointly $25,900
Head of $19,400
Household
Strategies to Maximize Charitable Deduction Benefit,
Cont’d
2. The donor may wish to pre-pay property taxes in the year that he or she makes a
large charitable donation in order to maximize the benefit of itemizing in that year.
The taxpayer could make charitable donations and pre-pay property taxes
(depending on the state) every other year to take advantage of the standard
deduction one year, and itemize the next year.
3. If a donor is making a donation to a Private Foundation or donating capital gains

property in one year, then the taxpayer may wish to defer cash donations until the
following year.
4. A donation could be made to a Donor Advised Fund, Community Foundation,

Private Foundation or Private Operating Foundation to take advantage of the
standard deduction in the year of contribution, and then the charity can distribute
or utilize the funds for charitable purposes over time.
642(c) “Complex Trust” Charitable Deduction
In order to receive a charitable deduction, the following requirements of Section 642(c) must be met:
1. The distribution must be made from gross income
2. The distribution must be made pursuant to the terms of the governing instrument.
If the above requirements are met, the trust is entitled to a charitable deduction without being subject
to the percentage of gross income limitations that apply to individuals.
As a result, charitable inclined individuals may want to consider making charitable contributions from
pre-existing complex trusts (if the terms of the trust allows for this) or complex trusts that are created
to plan for Section 199A so that the deduction is not limited and/or possibly lost as a result of the
taxpayer no longer itemizing deductions.
Planners should also consider specifically including in trust instruments that the trustee is authorized
to make distributions to one or more charitable organizations so that this option is available.
Subsidiary Partnership Strategy:
If the trust does not provide for the possibility of distributions to a charitable
organization, then the trust might be able to invest in a partnership, which in turn
makes the contributions to the charitable organization.
Internal Revenue Code Section 642(c)(1)
642(c)(1)
General Rule — In the case of an estate or trust (other than a trust meeting
the specifications of subpart B), there shall be allowed as a deduction in
computing its taxable income (in lieu of the deduction allowed by
section 170(a), relating to deduction for charitable, etc., contributions and
gifts) any amount of the gross income, without limitation, which pursuant to
the terms of the governing instrument is, during the taxable year, paid for a
purpose specified in section 170(c) (determined without regard to
section 170(c)(2)(A)). If a charitable contribution is paid after the close of
such taxable year and on or before the last day of the year following the close
of such taxable year, then the trustee or administrator may elect to treat such
contribution as paid during such taxable year. The election shall be made at
such time and in such manner as the Secretary prescribes by regulations.
Private Operating Foundations –
Now More Than Ever!
It is simple to establish an irrevocable trust to

qualify as a Section 501(c)(3) Private Operating
Foundation, which can be treated in the same
manner as a Public Charity for most purposes.
Private Operating Foundations
Private Operating Foundations and Scholarship Programs
• Generally, providing scholarships and doing nothing more does not meet the
active conduct of a charitable purpose requirement for private operating
foundations.
• There are exceptions to this rule as provided under Treasury Regulations

Section 53.4942(b)-1(b)(2).
• The private operating foundation must do more than merely provide

scholarships. The private operating foundation must:
• Actively contribute more than money such as providing direct educational

services, mentoring recipients, hosting events that further the recipient’s
education, analyzing data from the operations of the scholarship program and
assisting impoverished individuals.
• The Regulations states that it is easier to meet the standard when the foundation
has a main goal of reducing poverty.
• Scholarship programs should be disclosed on Schedule H of the Form 1023

Application for preapproval.
(PRIVATE OPERATING FOUNDATION)-BOX A
Donor or Family Member, as Trustee
Donor or Family Member has full control as Trustee
4.25% minimum
payment or active IRREVOCABLE TRUST
expenditures or PRIVATE OPERATING HOLDING VOTING
FOUNDATION INTERESTS
improvements/set-
asides.
Family cannot have more

Can directly own triple net leases, cash, than a 35% beneficial
marketable securities and other assets, ownership interest. IRC
but cannot hold the voting interest in the 99% NV 1% V § 4946(a)(1)(G).
for-profit unless using the Paul Newman
Exception. 99% donated or bequeathed by
Donor to Foundation or after
Donor's death an administrative
LLC
note given for the non voting
with Voting and
stock could be used to fund the
Non-Voting Stock
Private Foundation. The note
could be renegotiated after the
Foundation becomes a Public
Charity.
Should be taxed as a C corporation to avoid 100% 100%
unrelated business taxable income ("UBTI") -
taxed at the 21% bracket under present federal C-CORPORATION
tax law, plus state bracket (Florida 5.5%, but (Entity where for profit
state tax is deductible, so effective rate will be business is conducted)
approximately 25.345%).
Dividends paid to Foundation are not taxed.

Owns and operates an active business and/or actively
managed rental properties and may engage in arms
length transactions with related parties, although
Private Operating Foundation cannot unless it becomes
a Public Charity.
(PRIVATE OPERATING FOUNDATION)
Private Operating Foundation Rules:
BOX A
1. Must expend at least 4.25% of its total value each year on active charitable purposes, or construction
of charitable facilities that will be used for active charitable purposes.
2. The Private Operating Foundation can be solely managed by the Family Member as Trustee of the
Foundation while the corporation can be managed by the Family Member as President, and as the voting
stockholder as Trustee of the stock that holds the voting stock trust. The Family Member can receive
reasonable compensation from the Foundation for services rendered to the Foundation and from the
Company for services rendered to the Company.
3. The Private Operating Foundation does not need to satisfy Public Charity requirements.
4. The Private Operating Foundation cannot lend directly to a disqualified person or related party, but
the Corporation would be able to lend money to disqualified persons and related companies at arm's-
length and could exchange goods or services with a disqualified person at arm's-length.
5. The Family Member cannot be a beneficiary of more than 35% of the Voting Stock Trust's assets.
6. THE FOUNDATION CAN CONVERT TO A PUBLIC CHARITY BY OPERATING A SCHOOL, AND THEREAFTER
ALL CHARACTERISTICS IN BOX B (SLIDES 56-57) WILL APPLY.
7. The Trust is not able to purchase the 99% interest in the Company for a promissory note from the
Donor during Donor's lifetime because there would be a self-dealing issue if that promissory note was
going to be transferred to the Private Operating Foundation at the Donor's death. After the Donor's
death, a note meeting the requirements of the "Administrative Note Exception" (no more than 25-years,
interest only) could be given for the non voting stock that is owned by the Donor's revocable trust at the
time of the Donor's death.
Such note cannot be negotiated or changeable as long as the note owed to the Foundation unless or
until the Foundation becomes a Public Charity.
Incomplete Charitable Gift Foundations
A not so well-known and under-utilized charitable planning tool is to create an irrevocable Grantor
Trust for the benefit of charities. These trusts have to be set up in a manner that will not cause
the trust to be subject to the Private Foundation self-dealing rules and other limitations placed on
Private Foundations. These trusts are usually set up as follows:
1. The trust should list both 501(c)(3) entities and other charitable entities that do not qualify
for 501(c)(3) treatment.
Cemetery Associations and Police/Firemen Benevolent Associations are not 501(c)(3)

entities, and including these organizations as discretionary beneficiaries will prevent the
Private Foundation rules from applying to the trust.
2. The Grantor can retain control over which charities will receive the funds.
3. The Grantor, or another person the Grantor designates, should have the ability to
permanently set-aside all of the trust assets for 501(c)(3) entities.
4. The trust should be a Grantor Trust to allow the Grantor to receive an income tax charitable
deduction for monies contributed to charity.
5. Can benefit Cemetery Associations and Police/Firemen Benevolent Associations.

Incomplete Charitable Gift Foundations, Cont’d
Benefits of an Incomplete Charitable Gift Foundation
1. This is easy to set up and maintain (does not need to abide by the Private Foundation
Rules).
2. The donor can still receive an income tax charitable deduction when monies are actually
given to charity.
3. The donor retains a significant amount of control.
4. After the donor’s death, the trust can automatically become irrevocable, and qualify for
the estate tax charitable deduction.
5. The funds will be protected from creditors if the funding is not a “voidable transfer.”
6. The donor can receive recognition for donating those funds to the trust.
7. The trust can perform virtually any charitable function it desires.
8. There are no annual minimum distribution requirements or excise taxes.

Downsides Of Using The
Incomplete Charitable Gift Foundation
1. The donor will not receive an immediate income tax deduction for the initial
contribution of funds to the trust or on death.
2. The trust cannot advertise that it is a 501(c)(3) entity, or that donations will
qualify for the charitable income tax deduction.
3. If administered improperly, the trust could accidentally be deemed to be a

Private Foundation, and could find itself to be in violation of certain Private
Foundation rules. This could occur if the non-501(c)(3) entities are removed as
beneficiaries, or if the trust makes certain commitments to the 501(c)(3)
entities that would essentially provide 501(c)(3) entities with entitlement to all
of the trust assets.
4. The trust is generally irrevocable, meaning that the donor cannot take the
assets back from the trust.
POLLING QUESTION:
A CLAT can be:
A. Fully tax deductible as if totally charitable
B. Lifetime or testamentary (on death)
C. Funded by part ownership of an LLC
D. All of the above
Charitable Lead Annuity Trust
Selected Charities
Charitable Lead
Client Living Trust
Annuity Trust
Trusts for Children
1%V 99% NV
Newly Established LLC
Funded with approximately $1,209,779 of assets and 99% NV

Interest transferred to CLAT. Assuming 30% discount the
transfer is valued at $846,846.
CLAT Result Illustration
Assumes a $10,000,000 contribution of assets that will grow at 6% per year – no
discounts – zeroed out using the 1.86% October 2019 Section 7520 Rate.
12-Year / Same 12-Year / 20% 20-Year / Same 20-Year / 20%
Annual Payment Increasing Payment Annual Payment Increasing Payment
Each Year Year Over Year Each Year Year Over Year
Total amount to
charity, not taking
$11,209,238 $11,209,238 $11,999,371 $11,999,371
into account
growth on assets
Total amount to
charity, assuming $15,758,265 $13,965,661 $22,070,198 $16,128,647
a 6% rate of return
Total to Children
$ 4,363,700 $ 6,156,304 $10,001,157 $15,942,708
after CLAT term
Percentage to
28% 35% 45% 57%
Children
Percentage to
72% 65% 55% 43%
Charity
*A 20% increasing CLAT may have income tax liability if the annuity payment to charity is less
than the gain the CLAT recognizes.
CLAT Result Illustration
Assuming 33% Discount and a 6% Annual Growth Rate
12-Year / Same 12-Year / 20% 20-Year / Same 20-Year / 20%
Annual Payment Increasing Payment Annual Payment Increasing Payment
Each Year with 33% Year Over Year Each Year with 33% Year Over Year with
Discount with 33% Discount Discount 33% Discount
Total amount to
charity, not taking
$ 7,510,164 $ 8,038,660 $ 7,512,379 $ 8,038,785
into account
growth on assets
Total amount to
charity, assuming
$10,558,002 $14,785,343 $ 9,359,721 $10,805,127
a 6% rate of
return
Total to Children
$ 9,563,963 $17,286,012 $10,762,243 $21,266,228
after CLAT term
Percentage to
56% 59% 61% 73%
Children
Percentage to
44% 41% 29% 27%
Charity
*A 20% increasing CLAT may have income tax liability if the annuity payment to charity is less
than the gain the CLAT recognizes.
POLLING QUESTION:
This type of Charitable Remainder Trust can be established during

the lifetime of the settlor, or upon death:
A. A Charitable Remainder Unitrust (CRUT)
B. A Charitable Remainder Annuity Trust (CRAT)
C. Both A & B
Charitable Remainder Trusts
• A Charitable Remainder Trust allows a donor to transfer assets into an irrevocable
trust and receive annuity payments for a period not to exceed 20 years.
• At the end of the term of the Charitable Remainder Trust, the remaining assets are
contributed to a charitable of the donor’s choice.
• The donor is entitled to a charitable income tax deduction in the year the contribution
is made based upon the present value of the assets that will pass to charity at the
end of the term of the Charitable Remainder Trust.
• There are two main types of Charitable Remainder Trusts, the Charitable Remainder
Unitrust and the Charitable Remainder Annuity Trust. The Charitable Remainder
Annuity Trust pays a fixed amount to the non-charitable beneficiary each year while
the Charitable Remainder Unitrust pays a fixed percentage of the trust’s assets each
year.
• A Charitable Remainder Trust is not a 501(c)(3) entity but is tax exempt.
• The Charitable Remainder Trust is subject to the rules that are generally applicable
to private foundations, including the self-dealing restrictions, unless no charitable
deduction is taken at the time of contribution or during the life of the Charitable
Remainder Trust.
Charitable Remainder Trusts, Continued
Internal Revenue Code Section 4947:
• (2) SPLIT-INTEREST TRUSTS In the case of a trust which is not exempt from tax under
section 501(a), not all of the unexpired interests in which are devoted to one or more of the
purposes described in section 170(c)(2)(B), and which has amounts in trust for which a
deduction was allowed under section 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522,
section 507 (relating to termination of private foundation status), section 508(e) (relating to
governing instruments) to the extent applicable to a trust described in this paragraph, section
4941 (relating to taxes on self-dealing), section 4943 (relating to taxes on excess business
holdings) except as provided in subsection (b)(3), section 4944 (relating to investments
which jeopardize charitable purpose) except as provided in subsection (b)(3), and section
4945 (relating to taxes on taxable expenditures) shall apply as if such trust were a private
foundation. This paragraph shall not apply with respect to—
(A) any amounts payable under the terms of such trust to income beneficiaries, unless a
deduction was allowed under section 170(f)(2)(B), 2055(e)(2)(B), or 2522(c)(2)(B),
(B) any amounts in trust other than amounts for which a deduction was allowed under
section 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522, if such other amounts are
segregated from amounts for which no deduction was allowable, or
(C) any amounts transferred in trust before May 27, 1969.
• A Charitable Remainder Trust must provide for at least 10% of the assets initially contributed
to pass to charity at the end of the term, based upon actuarial calculations.
• A Charitable Remainder Annuity Trust (CRAT) can provide for a fixed dollar amount of no
less than 5% (but no more than 50%) of the initial net fair market value of the property
contributed to the trust to be paid at least annually for up to 20 years, or based upon the life
of one or more non-charitable beneficiaries.
• Additionally, a CRAT based upon a lifetime payout must meet the “5% Probability Test”
whereby there must be less than a 5% chance that the Trust assets will be exhausted before
the end of the term. If the CRAT fails this Test, then no charitable deduction is allowed.
• A Charitable Remainder Unitrust (CRUT) provides for payments of a fixed percentage of the
net fair market value of the property under the trust, valued annually, to be made to one or
more non-charitable beneficiaries. The percentage must be at least 5% per year, but can be
no more than 50%.
• Either a CRAT or a CRUT can be established during the lifetime of the settlor, or upon his or
her death.
• The annuity or unitrust payments received by the non-charitable beneficiary generally are
subject to income tax on a “worst first” basis (i.e., ordinary income of the trust first, then
capital gains etc.).
• The charitable deduction is based upon the actuarial value of the remainder interest that will
pass to charity.
• The value of assets that actually pass to the charity at the end of the term do not matter in
determining the charitable deduction.
• The Section 7520 Rate issued by the IRS monthly is used in running the actuarial
calculations associated with a Charitable Remainder Trust. The Section 7520 rate for the
month of funding of the Trust, or the Section 7520 rate for the two months prior, can be used.
• As a rule of thumb, a longer term will result in a smaller charitable deduction, and a shorter
term will result in a larger charitable deduction.
• Further, a lower interest rate will result in a smaller charitable deduction under a CRAT, and a
higher interest rate will result in a larger charitable deduction CRAT. CRUTs are not affected
by the interest rate.
• The settlor can reserve the right to change the charity who will receive the remainder interest
at the end of the term.
• Note that there could be gift tax consequences if the annuity or unitrust interest is payable to
someone other than the settlor.
The Self-Policing Charitable Remainder Trust
Oftentimes a parent would like to provide a large gift for a child, in order to assure that the
child has a sense of security, and asset or assets to manage, and limitations on what can be
done and amounts that can be withdrawn therefrom.
While giving a gift with such strings attached may seem somewhat awkward and
domineering, it can be in the best interests of the child and the child’s descendants,
especially if there are good reasons for the limitations so that the child does not feel that
rules and regulations on investing and spending are based upon a lack of confidence or trust
for the child and those who may influence the child.
Parents may also wish to provide a benefit for charity, and to have the child feel and
effectuate a duty to charity, and also possibly a relationship with a particular charitable
organization.
The Charitable Remainder Uni-Trust can be the best arrangement to achieve the above
objectives.
For example, a mother and father may wish to give $100,000 to each of their children, with
the expectation that the children will manage the investments prudently and withdraw 7%
of the value of trust assets each year for whatever purposes the child likes.
The Self-Policing Charitable Remainder Trust, Cont’d
Such an arrangement could go on for the life of the child, with the remainder of the assets
left in the trust to go to charity, instead of the child’s spouse or other family members.
A simple Charitable Remainder Uni-Trust can be established to facilitate this.
Now the Internal Revenue Service, the Attorney General of the state where the Trustee
resides, and a particular charity or charities are the “bad guys” that the child would need to
answer to, if proper rules are not followed.
The Grantor or child may have the right to change the charity.
The Grantor can retain the right to change the Trustee, or to appoint a successor Trustee, if
the child cannot serve.
Charitable Remainder Trust Distribution Percentages
Assumes $100,000 Contribution to Charitable Remainder Trusts
CRUT Distribution Percentages
The below charts show the maximum amount a CRUT could payout to the non-charitable beneficiary while
still qualifying based upon the individual’s age, how many lives the payout is based on, and the June 2020 7520
Rates.
CRUT Illustration- $1,000,000 Contribution
Analysis of Hypothetical Charitable Remainder Trust

(20 Year Term - 8% Growth)
1 3 4 5 6 7 8 9 10 11
CRUT Ending Cummulative Total Value Family Total Amount Family

Distribution to Family Total Amount Charity
Balance Taxes on Net Distribution Charitable Tax Net Receives Receives if CRUT
Year (10.8% of Account Receives at End of
(Assumes 8% Distribution to Family Deduction Benefit Distributions to (Includes Tax Deduction Distributions are
Balance) Twenty Year Term
Growth) Family Benefit) Reinvested at 6%
1 $ 972,000 $ 108,000 $ (27,404) $ 80,596 $ 40,800 $ 80,596 $ 121,396 $ - $ 80,596

2 $ 944,784 $ 104,976 $ (26,637) $ 78,339 $ - $ 158,935 $ 199,735 $ - $ 162,917
3 $ 918,330 $ 102,037 $ (25,891) $ 76,146 $ - $ 235,081 $ 275,881 $ - $ 247,111
4 $ 892,617 $ 99,180 $ (25,166) $ 74,014 $ - $ 309,095 $ 349,895 $ - $ 333,332
5 $ 867,624 $ 96,403 $ (24,461) $ 71,941 $ - $ 381,036 $ 421,836 $ - $ 421,740
6 $ 843,330 $ 93,703 $ (23,776) $ 69,927 $ - $ 450,963 $ 491,763 $ - $ 512,500
7 $ 819,717 $ 91,080 $ (23,111) $ 67,969 $ - $ 518,932 $ 559,732 $ - $ 605,787
8 $ 796,765 $ 88,529 $ (22,464) $ 66,066 $ - $ 584,998 $ 625,798 $ - $ 701,779
9 $ 774,455 $ 86,051 $ (21,835) $ 64,216 $ - $ 649,214 $ 690,014 $ - $ 800,663
10 $ 752,771 $ 83,641 $ (5,681) $ 77,960 $ - $ 727,174 $ 767,974 $ - $ 918,176
11 $ 731,693 $ 81,299 $ (3,071) $ 78,228 $ - $ 805,402 $ 846,202 $ - $ 1,041,761
12 $ 711,206 $ 79,023 $ (2,985) $ 76,038 $ - $ 881,440 $ 922,240 $ - $ 1,169,262
13 $ 691,292 $ 76,810 $ (15,495) $ 61,315 $ - $ 942,754 $ 983,554 $ - $ 1,288,338
14 $ 671,936 $ 74,660 $ (18,944) $ 55,715 $ - $ 998,470 $ 1,039,270 $ - $ 1,407,697
15 $ 653,121 $ 72,569 $ (18,414) $ 54,155 $ - $ 1,052,625 $ 1,093,425 $ - $ 1,531,393
16 $ 634,834 $ 70,537 $ (17,898) $ 52,639 $ - $ 1,105,264 $ 1,146,064 $ - $ 1,659,683
17 $ 617,059 $ 68,562 $ (17,397) $ 51,165 $ - $ 1,156,429 $ 1,197,229 $ - $ 1,792,836
18 $ 599,781 $ 66,642 $ (16,910) $ 49,732 $ - $ 1,206,162 $ 1,246,962 $ - $ 1,931,135
19 $ 582,987 $ 64,776 $ (16,436) $ 48,340 $ - $ 1,254,502 $ 1,295,302 $ - $ 2,074,873
20 $ 566,664 $ 62,963 $ (15,976) $ 46,986 $ - $ 1,301,488 $ 1,342,288 $ 566,664 $ 2,224,358
CRUT
No Planning - Investment of Net Sales Proceeds in Hypothetical Investment Account and Receive
Distribution Each Year
11 12 13 14 15 16
Balance of Distribution Total Amount Received by
Hypothetical (Distribution Net of Taxes Family
Ending Balance of Hypothetical Cummulative Net
Investment Account Taxes Equals After Tax (1.00% of (Net account +
Investment Account Distributions
(Assumes 8% CRUT Payment each Assets) Cummulative Net
Growth) year) Distributions)
$ 809,600 $ 89,340 $ (8,744) $ 776,285 $ 89,340 $ 865,624
$ 776,285 $ 86,723 $ (8,384) $ 743,280 $ 176,063 $ 919,343
$ 743,280 $ 84,173 $ (8,027) $ 710,542 $ 260,236 $ 970,778
$ 710,542 $ 81,688 $ (7,674) $ 678,024 $ 341,924 $ 1,019,948
$ 678,024 $ 79,264 $ (7,323) $ 645,679 $ 421,188 $ 1,066,867
$ 645,679 $ 76,900 $ (6,973) $ 613,460 $ 498,088 $ 1,111,548
$ 613,460 $ 74,594 $ (6,625) $ 581,317 $ 572,682 $ 1,153,999
$ 581,317 $ 72,344 $ (6,278) $ 549,200 $ 645,027 $ 1,194,227
$ 549,200 $ 70,147 $ (5,931) $ 517,057 $ 715,174 $ 1,232,231
$ 517,057 $ 83,544 $ (5,584) $ 469,293 $ 798,718 $ 1,268,012
$ 469,293 $ 83,296 $ (5,068) $ 418,472 $ 882,015 $ 1,300,487
$ 418,472 $ 80,557 $ (4,519) $ 366,873 $ 962,572 $ 1,329,445
$ 366,873 $ 65,277 $ (3,962) $ 326,984 $ 1,027,849 $ 1,354,833
$ 326,984 $ 59,247 $ (3,531) $ 290,365 $ 1,087,095 $ 1,377,460
$ 290,365 $ 57,291 $ (3,136) $ 253,167 $ 1,144,387 $ 1,397,553
$ 253,167 $ 55,373 $ (2,734) $ 215,312 $ 1,199,760 $ 1,415,072
$ 215,312 $ 53,490 $ (2,325) $ 176,722 $ 1,253,250 $ 1,429,972
$ 176,722 $ 51,641 $ (1,909) $ 137,310 $ 1,304,891 $ 1,442,201
$ 137,310 $ 49,823 $ (1,483) $ 96,989 $ 1,354,714 $ 1,451,703
$ 96,989 $ 48,034 $ (1,047) $ 55,666 $ 1,402,748 $ 1,458,414
CRUT
Investment of Net Sales Proceeds in Hypothetical Investment Account and Receive
Distributions Each Year Plus Make Charitable Contributions of Equal Present Value
17 18 19 20 21 22 23
Future Value of
Total Benefit Received by Family
Distribution Charitable Cummulative Net Distributions to
Payment to (Net account + Cummulative Net
Year Received By Deduction Distributions Charity
Charity Distributions - Charity Payment +
Family Benefit Received by Family (Assumes 8%
Value of Charitable Deduction)
Growth Rate)
1 $ 76,957 $ (12,383) $ 5,052 $ 76,957 $ 12,383 $ 858,294
2 $ 74,340 $ (12,383) $ 5,052 $ 151,297 $ 25,756 $ 904,682
3 $ 71,790 $ (12,383) $ 5,052 $ 223,088 $ 40,200 $ 948,786
4 $ 69,305 $ (12,383) $ 5,052 $ 292,392 $ 55,799 $ 990,625
5 $ 66,881 $ (12,383) $ 5,052 $ 359,273 $ 72,645 $ 1,030,214
6 $ 64,517 $ (12,383) $ 5,052 $ 423,791 $ 90,840 $ 1,067,564
7 $ 62,212 $ (12,383) $ 5,052 $ 486,002 $ 110,490 $ 1,102,685
8 $ 59,961 $ (12,383) $ 5,052 $ 545,964 $ 131,712 $ 1,135,581
9 $ 57,765 $ (12,383) $ 5,052 $ 603,728 $ 154,632 $ 1,166,255
10 $ 71,161 $ (12,383) $ 5,052 $ 674,890 $ 179,385 $ 1,194,705
11 $ 70,913 $ (12,383) $ 5,052 $ 745,803 $ 206,119 $ 1,219,850
12 $ 68,174 $ (12,383) $ 5,052 $ 813,977 $ 234,991 $ 1,241,477
13 $ 52,894 $ (12,383) $ 5,052 $ 866,871 $ 266,173 $ 1,259,534
14 $ 46,864 $ (12,383) $ 5,052 $ 913,735 $ 299,850 $ 1,274,831
15 $ 44,908 $ (12,383) $ 5,052 $ 958,644 $ 336,221 $ 1,287,593
16 $ 42,990 $ (12,383) $ 5,052 $ 1,001,634 $ 375,501 $ 1,297,782
17 $ 41,108 $ (12,383) $ 5,052 $ 1,042,742 $ 417,924 $ 1,305,351
18 $ 39,258 $ (12,383) $ 5,052 $ 1,082,000 $ 463,741 $ 1,310,249
19 $ 37,440 $ (12,383) $ 5,052 $ 1,119,440 $ 513,223 $ 1,312,421
20 $ 35,651 $ (12,383) $ 5,052 $ 1,155,091 $ 566,664 $ 1,311,801
CRUT
Summary Columns
24 25 26 27 28 29 30 31
Total Received by Family
Total Received by Family Difference in Amount Difference in Amount Family
Total Received By Under Hypothetical Total Amount
Under Hypothetical Family Receives if No Receives if Charitable Total Tax Savings if
Year Family Under CRUT Investment Account with Charity Receives
Investment Account Charitable Planning Distributions Made Each Year CRUT is Used
(Column 9) Charitable Contributions Under CRUT
(Column 16) (Column 27-26) (Column 28-26)
(Column 23)
1 $ 121,396 $ 865,624 $ 858,294 $ 744,228 $ 736,898 $ - $ 171,740
2 $ 199,735 $ 919,343 $ 904,682 $ 719,608 $ 704,947 $ - $ 153,487
3 $ 275,881 $ 970,778 $ 948,786 $ 694,897 $ 672,905 $ - $ 135,623
4 $ 349,895 $ 1,019,948 $ 990,625 $ 670,053 $ 640,730 $ - $ 118,131
5 $ 421,836 $ 1,066,867 $ 1,030,214 $ 645,031 $ 608,378 $ - $ 100,993
6 $ 491,763 $ 1,111,548 $ 1,067,564 $ 619,785 $ 575,801 $ - $ 84,190
7 $ 559,732 $ 1,153,999 $ 1,102,685 $ 594,267 $ 542,953 $ - $ 67,704
8 $ 625,798 $ 1,194,227 $ 1,135,581 $ 568,428 $ 509,783 $ - $ 51,519
9 $ 690,014 $ 1,232,231 $ 1,166,255 $ 542,217 $ 476,241 $ - $ 35,616
10 $ 767,974 $ 1,268,012 $ 1,194,705 $ 500,037 $ 426,731 $ - $ 35,519
11 $ 846,202 $ 1,300,487 $ 1,219,850 $ 454,284 $ 373,647 $ - $ 37,516
12 $ 922,240 $ 1,329,445 $ 1,241,477 $ 407,205 $ 319,237 $ - $ 39,050
13 $ 983,554 $ 1,354,833 $ 1,259,534 $ 371,278 $ 275,980 $ - $ 27,517
14 $ 1,039,270 $ 1,377,460 $ 1,274,831 $ 338,190 $ 235,561 $ - $ 12,104
15 $ 1,093,425 $ 1,397,553 $ 1,287,593 $ 304,128 $ 194,168 $ - $ (3,173)
16 $ 1,146,064 $ 1,415,072 $ 1,297,782 $ 269,008 $ 151,718 $ - $ (18,337)
17 $ 1,197,229 $ 1,429,972 $ 1,305,351 $ 232,743 $ 108,122 $ - $ (33,409)
18 $ 1,246,962 $ 1,442,201 $ 1,310,249 $ 195,239 $ 63,288 $ - $ (48,410)
19 $ 1,295,302 $ 1,451,703 $ 1,312,421 $ 156,401 $ 17,119 $ - $ (63,364)
20 $ 1,342,288 $ 1,458,414 $ 1,311,801 $ 116,126 $ (30,487) $ 566,664 $ (78,292)
POLLING QUESTION:
The Settlor of a Charitable Remainder Unitrust (CRUT) may retain

which of the following rights over the trust:
A. The right to change the charity.
B. The right to appoint a new trustee.
C. The right to appoint a successor trustee.
D. All of the above.
Flip NIMCRUT
• NIMCRUT, Net Income with Makeup Charitable Remainder

Unitrust, isn’t just a mouthful.
• If no charitable deduction is taken, then the NIMCRUT will not

be subject to the prohibited transaction rules and can engage
in business activities with related parties.
• The Flip provision allows for “principal” to be taken out and

provides flexibility in case of poor investment returns.
Flip-NIMCRUT
• It is possible for a Charitable Remainder Unitrust to be set up where payments
only need to be made in years that the Charitable Remainder Unitrust receives
income.
• In the event that the Charitable Remainder Unitrust does not receive income and
does not pay its annual disbursement amount, the amount that was not
distributed must be paid in future years.
• Income for the Charitable Remainder Unitrust is based on fiduciary accounting

income so it is possible to set up a disregarded LLC that essentially blocks the
income from being received by the Charitable Remainder Unitrust.
• Once the Charitable Remainder Unitrust is ready to start paying its annuity
amount, it can release the income by making a distribution from the “blocker
LLC” triggering fiduciary accounting income at the trust level to make up for the
payments it missed.
• This allows the Flip-NIMCRUT to build value tax free, until the individuals
controlling the disregarded entity decide it is time to start paying out the
distribution amount.
Flip-NIMCRUT
Requirements
• The Charitable Remainder Unitrust can “flip” to a regular Charitable

Remainder Unitrust upon a “triggering event,” and thereafter simply pay out
a annual percentage of the trust assets. The triggering event must be
stated in the trust agreement.
• A triggering event could be a set date or an event, and the occurrence of

such event must not be discretionary or under the control of the trustee or
another person.
• A triggering event could be the sale of unmarketable securities. This would

allow a CRUT to hold a subsidiary that holds unmarketable securities.
When the donor or another person is ready to flip the NIMCRUT, it can sell
the unmarketable securities or a portion thereof.
• The Final Regulations list 7 permissible triggering events as described on

the next slide.
Possible Triggering Events For The Flip-NIMCRUT
1. The sale of a non-marketable security - such as a corporation or a limited
liability company that may own a promissory note from an unrelated party,
real estate, or possibility even marketable securities.
2. Upon the donor’s divorce.
3. Upon the donor’s marriage.
4. When the income recipient has his or her first child.
5. When the income recipient’s father passes away.
6. The sale of the donor’s personal residence.
7. Upon the income recipient reaching a certain age.
It does not appear that these are the only possible triggering events, but these are the
only ones listed, so it is safest to stick with the ones that are specifically provided for.
If a donor wants to use a triggering event that is not listed in the Final Regulations the
donor should be careful to make sure that no person has control of whether the event is
going to happen.
Flip NIMCRUT
JOE CLIENT
DYNASTY TRUST
Trust Co, Mgr.
Joe Client, Investment Advisor
JOE CLIENT L.L.C.
Trust Co, Trustee Trust Co, Trustee

Joe Client, IA
Joe Client, IA
ALPHA FLIP BETA FILP
NIMCRUT NIMCRUT
Joe Client, Mgr.

Trust Co, Mgr. Joe Client, IA
ALPHA, L.L.C. BETA, L.L.C
“BLOCKER ENTITY” (Disregarded)
(Disregarded) (Partnership)
Will be considered an Will be considered an

unmarketable security and Will block “income” from unmarketable security and
upon sale ALPHA NIMCRUT NIMCRUT. upon sale ALPHA NIMCRUT
ABC, L.L.C.
will “flip” to CRUT will “flip” to CRUT
NIMCRUT will only be considered
to have “income” when “blocker
entity” makes a distribution Expected to be sold for a larger gain.
Charitable Remainder Trust Scenario
A is considering funding a Charitable Trust with stock of his closely held

business, ABC Company, prior to the sale of ABC Company in order to defer the
gain on the sale.
ABC Company is worth $1,000,000 and A has $200,000 of basis in ABC

Company. A expects that he can receive an 8% rate of return after receiving
the cash proceeds from the sale of ABC Company, consisting of 1% ordinary
income and 7% capital gains.
A has asked whether the tax deferral under a NIMCRUT or a CRUT will leave
him in a better position than if A just invests the after tax proceeds of the sale
of ABC Company.
NIMCRUT w/ Charitable Deduction
$1,000,000 Contribution, With Only 1% Per Year In Distributable Income –
Distributions received are used to pay income taxes thereon, and then invested
at a 6% rate of return. Charitable Deduction taken.
Analysis of Net Income with Makeup Charitable Remainder Unitrust (NIMCRUT)
(20 Year Term 8% Return)
1 2 3 4 5 6 7 8 9
Distribution to Family
Total Amount Received
(Lesser of Trust Income or Total Value Family
NIMCRUT Balance Total Amount Charity Under NIMCRUT if
Unitrust Amount with Make Up Taxes on Net Distribution Charitable Tax Receives
Year (Assumes 8% Receives at End of Distributions are
Distributions in Years in Which Distribution to Family Deduction Benefit (Includes Tax Deduction
Growth) Twenty Year Term Reinvested at 6% Rate
Trust Income Exceeds Unitrust Benefit)
of Return
Amount)
1 $ 1,000,000 $ 10,000 $ (4,080) $ 5,920 $ 51,924 $ 57,844 $ - $ 5,920
2 $ 1,070,000 $ 10,700 $ (4,366) $ 6,334 $ - $ 64,179 $ - $ 12,547
3 $ 1,144,900 $ 11,449 $ (4,671) $ 6,778 $ - $ 70,956 $ - $ 19,944
4 $ 1,225,043 $ 12,250 $ (4,998) $ 7,252 $ - $ 78,209 $ - $ 28,182
5 $ 1,310,796 $ 13,108 $ (5,348) $ 7,760 $ - $ 85,968 $ - $ 37,334
6 $ 1,402,552 $ 14,026 $ (5,722) $ 8,303 $ - $ 94,272 $ - $ 47,481
7 $ 1,500,730 $ 15,007 $ (6,123) $ 8,884 $ - $ 103,156 $ - $ 58,711
8 $ 1,605,781 $ 16,058 $ (6,552) $ 9,506 $ - $ 112,662 $ - $ 71,118
9 $ 1,718,186 $ 17,182 $ (7,010) $ 10,172 $ - $ 122,834 $ - $ 84,803
10 $ 1,838,459 $ 18,385 $ (7,501) $ 10,884 $ - $ 133,717 $ - $ 99,876
11 $ 1,967,151 $ 19,672 $ (8,026) $ 11,646 $ - $ 145,363 $ - $ 116,455
12 $ 2,104,852 $ 21,049 $ (8,588) $ 12,461 $ - $ 157,824 $ - $ 134,669
13 $ 2,252,192 $ 22,522 $ (9,189) $ 13,333 $ - $ 171,157 $ - $ 154,654
14 $ 2,409,845 $ 24,098 $ (9,832) $ 14,266 $ - $ 185,423 $ - $ 176,561
15 $ 2,578,534 $ 25,785 $ (10,520) $ 15,265 $ - $ 200,688 $ - $ 200,548
16 $ 2,759,032 $ 27,590 $ (11,257) $ 16,333 $ - $ 217,021 $ - $ 226,788
17 $ 2,952,164 $ 29,522 $ (12,045) $ 17,477 $ - $ 234,498 $ - $ 255,468
18 $ 3,158,815 $ 31,588 $ (12,888) $ 18,700 $ - $ 253,198 $ - $ 286,789
19 $ 3,379,932 $ 33,799 $ (13,790) $ 20,009 $ - $ 273,208 $ - $ 320,965
20 $ 3,616,528 $ 3,663,139 $ (877,975) $ 2,785,163 $ - $ 3,058,371 $ 242,711 $ 3,173,908
NIMCRUT w/ No Charitable Deduction Taken
$1,000,000 Contribution, With Only 1% Per Year In Distributable Income –
Distributions received are used to pay income taxes thereon, and then invested
at a 6% rate of return.
Analysis of Net Income with Makeup Charitable Remainder Unitrust (NIMCRUT)
(20 Year Term 8% Return)
1 2 3 4 5 6 7 8 9
Distribution to Family
Total Amount Received
(Lesser of Trust Income or Total Value Family
NIMCRUT Balance Total Amount Charity Under NIMCRUT if
Unitrust Amount with Make Up Taxes on Net Distribution Charitable Tax Receives
Year (Assumes 8% Receives at End of Distributions are
Distributions in Years in Which Distribution to Family Deduction Benefit (Includes Tax Deduction
Growth) Twenty Year Term Reinvested at 6% Rate
Trust Income Exceeds Unitrust Benefit)
of Return
Amount)
1 $ 1,000,000 $ 10,000 $ (4,080) $ 5,920 $ - $ 5,920 $ - $ 5,920
2 $ 1,070,000 $ 10,700 $ (4,366) $ 6,334 $ - $ 12,254 $ - $ 12,547
3 $ 1,144,900 $ 11,449 $ (4,671) $ 6,778 $ - $ 19,032 $ - $ 19,944
4 $ 1,225,043 $ 12,250 $ (4,998) $ 7,252 $ - $ 26,284 $ - $ 28,182
5 $ 1,310,796 $ 13,108 $ (5,348) $ 7,760 $ - $ 34,044 $ - $ 37,334
6 $ 1,402,552 $ 14,026 $ (5,722) $ 8,303 $ - $ 42,347 $ - $ 47,481
7 $ 1,500,730 $ 15,007 $ (6,123) $ 8,884 $ - $ 51,232 $ - $ 58,711
8 $ 1,605,781 $ 16,058 $ (6,552) $ 9,506 $ - $ 60,738 $ - $ 71,118
9 $ 1,718,186 $ 17,182 $ (7,010) $ 10,172 $ - $ 70,910 $ - $ 84,803
10 $ 1,838,459 $ 18,385 $ (7,501) $ 10,884 $ - $ 81,793 $ - $ 99,876
11 $ 1,967,151 $ 19,672 $ (8,026) $ 11,646 $ - $ 93,439 $ - $ 116,455
12 $ 2,104,852 $ 21,049 $ (8,588) $ 12,461 $ - $ 105,900 $ - $ 134,669
13 $ 2,252,192 $ 22,522 $ (9,189) $ 13,333 $ - $ 119,233 $ - $ 154,654
14 $ 2,409,845 $ 24,098 $ (9,832) $ 14,266 $ - $ 133,499 $ - $ 176,561
15 $ 2,578,534 $ 25,785 $ (10,520) $ 15,265 $ - $ 148,764 $ - $ 200,548
16 $ 2,759,032 $ 27,590 $ (11,257) $ 16,333 $ - $ 165,097 $ - $ 226,788
17 $ 2,952,164 $ 29,522 $ (12,045) $ 17,477 $ - $ 182,574 $ - $ 255,468
18 $ 3,158,815 $ 31,588 $ (12,888) $ 18,700 $ - $ 201,274 $ - $ 286,789
19 $ 3,379,932 $ 33,799 $ (13,790) $ 20,009 $ - $ 221,283 $ - $ 320,965
20 $ 3,616,528 $ 3,663,139 $ (877,975) $ 2,785,163 $ - $ 3,006,447 $ 242,711 $ 3,121,984
NIMCRUT
No Planning - Investment of Sales Proceeds in Hypothetical Investment Account and Receive
Distribution Each Year
10 11 12 13 14 15
Balance of Distribution Total Amount Received by

Ending Balance of
Hypothetical (Distribution Net of Taxes Cummulative Net Family
Hypothetical
Investment Account Taxes Equals After Tax (1.00% of Distribtuions With (Net account + Cummulative Net
Investment
(Assumes 8% CRUT Payment each Assets) 6% Growth Distributions)
Account
Growth) year) (Columns 13+14= Column 15)
$ 809,600 $ 14,664 $ (8,744) $ 850,961 $ 14,664 $ 865,624

$ 850,961 $ 15,525 $ (9,190) $ 894,322 $ 30,188 $ 924,511
$ 894,322 $ 16,436 $ (9,659) $ 939,773 $ 46,625 $ 986,398
$ 939,773 $ 17,402 $ (10,150) $ 987,403 $ 64,027 $ 1,051,430
$ 987,403 $ 18,424 $ (10,664) $ 1,037,308 $ 82,451 $ 1,119,759
$ 1,037,308 $ 19,506 $ (11,203) $ 1,089,584 $ 101,957 $ 1,191,540
$ 1,089,584 $ 20,652 $ (11,768) $ 1,144,331 $ 122,608 $ 1,266,939
$ 1,144,331 $ 21,865 $ (12,359) $ 1,201,654 $ 144,473 $ 1,346,127
$ 1,201,654 $ 23,150 $ (12,978) $ 1,261,659 $ 167,623 $ 1,429,282
$ 1,261,659 $ 24,510 $ (13,626) $ 1,324,456 $ 192,133 $ 1,516,588
$ 1,324,456 $ 25,950 $ (14,304) $ 1,390,158 $ 218,082 $ 1,608,241
$ 1,390,158 $ 27,474 $ (15,014) $ 1,458,883 $ 245,557 $ 1,704,440
$ 1,458,883 $ 29,089 $ (15,756) $ 1,530,749 $ 274,646 $ 1,805,394
$ 1,530,749 $ 30,798 $ (16,532) $ 1,605,878 $ 305,444 $ 1,911,322
$ 1,605,878 $ 32,608 $ (17,343) $ 1,684,397 $ 338,052 $ 2,022,449
$ 1,684,397 $ 34,525 $ (18,191) $ 1,766,432 $ 372,577 $ 2,139,009
$ 1,766,432 $ 36,554 $ (19,077) $ 1,852,115 $ 409,132 $ 2,261,246
$ 1,852,115 $ 38,703 $ (20,003) $ 1,941,578 $ 447,835 $ 2,389,413
$ 1,941,578 $ 40,978 $ (20,969) $ 2,034,957 $ 488,813 $ 2,523,770
$ 2,034,957 $ 2,175,776 $ (21,978) $ (0) $ 2,664,589 $ 2,664,589
NIMCRUT
Investment of Net Sales Proceeds in Hypothetical Investment Account and Receive Distributions Each
Year Plus Make Charitable Contributions of Equal Present Value
16 17 18 19 20 21 22
Future Value of Total Benefit Received by Family

Cummulative Net
Distribution Charitable Distributions to Charity (Net account + Cummulative Net
Year Payment to Charity Distributions
Received By Family Deduction Benefit (Assumes 8% Growth Distributions - Charity Payment +
Received by Family
Rate) Value of Charitable Deduction)
1 $ 14,664 $ (5,304) $ 2,164 $ 14,664 $ 5,304 $ 862,484

2 $ 15,525 $ (5,304) $ 2,164 $ 30,188 $ 11,032 $ 917,864
3 $ 16,436 $ (5,304) $ 2,164 $ 46,625 $ 17,218 $ 975,852
4 $ 17,402 $ (5,304) $ 2,164 $ 64,027 $ 23,899 $ 1,036,565
5 $ 18,424 $ (5,304) $ 2,164 $ 82,451 $ 31,115 $ 1,100,126
6 $ 19,506 $ (5,304) $ 2,164 $ 101,957 $ 38,908 $ 1,166,661
7 $ 20,652 $ (5,304) $ 2,164 $ 122,608 $ 47,325 $ 1,236,300
8 $ 21,865 $ (5,304) $ 2,164 $ 144,473 $ 56,414 $ 1,309,179
9 $ 23,150 $ (5,304) $ 2,164 $ 167,623 $ 66,231 $ 1,385,439
10 $ 24,510 $ (5,304) $ 2,164 $ 192,133 $ 76,833 $ 1,465,225
11 $ 25,950 $ (5,304) $ 2,164 $ 218,082 $ 88,284 $ 1,548,685
12 $ 27,474 $ (5,304) $ 2,164 $ 245,557 $ 100,650 $ 1,635,976
13 $ 29,089 $ (5,304) $ 2,164 $ 274,646 $ 114,006 $ 1,727,256
14 $ 30,798 $ (5,304) $ 2,164 $ 305,444 $ 128,431 $ 1,822,690
15 $ 32,608 $ (5,304) $ 2,164 $ 338,052 $ 144,009 $ 1,922,448
16 $ 34,525 $ (5,304) $ 2,164 $ 372,577 $ 160,833 $ 2,026,702
17 $ 36,554 $ (5,304) $ 2,164 $ 409,132 $ 179,004 $ 2,135,631
18 $ 38,703 $ (5,304) $ 2,164 $ 447,835 $ 198,628 $ 2,249,420
19 $ 40,978 $ (5,304) $ 2,164 $ 488,813 $ 219,822 $ 2,368,254
20 $ 1,960,235 $ (5,304) $ 2,164 $ 2,449,048 $ 242,711 $ 2,492,327
NIMCRUT
Summary Columns
23 24 25 26 27 28 29 30
Total Received By Total Received by Family Total Received by Family Under Difference in Amount Family Difference in Amount Family Total Amount
Family Under Under Hypothetical Hypothetical Investment Account Receives if No Charitable Receives if Charitable Charity Receives Total Tax Savings if
Year
NIMCRUT Investment Account with Charitable Contributions Planning Distributions Made Each Year Under NIMCRUT at NIMCRUT is Used
(Column 9) (Column 15) (Column 22) (Column 25-24) (Column 26-24) End of 20 Year Term
1 $ 5,920 $ 865,624 $ 862,484 $ 859,704 $ 856,564 $ - $ 195,064

2 $ 12,547 $ 924,511 $ 917,864 $ 911,964 $ 905,317 $ - $ 199,888
3 $ 19,944 $ 986,398 $ 975,852 $ 966,453 $ 955,907 $ - $ 204,876
4 $ 28,182 $ 1,051,430 $ 1,036,565 $ 1,023,248 $ 1,008,383 $ - $ 210,027
5 $ 37,334 $ 1,119,759 $ 1,100,126 $ 1,082,424 $ 1,062,792 $ - $ 215,343
6 $ 47,481 $ 1,191,540 $ 1,166,661 $ 1,144,059 $ 1,119,179 $ - $ 220,824
7 $ 58,711 $ 1,266,939 $ 1,236,300 $ 1,208,228 $ 1,177,589 $ - $ 226,468
8 $ 71,118 $ 1,346,127 $ 1,309,179 $ 1,275,009 $ 1,238,061 $ - $ 232,275
9 $ 84,803 $ 1,429,282 $ 1,385,439 $ 1,344,479 $ 1,300,636 $ - $ 238,243
10 $ 99,876 $ 1,516,588 $ 1,465,225 $ 1,416,712 $ 1,365,349 $ - $ 244,368
11 $ 116,455 $ 1,608,241 $ 1,548,685 $ 1,491,785 $ 1,432,230 $ - $ 250,646
12 $ 134,669 $ 1,704,440 $ 1,635,976 $ 1,569,771 $ 1,501,307 $ - $ 257,072
13 $ 154,654 $ 1,805,394 $ 1,727,256 $ 1,650,740 $ 1,572,602 $ - $ 263,639
14 $ 176,561 $ 1,911,322 $ 1,822,690 $ 1,734,761 $ 1,646,130 $ - $ 270,339
15 $ 200,548 $ 2,022,449 $ 1,922,448 $ 1,821,901 $ 1,721,900 $ - $ 277,162
16 $ 226,788 $ 2,139,009 $ 2,026,702 $ 1,912,221 $ 1,799,914 $ - $ 284,097
17 $ 255,468 $ 2,261,246 $ 2,135,631 $ 2,005,778 $ 1,880,163 $ - $ 291,129
18 $ 286,789 $ 2,389,413 $ 2,249,420 $ 2,102,624 $ 1,962,631 $ - $ 298,244
19 $ 320,965 $ 2,523,770 $ 2,368,254 $ 2,202,805 $ 2,047,289 $ - $ 305,423
20 $ 3,121,984 $ 2,664,589 $ 2,492,327 $ (457,396) $ (629,658) $ 242,711 $ (550,574)
NIMCRUT
Self-Dealing and Flip-NIMCRUTs
• A number of Private Letter Rulings state that “allowed” really means “taken”
in the context of the charitable deduction.
• Despite issuing Private Letter Rulings on this as recent as 2017, the IRS is
now reluctant to issue Private Letter Rulings on this topic, and it is unclear
whether the IRS will take the position that “allowed” really means “taken.”
• Thus, if the donor wants to avoid the application of the self-dealing rules,
the donor should contribute funds through an entity that is not required to
take a charitable deduction, such as a dynasty trust that specifically
authorizes the creation of a charitable remainder trust.
• Due to the fact that the private foundation rules generally apply to charitable
remainder trusts, it is important to make sure that disqualified persons do
not transact with the entity directly. It may be possible to create subsidiaries
that are controlled by specially designed trusts that have less than 35% of
the beneficial interest being held or made available to disqualified persons.
1. 50 WAYS TO LEAVE YOUR LEGACY
6. NEARLY 50 WAYS TO LEAVE YOUR LEGACY
Two Main Rules To Know
(Besides that taxpayers below the threshold can typically take the deduction, most of the time.)
Situation Result
Taxpayer's Taxable Income is under $340,100 for

A Taxpayers married filing jointly, or $170,050 for No Limitation applies
single filers
Limitation is phased in by the amount Taxable Income

Specified Taxpayer's Taxable Income is between $340,100 – exceeds threshold amount
1 Service Trade
B
$440,100 for Taxpayers married filing jointly or
or Business $170,050 - $220,050 for single filers Example – Married with Taxable Income of $390,100
(“SSTB”) Deduction is equal to 10% of QBI (50% ((390-340)/100)
* 20% Deduction.
Taxpayer's Taxable Income exceeds $440,100 for
C Taxpayers married filing jointly or $220,050 for No Deduction
single filers
Taxpayer's Taxable Income is under $340,100 if

A No Limitation applies
married filing jointly, or $175,050 for single filers
Wage and Taxpayer's Taxable Income is between $340,100-

Limitation is phased in by the amount Taxable Income
B $440,100 if married filing jointly or $175,050-
2 Qualified
$220,050 for single filers
exceeds threshold amount
Property Test
Limitation applies unless 50% of Wages, or 25% of
Taxpayer's Taxable Income Exceeds $440,100 if
C Wages plus 2.5% of Qualified Property, are met at the
married filing jointly or $220,050 for single filers
entity level
Kiddie Tax
The Kiddie Tax will NOT apply if the child’s earned income exceeds one-half (1/2) of the support provided
by the parents.
For example, if the child earns $13,000 as a part time employee of the parents’ law office and the parents
provide the child with $25,000 of support during the tax year, then the child would NOT be subject to the
Kiddie Tax. If the child only earned $10,000, then the child would be subject to the Kiddie Tax.
The BNA Portfolio on the subject states that “support” includes food, shelter, clothing, medical and dental
care, education, and similar items. Support also includes real property insurance, renter insurance, medical
insurance, the cost of such items as maid or housekeeping services, laundry and dry cleaning, babysitters,
child care, vitamins, toys, bicycle repairs, telephones, televisions, book club costs, hair styling and haircuts,
pets, entertainment, wedding expenses, vacations, gifts, and charitable contributions by or on behalf of the
individual.
Educational expenses do not include amounts received as scholarships, and there are conflicting views as
to whether distributions from 529 plans count as "support", and the IRS has not formally or informally
addressed this in any guidance.
Some practitioners take the position that since the student is taxed on non-qualified 529 plan distributions
(distributions not used for educational expenses), payments from 529 plans should be considered as
contributed by the student for his or her own support.
Others say that if the parent is the owner of the account and can change the beneficiary of the account
then it should be considered as support provided by the parent.
AFTER 199A PLANNING
Child 1 (Married w/
Child 2 (Married w/ Child 3 (Single w/ no
$100,000 of other
$100,000 of other income) other income)
income)
Distirbutes $215,000 of Distirbutes $215,000 of

income income
Dr. Jones Mrs. Jones Trust Retains $65,000 Trust Retains $65,000
Distirbutes $157,500 of
Complex/678 Trust for Complex/678 Trust Complex/678 income
Child 1 for Child 2 Trust for Child 3 Complex/678 Trust for Trust Retains $122,500
Child 1 Complex/678 Trust
for Child 2
TBE 70%
10% 10% Complex/678
TBE 10% Trust for Child 3
$350,000 Salary
Medical Practice Medical Practice S-

Management Co. Corporation
$1,200,000 ManagementFee
$857,160 of Income $2,800,000 of Income
U.S. Code § 678. Person other than grantor treated as
substantial owner
(a) General rule
A person other than the grantor shall be treated as the owner of any portion of a trust
with respect to which:
(1) such person has a power exercisable solely by himself to vest the corpus or the
income therefrom in himself, or
(2) such person has previously partially released or otherwise modified such a power
and after the release or modification retains such control as would, within the
principles of Sections 671 to 677, inclusive, subject a grantor of a trust to treatment as
the owner thereof.
(b) Exception where grantor is taxable

Subsection (a) shall not apply with respect to a power over income, as originally
granted or thereafter modified, if the grantor of the trust or a transferor (to whom
Section 679 applies) is otherwise treated as the owner under the provisions of this
subpart other than this section.
POLLING QUESTION
The Section 199A deduction:
A. Applies to income from certain active trades and

businesses
B. Applies to income from flow through entities
C. Is subject to certain limitations depending on the types of

business and income of the owner.
D. All of the above
199A Final Regulations
§1.199A-6(d)(2) Grantor Trusts. To the extent that the grantor or another person is treated
as owning all or part of a trust under Sections 671 through 679, such person computes its
Section 199A deduction as if that person directly conducted the activities of the trust with
respect to the portion of the trust treated as owned by the grantor or other person.
It is noteworthy that “Grantor Trusts include the following:
1. A trust where the Grantor is considered to be the owner for income tax purposes.
2. A trust where a beneficiary is considered to be owner for income tax purposes:
A. A Section 678 Trust.
B. A Qualified Sub-Chapter S Trust (QSST) must pay all income it receives to a named
beneficiary for the lifetime of that beneficiary, but may use a blocker subsidiary
entity to eliminate the distribution of “state law income” to the trust.
C. An Electing Small Business Trust (ESBT) considered as being owned by its Grantor.
Use Of Section 678 Grantor Trusts
Next Up: 678 Trusts - So easy a baby could understand it…
The Section 199A Final Regulations did not impose any limitation on the use of Section 678 Trusts,
which are irrevocable trusts which are considered as owned by the beneficiary or beneficiaries thereof.
In fact, the Final Regulations specifically state that trusts that are considered as owned by a specific
individual or individuals under the “Grantor Trust Rules” will be “treated as owned by the grantor or
other person,” and therefore appear to not be subject to these rules.
• For example: a mother and father could place part ownership of their S corporation stock into a
trust that is considered as owned by their daughter for income tax purposes.
• This is accomplished by special provisions in the trust that may give the daughter the right to
withdraw the stock contributed to the trust within thirty days of when it is contributed thereto.
• The daughter will release the withdrawal power and have no further withdrawal or control rights,
and an Independent Trustee who is replaceable by the parents (which may be the daughter) can
determine if and when the trust will make distributions to the daughter.
• The K-1 income from the S corporation with respect to such stock will be reported on the daughter’s
personal income tax return, to qualify for the Section 199A deduction, assuming that the daughter’s
income is below the threshold levels.
• If a beneficiary of a trust is given the power to withdraw all contributions made to the trust,
then the beneficiary is treated as the owner of the trust for federal income purposes under IRC
Section 678(a)(1).
• Further, if the beneficiary's power lapses or if the beneficiary releases such power, and if the
beneficiary otherwise has a grantor trust power (i.e., a power described in IRC Sections 671
though 677), then the beneficiary will nevertheless be treated as the owner of the trust for
federal income purposes under IRC Section 678(a)(2).
• The beneficiary's withdrawal power can lapse or the beneficiary can release his or her
withdrawal power each year to the extent of the greater of $5,000 or 5% of the value of the
trust’s assets without the beneficiary being considered to have made a gift to the trust for
federal gift tax purposes.
• Therefore, the beneficiary's withdrawal power could be expected to lapse or be completely

released prior to the beneficiary's death, which would cause the trust assets to not be included
in the gross estate of the beneficiary upon his or her death, notwithstanding that the beneficiary
is treated as the owner of the trust for federal income tax purposes (and could therefore enter
into an installment sale with the trust without recognizing income taxes related to the sale).
Convey 40% Of Management Company To Four Separate
CONCEPTUAL CHART (DAY 2)
Section 678 Trusts
CHILD 1 CHILD 2 CHILD 3 CHILD 4
Dr T 678 TRUST 678 TRUST 678 TRUST 678 TRUST
1% V 10% 10% 10%

99% NV 60%
10%
Each of the four 678 Trusts would receive $150,000 of Section
199A income which will be taxed at 29.6% minus $1,000.
MANAGEMENT,
MEDICAL PRACTICE MARKETING & Annual Expected Savings of 7% of $600,000 =$42,000 per yr.
BILLING COMPANY
Net Income $1,500,000 (Per Year)
Combined Section 199A And Estate Tax Savings
Charitable and SALT Trust Alternative Conceptual Chart
________________, Trustee
GRANTOR RETAINED
Dr .T ANNUITY TRUST
(Owes Payment Rights) ("GRAT")
100%
COMPLEX TRUST
(Owes CHILD 1 CHILD 2 CHILD 3 CHILD 4
HOLDING LLC (INCLUDES CHARITABLE
Note) 678 TRUST 678 TRUST 678 TRUST 678 TRUST
BENEFICIARIES)
1% V 10%
39% NV
60% NV 50% 10% 10%
10%
MANAGEMENT,
MEDICAL PRACTICE 10% Annual Expected Savings Exceeds $72,000 per year
MARKETING &
BILLING COMPANY
• When read literally, the Statute may be viewed to require that either (1) the beneficiary continues to
have the power to “withdraw income or corpus,” or (2) the beneficiary has “partially released” or
“otherwise modified” the right to receive “income or corpus.”
• Taking the first alternative above, (“(1) that the beneficiary continues to have the right to withdraw the
income or corpus”), there is uncertainty as to whether the words “income or corpus” mean that the
beneficiary has to have the right to withdraw both all income and all corpus, or whether the power to
withdraw all income, but not corpus, would be sufficient. Commentators have differed on which
interpretation would be accurate.
• There have, however, been a number of Private Letter Rulings that have concluded that a complete
release is deemed to meet the requirements that the power has been “partially released or otherwise
modified.” For example, in PLR 200104005, a wife created a trust for the benefit of her husband, and
granted him the non-cumulative power to withdraw principal in an amount of up to the greater of
$5,000 or 5% of the trust property. The IRS concluded that the husband “will be deemed to have
partially released the power to withdraw the portion of the trust corpus subject to that power under
678(a)(2),” even though there was a full release of the power in relation to the amount that the
beneficiary could have withdrawn that year.
• The greater of 5% or $5,000 of trust assets should generally be calculated based on the entire value of
the trust, and not solely on the income of the trust. In Revenue Ruling 66-87, the IRS clarified that a
beneficiary who had the power to withdraw the greater of $5,000 or 5% of trust income was only a
deemed owner of 5% of the trust’s income, because the power to withdraw the greater of 5% or $5,000
only applied to the trust’s income.
Section 678 Trusts and Creditor Protection
• One downside to the use of Section 678 Trusts is that if the 678 trust is established by giving a beneficiary the right to
withdrawal all assets of the trust and then releasing such power (or allowing the power to lapse), the beneficiary will be
considered the grantor of the trust for state law purposes. As a result, the trust will be subject to the beneficiary’s creditors.
• Most states do not consider the beneficiary as making a transfer to the trust to the extent that the lapsed or released
withdrawal power does not exceed the greater of $5,000 or 5% of the trust’s assets.
• Can the Beneficiary Deemed Owner Trust (BDOT) be used to allow for Section 678 taxation but also allow for some creditor
protection for the beneficiary?
1. The beneficiary’s withdrawal power covers the greater of the (1) net taxable income of the trust or (2) 5% of the
corpus.
2. If net taxable income is less than 5% of the corpus then the beneficiary will not be considered the grantor of
the trust for state law purposes. If net taxable income is greater than 5% of the corpus then the beneficiary could withdrawal the
excess and spend the money or if it would not be considered a fraudulent transfer invest it into some other creditor protected
asset (IRA, variable annuity, life insurance, etc.). The trust could also provide a hanging power if net income exceeds 5% of the
corpus and release all or a portion of the hanging power in years that income is less than 5%.
3. Since the beneficiary has the power to withdraw all income of the trust annually, Section 678(a)(1) applies to
treat the beneficiary of the trust as the owner for income tax purposes.
The presenters thank Ed Morrow for his excellent writings on the BDOT which can be found at LISI Estate Planning Newsletter
#2587 (September 5, 2017).
Excerpt from LISI Newsletter #167, Published January 20, 2019
(Excerpt from a Forbes Blog article by Alan Gassman, published August 22, 2018)
678 Ways to Qualify for The 199A 20% Deduction Joe’s arm’s-length management company may be owned one-third (33%) each, by
separate trusts for his three children, who each earn less than $157,500 but then Joe
loses control of the ownership interests and might not want the income to actually be
Alan Gassman, Contributor paid to the children or they may give the interests to people Joe does not like or lose
them in a divorce. Instead of using direct ownership or non-grantor trusts, which are
Retirement
taxed as separate entities that are disfavored under the new proposed regulations,
I write about tax, estate and legal strategies and Joe may choose to use what are called “Section 678 Trusts,” which are treated as
opportunities. being owned by one or more of the beneficiaries of the trust for income tax purposes,
but allow a trustee selected by Joe to use the trust income and assets for such
My recent blog post on the discriminatory nature of Section 199A makes purposes and people as the trustee determines to be appropriate.
mention of having high-income taxpayers falling under the SSTB (Specified
Service Trade or Business) category consider the use of management, billing, Many advisors will recommend the use of “non-grantor” complex trusts which are
marketing, and intellectual property entities held at arm’s length to reduce taxed on their own retained income and can also provide significant tax savings,
taxes, and discusses that if the proposed regulations that were issued on which include the ability to take the Section 199A deduction as a taxpayer with
August 8, 2018 become final, then such entities will be aggregated with the taxable income of less than $157,500, avoidance of approximately $2,000 a year in
affiliated SSTB and thus ineligible for the Section 199A deduction if the taxes on the first $12,500 of retained income that is taxed at lower brackets and
owner’s taxable income exceeds the $207,500/$415,000 levels, or phased immune from the 3.85 Medicare tax, the ability to have what is equivalent to a
charitable deduction for amounts distributed to charities, the ability to deduct up to
out ratable for income exceeding $157,500 for single filers and $315,000 for
$10,000 of property taxes when personal use property or owned by the trust, and the
married filers. Therefore, taxpayers with income above these levels may shift
ability to retain or pay moneys or investments as determined by the trustee each year.
ownership of such entities to trusts that can be held for descendants, parents,
and other lower-bracket taxpayers (those with income below the Disadvantages of non-grantor trusts include the need to file an annual income tax
$157,500/$315,000 levels). return, the need to determine how much income to retain and how much to pay out,
and that the proposed regulations that were released on August 8 provide that the
The same applies for high income taxpayers that have income from Specified
Section 199A advantages will not apply for these trusts when they are used for the
Trades and Businesses that do not have sufficient wages or qualified property
purpose of avoiding Section 199A taxes, although it is not clear whether the IRS has
to allow for the full, if any Section 199A deduction. the authority to issue this type of rule. The proposed regulations also provide that
For example, Joe Accountant owns an S corporation that operates his very multiple complex trusts will be aggregated into being considered to be only one trust
successful accounting firm, and may wish to establish an arm’s-length when they are formed by one grantor or a grantor’s spouse and each can benefit the
management company that provides billing, management, marketing, and same beneficiaries to avoid taxes. This rule can be avoided by simply having
separate trusts established for the lifetime benefit of separate individuals even if
other services for his accounting firm.
common beneficiaries may benefit after the death of the lifetime beneficiaries.
Comparison Of 678 Trusts To Complex Trusts
Complex Trusts 678 Trusts
1. May spray taxable income among multiple 1. All taxable income considered as taxed to one
beneficiaries. beneficiary who may receive limited or no distributions.
2. Will need a separate tax return and must pay income 2. No separate tax return has to be prepared for the
before 65 days after the end of each calendar year to trust.
carry out DNI, if desired.
3. Ability to retain up to $12,750 of income to be taxed 3. If beneficiary has less than $157,500 of taxable
at lower brackets to save up to $2,127 if Medicare tax income, including 678 income, full 199A deduction may
applies. (2019 amounts) be taken on SSTB or income otherwise limited by
wage/replacement property requirements.
4. Up to $157,500 of retained income may qualify for 4. Section 121 deduction may also apply to primary
the Section 199A deduction for SSTB or low residence of withdrawal power beneficiary to exempt up
wage/qualified property income if trust not formed or to $250,000 of capital gains income on the sale of a
funded primarily to avoid tax under 199A. primary residence.
5. May pay income to charity to avoid tax if specified 5. The trust may benefit a spouse, descendants and
under Trust Agreement, or through subsidiary other individuals – spouse may only receive benefits with
partnership even if not specified. consent of adverse party while grantor is living.
6. May pay up to $10,000 per year in property taxes to 6. Deemed owner/beneficiary may deduct up to $10,000
receive deduction. per year in property taxes cumulatively.
7. Medicare and employment tax savings may also apply. 7. Spouse or another individual may have a testamentary
power of appointment while grantor is living to divest
the withdrawal power beneficiary and/or others.
Distributable Net Income – 65 Day Rule
IRC Section 663(b)(1) - Distributions in first sixty-five days of taxable year.
If within the first 65 days of any taxable year of an estate or a trust, an amount is
properly paid or credited, such amount shall be considered paid or credited on the
last day of the preceding taxable year.
• In other words, distributions made within the first 65 days of the year can be
treated as if made in the prior year reducing the trust or estate’s retained
income for the prior year.
• This gives advisors, trustees and beneficiaries time to assess the situation
following the end of the year to determine if a distribution that would carry out
income to a beneficiary should be made from the Trust.
Top 199A Planning Opportunities
1. Shift Section 199A Income to Lower Taxpayers
2. Use of Section 678 Trusts, Qualified Sub-Chapter S Trusts and Other Vehicles to Transfer Active Income to Low
Income Relatives
3. Taking Advantage of the Benefits of the Use of a Complex Trust (If the Anti-Abuse Rules Under the Final
Regulations Can be Avoided)
4. Using Pension, Cash Balance, and Defined Benefit Plans to Reduce Taxable Income
5. Taking Advantage of Other Ways to Reduce a Taxpayer’s Income Below Threshold Amounts
6. Use of Management, Marketing, Billing, Factoring and Other Entities for High Income Taxpayers with Rental Real
Estate or SSTBs
7. Aggregation of Multiple Entities to Calculate the Wage/Qualified Property Limitation at the Individual or Entity
Level
8. Safer To Use Separate Accounts To Separate SSTB and Non-SSTB Activities, or at Least Make Sure That Activities
Are Separable
9. Restructuring Partnerships to Avoid Guaranteed Payments
10. More Active Arrangements for Landlords
11. Changing Employees to Independent Contractors and Independent Contractors to Employees Depending Upon
Circumstances
What Is An Economic Opportunity Zone?
• The 2017 Tax Cuts and Jobs Act created Economic Opportunity Zones
under Section 1400Z.
• Certain geographical zones designated as being distressed qualify for

this incentive, and the government created this program to attract and
maintain investment in such areas.
• A list of the current zones designated as being distressed, and that

qualify can be found here.
https://www.cdfifund.gov/pages/opportunity-zones.aspx
• The purpose of this program is to promote investment in economically

distressed areas, and improve the economic conditions of such areas.
11
How to Invest in an Economic Opportunity Zone
• The taxpayer must have qualifying capital gains in order to benefit
from an investment in a Qualified Opportunity Fund.
• For purposes of the Economic Opportunity Zone Regulations, both

long-term and short-term capital gains will qualify.
• Section 1231 gain can qualify, which we will discuss in further detail
later.
• A taxpayer can benefit by investing all, or any portion of its capital

gain income in an Economic Opportunity Zone.
• Taxpayers can invest more than their capital gain income, but
anything in excess of the taxpayer’s capital gains will not qualify for
the tax benefits provided by the Economic Opportunity Zone program.
• We will discuss these points in further detail later in this presentation.
11
Tax Benefits
• Taxpayers can receive 3 main benefits:
• Tax liability for capital gains can be deferred until December 31, 2026, at which
time the taxpayer will pay capital gains tax on their 2026 tax return at the capital
gains rates that will apply in 2026.
• The taxpayer will receive a 10% reduction in capital gains tax liability if the
investment is held for 5 years up to December 31, 2026, and a 15% reduction if
held for 7 years up to December 31, 2026.
• The investment in the Qualified Opportunity Fund can grow tax-free as long as it is
held for 10 years or [what about depreciation recapture].
• An investor must invest before 2022 to obtain a 10% discount and had
to invest before 2020 to receive a 15% discount.
• The investment must be sold before 2048 to obtain tax free

appreciation on the investment. This means that an investment can
be made before 2038, but any investment after ? will not result in
deferral.
11
The 100% Tax Deductible Boat or Airplane
In 2020, the individual or married couple forms an LLC to engage in the business of
chartering one or more boats or airplanes.
• The individual or couple spends 500 hours on the business, or 100 hours and
no other person spends 100 hours.
• The boat or airplane is used solely for business purposes for charter - the
owners and their friends and relatives spend zero time on the boat or
airplane, except for working to inspect, improve and repair the boat or
airplane.
• The boat or airplane is chartered at least once at fair market value by an

unrelated party before year-end.
• A 100% income tax deduction is received for the cost of the boat or airplane in
2020.
• The LLC owning the boat or airplane becomes a C corporation in 2021.
The 100% Tax Deductible Boat or Airplane, Cont’d
• If the boat or airplane is subject to debt, the debt should be released and
repaid before the LLC converts into a C corporation, in order to avoid a
constructive sale and depreciation recapture under IRC Section 357.
• The C corporation continues the charter and commercial operations - the

owners of the C corporation pay fair market value rent when they use the
boat or airplane. The C corporation has rent income and operating expenses.
• When the boat or airplane is sold, there will be depreciation recapture to the
extent of the sales price.
• The 1031 Exchange Rules no longer apply to assets other than real estate.
The authors thank Attorney Glen Stankee of the Akerman LLP law firm for his extensive
writing and studies in this area. He has not reviewed or approved this overly simplistic
summary - DO NOT TRY THIS AT HOME!
This can also work with rental cars and recreational vehicles
Section 179 Deduction
A businesses may deduct up to $1,080,000 of the cost of qualified property and the
phase out limitation begins to apply after $2,700,000 of property is placed into
service during the taxable year.
Property that qualifies for §179 expense deductions:

• Machinery and equipment for business use
• Long-term tangible personal property used in business more than 50% of the time (e.g.,
furniture and computers)
• Business vehicles (discussed in more detail on the next slide)
• Improvements to nonresidential real property (e.g., roofs, heating and air conditioning,
fire proofing, security systems, office hot tubs and saunas)
• Equipment purchased for business and personal use, deduction is % based
• Property with longer production periods and certain aircrafts receive an additional year
of full expensing, with phase downs also beginning a year later.
Property that does not qualify for §179 expense deductions:

• Buildings and their structural components
• Land
Section 179 Deduction – Business Vehicles
“Passenger automobiles” are any four-wheel vehicles designed for use on roadways that have a
unloaded weight less than 6,000 pounds, and are subject to the passenger auto depreciation limits
listed below.
However, if a vehicle is classified as a truck or van with an unloaded weight of 6,000 or less, but the
loaded weight is over 6,000 pounds, then the vehicle is not considered a passenger automobile.
However, if the vehicle is classified as a Sport Utility Vehicle between 6,000 – 14,000 pounds the
deduction is limited to $27,000. Truck or vans that fit this description include, among others, the:
Chevrolet Tahoe, Suburban, Cadillac Escalade, Porsche Cayenne, and the Mercedes G-Class. Note the
$27,000 limitation does not apply under Section 168 bonus depreciation.
The allowable depreciation limits for certain passenger automobiles under 6,000 pounds:
• $11,200 in year one ($19,200 if 168(k) bonus depreciation is taken),
• $18,000 in year two ,
• $10,800 for year three, and
• $6,460 for each year thereafter in the recovery period.
Bonus Depreciation - IRC Section 168(k)
Businesses the option to immediately write off or expense 100% of the cost of new
and used qualified property.
Applies to new and used property acquired and placed in service after September 27,
2017 and before January 1, 2023.
Starting in 2023, the amount of allowable bonus deprecation will be reduced to 80%
of the cost, in 2024 60%, in 2025 40%, and in 2026 20%.
Unlike a Section 179 deduction there is no limitation on the amount of bonus

depreciation that may be taken under Section 168 for vehicles over 6,000 pounds.
This includes the $27,000 Section 179 limitation on expensing SUVs.
Additionally, Section 168 bonus depreciation may be used to create a loss.
Electric Vehicles
• In an effort to bring electric vehicle (“EV”) production to the U.S., the Act extends an
already existing $7,500 consumer tax credit for EVs until 2032. The ultimate goal is to raise
battery component manufacturing and assembly for EVs in North America from 50% to
100% by 2028.
• The tax credit eligibility has strict requirements. Manufacturers have expressed their
concerns about these requirements. Ford, GM, and others have sought more time to be
able to meet these requirements as well as an expansion of options that they will be able
to source the minerals from.
• Currently, only about 15% of minerals used in battery production are extracted or
processed in the U.S. or by its trade partners, with the majority being from China. These
restrictions aim to decrease reliance on China for production and create jobs in the U.S.
• As it stands right now, very few electric vehicles qualify for this tax break. It appears that
manufacturers are not confident in their ability to meet the Act’s short timeline.
Electric Vehicles (continued)
• Unfortunately for electric vehicle fans, there will be little or no active assistance for purchasers
in the near future, and only individual buyers with annual incomes of less than $150,000 will
qualify for assistance.
• In an effort to bring electric vehicle (“EV”) production to the U.S., the Act extends an already
existing $7,500 consumer tax credit for EVs until 2032. The ultimate goal is to raise battery
component manufacturing and assembly for EVs in North America from 50% to 100% by 2028.
• However, this extension does not come without stipulations. The Act tightens up the
requirements for electric vehicles to qualify for this tax credit. Only EVs that are built in the U.S.
are eligible. Restrictions are placed on battery production, requiring a minimum percentage of
the battery components be manufactured or assembled in North America. A certain amount of
lithium and nickel, both minerals necessary to manufacturing the batteries, must be sourced in
the U.S. or from its free-trade partners. Around 40% of the battery minerals must be mined and
processed in the U.S. or partner countries, increasing to 80% after 2026.
Electric Vehicles (continued)
• IRS’s Updated information for consumers as of August 16, 2022:
• New Final Assembly Requirement
• If you are interested in claiming the tax credit available under section 30D (EV credit) for purchasing a new electric
vehicle after August 16, 2022 (which is the date that the Inflation Reduction Act of 2022 was enacted), a tax credit is
generally available only for qualifying electric vehicles for which final assembly occurred in North America (final
assembly requirement).
• The Department of Energy has provided a list of Model Year 2022 and early Model Year 2023 electric
vehicles that may meet the final assembly requirement. Because some models are built in multiple locations, there may
be vehicles on the Department of Energy list that do not meet the final assembly requirement in all circumstances.
• Transition Rule for Vehicles Purchased before August 16, 2022
• If you entered into a written binding contract to purchase a new qualifying electric vehicle before August 16, 2022, but
do not take possession of the vehicle until on or after August 16, 2022 (for example, because the vehicle has not been
delivered), you may claim the EV credit based on the rules that were in effect before August 16, 2022. The final assembly
requirement does not apply before August 16, 2022.
• Vehicles Purchased and Delivered between August 16, 2022 and December 31, 2022
• If you purchase and take possession of a qualifying electric vehicle after August 16, 2022 and before January 1, 2023,
aside from the final assembly requirement, the rules in effect before the enactment of the Inflation Reduction Act for the
EV credit apply (including those involving the manufacturing caps on vehicles sold). If you entered into a written binding
contract to purchase a new qualifying vehicle before August 16, 2022, see the rule above.
IMPORTANT NUMBERS
2022 Federal Estate Tax Exemption
The federal estate tax exemption for decedents dying in

2022 is $12.06 million per person or $24.12 million for a
married couple.
The exemption is scheduled to be reduced to one-half of

its otherwise applicable amount in 2026, if not sooner.
2022 Gift Tax Exclusion
The annual exclusion for federal gift tax purposes jumps

to $16,000 for 2022, up from $15,000 in 2021.
Estate Tax Basics
The federal estate tax is imposed on citizens and residents of the United
States.
An estate tax return is due if the gross estate of the individual exceeds his
or her exemption amount.
The total exemption amount for an individual is $12,060,000, minus

previous “taxable gifts.”
A gift that exceeds the $16,000 per year per person gift tax “exclusion”
causes reduction in the exemption of the donor.
Estate Tax Basics
Gross Estate
LESS: Deductions
Taxable Estate
PLUS: Adjusted Taxable Gifts
Estate Tax Base
MULTIPLY BY: Estate Tax Rate
Tentative Estate Tax
LESS: Gift Tax Paid
Gross Estate Tax
LESS: Unified Credit Amount
Net Estate Tax
The Basic and Bonus Exemption Explained
• In 2022, the basic and bonus exemption is $12,060,000 (both are 6,030,000,
respectively)
• What do taxpayers need to do to take advantage of the bonus exemption before it
disappears?
• Easy answer for taxpayers who wish to make large gifts that will use both the basic
and bonus exemption by simply transferring $12,060,000 worth of assets as a gift,
or whatever their combined basic and bonus exemption may now be.
• More difficult for taxpayers who do not wish to gift more than their basic
exemption amount before the bonus exemption disappears because the first dollars
gifted are allocated to the basic exemption and use of the bonus exemption will
only occur after (1) the basic exemption has been completely used, and (2) any
portability allowance has been received by a previous spouse has been used.
Current Estate Tax Exemption – Use it or Lose it
Mrs. Jones has used $1,060,000 of her estate and gift tax exemption from
prior gifting, and therefore has an $11,000,000 exemption.
• If she has a $21,000,000 estate and makes an $11,000,000 gift, before the
exemption is reduced, this will reduce her estate to $10,000,000.
• If Mrs. Jones then dies in 2027, or thereafter, she would have no exemption
remaining, and the estate tax will be $4,000,000 ($10,000,000 x 40% =
$4,000,000).
• If Mrs. Jones makes no further gifts and dies in 2027 when the exemption amount
is $6,360,000 she might only have $5,300,000 of exemption remaining
($6,360,000 less $1,060,000 in prior gifts = $5,300,000. Resulting in an estate tax
of $6,280,000 ($15,700,000 x 40% = $6,280,000).
• $2,280,000 of estate taxes are saved by using the increased exemption amount
before the exemption is reduced.
• It is important to note that there will be no “clawback” for use of the not yet
reduced exclusion amount, meaning that Mrs. Jones will not be penalized for
gifting $11,000,000 of assets if she passes away at a time when the applicable
exclusion amount is $6,000,000.
MRS. JONES EXAMPLE (Cont.)
• Another factor to consider is that in order to use the temporary increased

exemption, gifts must exceed what the exemption will be reduced to.
• For Example:
If Mrs. Jones were to gift $5,000,000 in 2022 when the applicable exclusion
amount is $12,060,000 and then passes away in 2026, or thereafter, when
the applicable exclusion amount is only $6,000,000, Mrs. Jones’s applicable
exclusion amount would only be $1,000,000.
Therefore, in order to take full advantage of the increased exemption, Mrs.

Jones will need to gift all $11,000,000 of her remaining exclusion, and
nothing up to $4,970,000 preserves the use of her temporarily increased
exemption.
$12,060,000 dived by two is $6,030,000.
$6,030,000 – $1,060,000 = $4,970,000.
The Basic and Bonus Exemption Explained, cont.
• Any gifts made by a taxpayer are first allocated to any portability allowance that the taxpayer
may have received from a predeceased spouse, then to the basic exclusion amount, followed
by the bonus exemption amount.
• Taxpayers & advisors alike have sought ways to “lock in” use of the bonus exemption amount
without actually transferring assets as “complete gifts” that will not be included in their estate
for federal estate tax purposes
• In other words, many taxpayers would like to put $12,060,000 worth of cake into a
mechanism to ensure use of the $12,060,000 exemption, while being able to eat the cake for
their remaining lifetime, or at least for some time after January 1, 2026.
• Examples:
• 1. Use a Grantor Retained Income Trust (“GRIT”) which would pay income to the
grantor and then pass to benefit the grantor’s spouse and/or descendants after the
grantor’s death
• 2. Establish an LLC that would be taxed for income tax purposes as a partnership
and pay the grantor an amount equal to 7% of the value of the partnership assets
each year, with all remaining assets passing to the grantor’s children at the time of
the grantor’s death, or earlier if caused by an independent party.
• In both of those situations the transfer to the entity can be considered to be a
complete gift for estate and gift tax purposes, using the $12,060,000 allowance,
even though the assets held under the entity will be considered to be subject to
federal estate tax on the death of the grantor.
• If not for the updated anti-clawback regulations, which were specifically authorized by the
TCJA, while the assets in the entity are includible in the grantor’s estate for estate tax
purposes, the estate tax exemption of the grantor would be used to offset the tax based on
the estate tax exemption available at the time of the funding of the entity.
• The Proposed Regulations will not allow the bonus exemption amount to be used if the
grantor dies after the exemption amount has been reduced (as presently scheduled, January
1, 2026), partnership or similar planning may still be useful for generation-skipping tax
exemption purposes.
The 18-Month Rule
• Under the 18 month rule, an obligation to make a payment to a family member or related
entity must be paid in full more than 18 months before the death of the taxpayer who
owes the debt in order to avoid loss of the ability to use the bonus exclusion with respect
thereto.
• For example, if the taxpayer has a $12.6 million total combined original and bonus
exclusion and signs a 12 million note bearing interest at a market interest rate to an
irrevocable trust for her descendants, she may pay $8 million of the note more than 18
months before dying in 2028, and another $2 million of the note less than 18 months
before her death.
• Assuming no other gifts were made, her estate would have an $8 million exclusion
amount (based upon the basic exclusion amount which may be $7 million in 2028), the
amount equal to the value of assets paid within 18 months of death to reduce the note by
an additional $2 million is included as a taxable gift so that there is no estate tax benefit
from the $2 million payment.
The 18-Month Rule, cont.
• In the prior example, the assets held under the GST trust after the death of the taxpayer,
which would consist of whatever investments were purchased with the $10 million in
payments, and the remaining $2 million promissory note could benefit the taxpayer’s
descendants without being subject to federal estate tax at the level of the taxpayer’s
children. Further, the growth in value of the $8 million and $2 million payments (and
interest earned until they are paid) in addition to the remaining $2 million owed escapes
estate tax at the level of the taxpayer’s children, assuming the proper GST exemption
allocation methods were used and the taxpayer had a $12,060,000, or more GST
exemption.
• If the same taxpayer had survived her spouse, and received a $10 million portability
allowance from the spouse that was not lost as the result of remarriage and surviving the
next spouse, then the same GST exemption allocation to the irrevocable trust described
above will apply, and the taxpayer’s total upon death would be $18 million instead of $8
million.
Confusion Between 3-Year Rule and 18-Month Rule for Certain Special
Rule Exclusions.
• IRC Section 2035 provides that a retained life interest will cause estate tax even
if the decedent discarded or ended the interest if this occurred less than 3 years
before death.
• This exception does not apply if a third party, such as a Trust Protector, caused
the interest to cease.
• The 18 month rule does not extend the 3 year rule
Summary of Portability Allowance Treatment
• Many surviving spouses have a portability allowance from having survived a
spouse who had significant remaining exemption, with a concern that
remarriage and surviving a subsequent spouse after the bonus exemption is
eliminated will cause an estate tax problem for descendants.
• In this situation, principles similar to what will occur if the bonus exemption
is lost in 2026 will also apply.
• For example, a taxpayer who has received a $12 million portability
allowance and has a $12,060,000 estate tax exemption may wish to remarry
and may be expected to outlive a new spouse, which would reduce the
taxpayer’s portability allowance from $12 million to an estimated $8 million
or less.
Summary of Portability Allowance Treatment, con
• This same taxpayer is also facing the loss of half of his/her exemption amount, which might
be expected to be $7 million in 2026 (from $14 million after including inflation to $7
million).
• This taxpayer would need to gift $12 million before 2026 to preserve use of the full
portability allowance and the bonus exemption, but the clawback rules do not apply to the
portability allowance, so a possible arrangement would be as follows:
• (A) Place $12 million into a complete gift / retained interest arrangement, such as a Grantor
Retained Income Trust (“GRIT”), a non-qualifying preferred partnership, to lock in the
portability allowance which is used first when gifting above the $16,000 per year exclusion
occurs.
Summary of Portability Allowance Treatment, con
• (B) If the taxpayer does not want to gift a full $12 million into this
arrangement, she can be informed that anything over approximately $7
million will probably save the excess over $7 million of the portability
allowance if she remarries.
• In other words, she may wish to place more than approximately
$6,030,000 into a dynasty trust or other arrangement that will not be
subject to the clawback rules.
• Her GST exemption should first be allocated to the portability gift
under the section above, and thereafter to a GST exempt trust or other
arrangement under the transfer described in this section B to the extent
of her GST exemption, with any contributions above that going to a
non-GST trust or other arrangement.
• (C) If she wants to fully save the first spouse’s portability allowance
and the bonus exemption then she will gift her GST exemption amount
to an irrevocable trust or other arrangement with remaining amounts
going to non-GST trusts.
The Double Whammy
• Losing the bonus exemption is difficult enough, but what about
taxpayers who have received a portability allowance well exceeding
$6 million and have remarried or may remarry and have their new
spouse die after January 1, 2026, when the portability allowance
would go down to one half of what it would otherwise be?
• Replacement portability allowance will be based upon the estate tax
exemption of the new spouse when he/she dies before the taxpayer
minus whatever other assets pass that do not qualify for the marital
and/or charitable estate tax deductions in the estate of such
predeceasing spouse.
Application to Qualified Personal Residence Trusts
(QPRTs)
• The vast majority of Qualified Personal Residence Trusts use gift
elements significantly exceeding 5% of the total value of a home
gifted to a QPRT.
• As the result of this, the death of the grantor of a QPRT that was
funded before the bonus exemption is/was reduced will not have
use of the bonus exemption in the event of death after 2025 and
before the retained interest term lapses.
The 5% De Minimis Rule
• The 5% De Minimis Rule, also known as the “5% or Less Exception” applies to
transfers where the value of the taxable portion of the transfer has not exceeded five
percent of the total transfer and such transfers will receive the preferential treatment
under the 2019 regulations
• For example, if the taxable component of a GRAT does not exceed 5% of the total
amount transferred to the GRAT, the de minimis exception will apply.
• If a client creates a $10 Million GRAT with a taxable component of $500,000 or
less, the transfer would qualify under the de minimis rule.
• When the de minimis exception applies, the gift component can be used to lock in use
of the estate tax exemption in effect in the year of the gift.
“Special Rule,” “Bad Exceptions,” and “Good Exceptions” to the Exceptions.
Exceptions to the
Exceptions
Exceptions
Gifts that are includible in the gross

estate pursuant to § 2035, 2036.
2037. 2038, or 2042, of the Code
The Five Percent Or Less Exception.
Transfers where the value of the taxable

portion of the transfer has not exceeded
five percent of the total transfer, such as
Unsatisfied enforceable promises if the taxable component of a GRAT does
to pay not exceed 5% of the amounts
transferred to the GRAT, then the gift
component can be used to lock in use of
the estate tax exemption in effect in the
year of the gift, if the gift is large enough
Special Rule
to exceed the smaller exclusion that will
Allows an estate to calculate its Gifts subject to the special otherwise apply on death
estate tax credit using the higher of valuation rules of § 2701 (preferred
the exclusion applicable as of the partnership freezes and similar
date of the gift or the exemption arrangements)
amount applicable upon death
§ 2702 (related to GRATs (Grantor Termination or Lapse by Death.

Retained Annuity Trusts) and
QPRTs (Qualified Personal
Residence Trusts)) Transfers where the retained interests
were relinquished or terminated by the
termination of a durational period
described in the original instrument of
The relinquishment or elimination transfer which is either (a) the death of
of an interest in any one of the any person, or (b) the passage of time.
aforementioned situations that
occurs within eighteen (18) months
of the date of the decedent’s
death.
LISI Article – IRS Clawback Proposed Regulations Put a Tiger in the
IRS's Tank Click here to read.
LISI Article – IRS Clawback Proposed Regulations Put a Tiger in the
IRS's Tank Click here to read.
LISI Article – IRS Clawback Proposed Regulations Put a Tiger in the IRS's Tank Click here to read.
REVERSIBLE DYNASTY
TRUSTS
(The Reversible Exempt Asset
Protection Trust - -
REAP Good Results for Your Client)
Grantor Retained Income Trusts (“GRITs”)
• A Grantor Retained Income Trust (“GRIT”) is a trust which provides that all of its’ income will
be payable to the grantor of the trust, with the remaining assets to pass for the benefit of
descendants after the grantor’s death. GRITs can work well when established for nephews,
nieces, significant others, and other non-charitable beneficiaries.
• If the taxpayer makes a gift of $12 million worth of assets to a GRIT and retains the right to
receive income for his or her lifetime from the GRIT then (a) this will be considered to be a
gift of $12,000,000 worth of assets and (b) the entire value of the GRIT will be included in the
grantor’s estate under IRC §2036(a)(1).
• Fortunately, IRC §2043 will give the grantor’s estate credit for the $12,000,000 use of the
estate and gift tax exemption when the GRAT was formed if $12 million or more worth of
assets from the GRAT are included in the grantor’s estate for federal estate tax purposes if the
GRIT has less than $12 Million of assets then whatever amount it has should qualify for the
estate and gift tax exemption. For example, if the GRIT is worth $9 Million on the Grantor’s
death then $ 9 Million of exemption would be available under section 2043, if the Proposed
Regulations do not apply.
Grantor Retained Income Trust
Pays All of Its

Income to the
Grantor for Life
GRIT
Remainder Can Be
Held for Children and
Grandchildren and be
GST-Exempt
Example – Grandma’s GRITs
• Grandma has a $30 million estate and does not feel comfortable gifting more than
$6,030,000 worth of assets outside of her control. She has never used the $12,060,000
combined basic and bonus estate tax exclusion or her $12,060,000 Generation Skipping Tax
(“GST”) exclusion either.
• She gives $12,060,000 to a lifetime grantor retained income trust (“GRIT”) that will pay her
all income and may pay distributions of principle as and when needed.
• While the GRIT is irrevocable, Grandma can change the trustee to an alternate unrelated
party, and the trustee she appoints can return the assets to her.
• Grandma allocates her $12,060,000 GST exemption to the trust.
• The estate tax exemption goes to one half of its otherwise applicable level in 2026 and
Grandma dies in 2027 with an exemption of $7 million when the trust is worth $13 million.
• While the value of the trust and grandma's other assets are subject to federal estate tax,
with a $7 million exemption, the trust assets can still be GST exempt and thus never subject
to estate tax at the level of Grandma's children, who are all financially successful and pleased
with the arrangement.
Complete Gift / Forced Inclusion to
Lock In Bonus GST Exemption
If Proposed Regulations Are
GRIT Enacted:
Assets in Estate
-or- Not Eligible for Bonus
Preferred Exemption
On the
Gift of Partnership
Grantor $12,000,000 in
Death of Grantor,
Assets Failing § 2701 Assets Are Worth
$14,000,000
If Proposed Regulations Are
With Common NOT Enacted:
Owned by GST- Bonus GST Exemption is Not
Exempt Trust Lost Under the Proposed
Regulations – How Much of
GRIT is GST Exempt?
Would Same Apply For

Portability Allowance?
Consequences of Proposed Regulations
• If the Proposed Regulations are not enacted, then the Grantor’s estate can use the
bonus exemption on GRIT assets if the Grantor dies after 2026.
• If the proposed regulations are enacted, then the bonus exemption will not be
permitted for estate tax purposes, but the GRIT assets should be GST exempt.
• Under the new Proposed Regulations, if the Grantor dies after December 31st,
2025, only the then remaining credit would be available under IRC §2043, but the
Grantor’s $12 million use of GST exemption will still be intact, and can save
millions of dollars in federal estate tax when the Grantor’s children and
grandchildren eventually die and there is no estate tax or generation skipping tax
imposed on the GRIT assets.
2036 Retained Life Interests – Stay Away From the
Fruit of the Tree
Assets transferred will still be considered as owned by the transferor:
a) (2036(a)(1)) - The transferor had any written or oral agreement or understanding to be

able to have to receive any “fruit from the tree.” The ability to put one cow on a large
farm is enough to cause the entire farm to be subject to estate tax.
b) (2036(a)(2)) - The grantor retains any right exercisable in conjunction with anyone to
control if and when the property will be received by others.
The Powell and Strangi Tax Court cases have taken this beyond reason.
THREE YEAR RULE - 2036(a) can apply even after the rights are given up if the grantor
dies within three years of giving the rights up.
BONA FIDE SALE EXCEPTION - 2036(a) will not apply if the arrangement was a bona
fide sale for good and valuable consideration - this can be a very hard test to satisfy.
Badgley v. United States, 957 F.3d 969 (9th Cir. 2020)
Full Inclusion Under 2036(a) when Grantor Dies During GRAT Term
• Summary
• The full date-of-death value of a GRAT is includable in a decedent’s gross estate for federal estate tax
purposes, unless the grantor divests herself of possession of, enjoyment of, or a right to income from the
property, leaving no string tying her to the property.
• Facts
• Decedent (Yoder) created a Grantor Retained Annuity Trust (“GRAT”), transferring her partnership
interest in a family-run company to the GRAT for the ultimate benefit of her daughters, while retaining a
right to an annuity paid from the GRAT for 15 years. Yoder died before the 15-year annuity period
expired. Following Yoder’s death, the executor filed a federal estate tax return reporting the total date-
of-death value of the GRAT’s assets as part of Yoder’s gross estate, and paid estate taxes accordingly. The
executor thereafter brought suit asserting that Yoder’s estate overpaid estate taxes based on the
inclusion of the entire date-of-death value of the GRAT. The executor argued that only the net present
value of the unpaid annuity payments should have been included. The District Court held that the full
date-of-death value of the GRAT was includable, because Yoder retained both a right to income from the
property and a continued enjoyment from the property.
• Holding
• Although annuities are not specifically mentioned in the definition of the value of a decedent’s estate by
statute, the full date-of-death value of a decedent’s GRAT is includable in the gross estate.
• There are three “strings” tying a Grantor to property transferred during life, which are instructive in
determining whether property is includable in the gross estate for federal estate tax purposes: (1)
possession, (2) enjoyment, and (3) a right to income therefrom.
• When a Grantor derives substantial present economic benefit from the property, she retains the
enjoyment of the property and it is includable in the value of the gross estate. Retention of an annuity
flowing from a GRAT requires inclusion in the gross estate. Yoder’s annuity stemmed from a property
interest placed in the GRAT, so she reserved enjoyment of that interest during her lifetime, and it was not
transferred to the beneficiaries before her death.
THE BIDEN 2-STEP:
ESTATE TAX AVOIDANCE
FOR HIGH NET WORTH TAXPAYERS
$1,000,000 PROMISSORY NOTE/SCIN/PRIVATE
ANNUITY/GRAT ALTERNATIVES
October 2022 / CLIENT AGE 70
Alternatives: (Using October 2022 Applicable Federal Rates and October 2022 7520 Rate of 4.0%)
<3 Year Interest Only Installment Note @ 3.40% - Payment = $34,000 per year*
9 Year Interest Only Installment Note @ 3.28% - Payment = $32,800 per year*
<9 Year Interest Only Installment Note @ 3.43% - Payment = $34,300 per year*
CLIENT 14 Year Interest Only SCIN @ 7.964% - Payment = $79,638 per year*
TRUST
(AGE 70) (PURCHASER)
Private Annuity Level Annual Payment - Payment = $99,414.45 per year

3 Year Level Payment GRAT @ 4.0% - Payment = $360,347.37 per year
3 Year GRAT @ 4.0% - Initial Payment = $298,400.57 and Increases Annually by 20%**
* Notes would have no penalty for prepayment – minimum payments are shown above.
Self-cancelling installment Notes must balloon before life expectancy as measured at time of Note being made. Client’s life
expectancy is 14.27 years under IRS tables. The SCIN calculations above are based on a 14-year note term.
** This GRAT assumes that each annuity payment will increase by 20% each year. All GRATs assume no taxable gift on funding
If interest rates increase in the future, consider the use of a 20-year interest only note at the 3.43% long-term AFR, locking in a 3.43%
rate for the next 20 years.
Note: August 2022 rates for annual compounding are:
Short-Term – 2.88%
Mid-Term – 3.15% Usable through October 31, 2022 for a “sale or exchange”
Long-Term – 3.35%
CURRENT AND RECENT APPLICABLE
FEDERAL RATES (2021-22)
MONTH SHORT TERM MID-TERM LONG-TERM

Sept. 2021 0.17% 0.86% 1.73%
Oct. 2021 0.18% 0.91% 1.74%
Nov. 2021 0.22% 1.08% 1.86%
Dec. 2021 0.33% 1.26% 1.90%
Jan. 2022 0.44% 1.30% 1.82%
Feb. 2022 0.59% 1.40% 1.92%
Mar. 2022 0.97% 1.74% 2.14%
Apr. 2022 1.26% 1.87% 2.25%
May 2022 1.85% 2.51% 2.66%
June 2022 2.21% 2.93% 3.11%
July 2022 2.37% 2.99% 3.22%
August 2022 2.88% 3.15% 3.35%
September 2022 3.05% 2.93% 3.14%
October 2022 3.40% 3.28% 3.43%
November 2022 4.10% 3.97% 3.92%
Can use lowest of last three months on a “sale or exchange” under IRC Section 1274(d)(2).
See IRC Section 7872(f)(2)
Short Term Applicable Federal Rate (1984 -
Present)
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Jul-86
Jul-91
Jul-96
Jul-01
Jul-06
Jul-11
Jul-16
Jul-21
Nov-84
Nov-89
Nov-94
Nov-99
Nov-04
Nov-09
Nov-14
Nov-19
May-87
May-92
May-97
May-02
May-07
May-12
May-17
May-22
Jan-84
Sep-85
Mar-88
Jan-89
Sep-90
Mar-93
Jan-94
Sep-95
Mar-98
Jan-99
Sep-00
Mar-03
Jan-04
Sep-05
Mar-08
Jan-09
Sep-10
Mar-13
Jan-14
Sep-15
Mar-18
Jan-19
Sep-20
Mid-Term Applicable Federal Rate (1984 -
Present)
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Jul-86
Jul-91
Jul-96
Jul-01
Jul-06
Jul-11
Jul-16
Jul-21
Nov-84
Nov-89
Nov-94
Nov-99
Nov-04
Nov-09
Nov-14
Nov-19
May-87
May-92
May-97
May-02
May-07
May-12
May-17
May-22
Jan-84
Sep-85
Mar-88
Jan-89
Sep-90
Mar-93
Jan-94
Sep-95
Mar-98
Jan-99
Sep-00
Mar-03
Jan-04
Sep-05
Mar-08
Jan-09
Sep-10
Mar-13
Jan-14
Sep-15
Mar-18
Jan-19
Sep-20
Long Term Applicable Federal Rates (1984 -
Present)
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Jul-86
Jul-91
Jul-96
Jul-01
Jul-06
Jul-11
Jul-16
Jul-21
Nov-84
Nov-89
Nov-94
Nov-99
Nov-04
Nov-09
Nov-14
Nov-19
May-87
May-92
May-97
May-02
May-07
May-12
May-17
May-22
Jan-84
Sep-85
Mar-88
Jan-89
Sep-90
Mar-93
Jan-94
Sep-95
Mar-98
Jan-99
Sep-00
Mar-03
Jan-04
Sep-05
Mar-08
Jan-09
Sep-10
Mar-13
Jan-14
Sep-15
Mar-18
Jan-19
Sep-20
Long Term
Applicable Federal Rates (1984 - Present)
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Jul-86
Jul-91
Jul-96
Jul-01
Jul-06
Jul-11
Jul-16
Jul-21
Nov-84
Nov-89
Nov-94
Nov-99
Nov-04
Nov-09
Nov-14
Nov-19
May-87
May-92
May-97
May-02
May-07
May-12
May-17
May-22
Jan-84
Sep-85
Mar-88
Jan-89
Sep-90
Mar-93
Jan-94
Sep-95
Mar-98
Jan-99
Sep-00
Mar-03
Jan-04
Sep-05
Mar-08
Jan-09
Sep-10
Mar-13
Jan-14
Sep-15
Mar-18
Jan-19
Sep-20
Short Term Mid Term Long Term
2036 Retained Life Interests – Stay Away From the
Fruit of the Tree
Assets transferred will still be considered as owned by the transferor:
a) (§ 2036(a)(1)) - The transferor had any written or oral agreement or understanding to be able
to have to receive any “fruit from the tree.” The ability to put one cow on a large farm is
enough to cause the entire farm to be subject to estate tax.
b) (§ 2036(a)(2)) - The grantor retains any right exercisable in conjunction with anyone to control
if and when the property will be received by others.
The Powell and Strangi Tax Court cases rely on the language “a power in conjunction with any other
person.” Example: The sole general partner is a S corporation. Because decedent was a minority
shareholder, decedent was not in control of the general partner. The “in conjunction” language was
not limited to only a power that could control.
THREE YEAR RULE - § 2036(a) can apply even after the rights are given up if the grantor dies within
three years of giving the rights up.
BONA FIDE SALE EXCEPTION - 2036(a) will not apply if the arrangement was a bona fide sale for good
and valuable consideration - this can be a very hard test to satisfy.
After Installment Sale
Biden 2-Step for Closely Held S Corporation
What Is The Biden 2-Step? – Cont’d
Determining a Sales Price
Once it is decided what assets will go under the holding company and what
assets may be sold directly to an irrevocable trust, these items can be valued, so
that a sales price is determined.
Typically, there will be a discount if a non-voting membership interest in a

family LLC is being sold. The same applies to transferring limited partnership
interests in a limited partnership.
Size of the valuation discount for lack of control and lack of marketability? In
the long run, the discount is insignificant. The more effective wealth transfer
occurs with the grantor trust earning a rate of return greater than the interest
rate on the note and the grantor paying the income taxes on the grantor trust’s
taxable income. Aggressive valuation discounts increase the gift tax audit
exposure!!
Using the Irrevocable Grantor Trust to Make the Purchase:
While or after the Family LLC is established and funded an irrevocable trust that
may be held for a spouse and/or descendants and/or others, which may include
charity, is established and has been funded by only the taxpayer who will sell the
assets.
The trust is “disregarded” for income tax purposes.
The discussion of such a trust could go for hours and is beyond the scope of
today’s talk.
The irrevocable grantor trust purchases the non-voting member interest in the
holding company, and whatever other assets are being sold, for a long-term note
bearing interest at the applicable federal rate (which is presently 1% for notes that
exceed 9 years).
The above completes Step One.
As Step Two, and before the estate tax exemption is reduced, the taxpayer can:
(A) Forgive the note, if desired, after receiving election results and report this as a gift in
an amount equal to the stated principal (its face value).
(B) Consider valuing the note based upon its fair market value, as opposed to the face
amount owed and then gifting it (forgiving the note is also a gift) For example, a
$13,000,000 low interest long term note may be worth $11,000,000 because its
interest rate is lower than market rates and other factors.
(C) In the future there may be a possible swap of the low interest long-term note for a
higher interest shorter term note of equal value, but with a lower amount owed.
That note would be forgiven or gifted at face value. For example, the $13,000,000
note above is traded for a current rate $11,000,000 demand note, and that note is
forgiven as a gift.
(D) Transfer the note to a Q-TIP Trust for the spouse of the taxpayer and decide by the
due date of the marital deduction election deadline in 2023 whether to have this be
considered to be either (a) a 2022 gift to a non marital deduction trust, thus using
part of the $1,580,000 exemption, or (b) a transfer to the spouse via the marital
deduction being elected and the trustee distributing the note to the spouse, thus
using none of the exemption, as if no transfer was made.
Can You Wait Until December To Get This Started?
Step Transaction Doctrine

• Senda, Holman, and other court decisions.
• A transfer of assets to an LLC that is immediately followed by a transfer of

non-voting member interests by gift will be considered to be a gift of the
underlying assets, with no discount permitted.
• It is safest to wait 30-45 days between contribution and member interest

transfer.
• The more volatile the asset contributed, the less waiting time required.
Can you wait until November 3rd to get this started?
Summary of cases where courts have addressed the step transaction doctrine by analyzing the
close proximity between date of funding of entity and date of transfer of entity interests.
Date Type of
Case Deci- Date Assets Date # of days Court Assets
Name/ sion Entity Transf- Interest in Found Inves- Special
Court Date Formed erred Gifted between For ted Court Held Court’s Dicta notes
Holman v. 5/27/08 11/3/99 11/2/99 11/8/99 6 Taxpayer Shares of The limited This case is distinguishable There were
Comr. (U.S. Dell stock partnership was from Senda because other gifts and
Tax Ct.) formed and the petitioners did not contribute transfers, but
shares of Dell the Dell shares to the the Court was
stock were partnership on the same day only
transferred to it they made the 1999 gift; concerned
almost 1 week in indeed, almost 1 week passed with the
advance of the between petitioners' formation November set
gift, so that on and funding of the partnership of
the facts before and the 1999 gift. Petitioners transactions.
us, the transfer bore the risk that the value of
cannot be an LP unit could change
viewed as an between the time they formed
indirect gift of the and funded the partnership
shares to the and the times they chose to
donees. transfer the LP units.
Furthermore, the Therefore, the Court decided
gift may not be not to disregard the passage of
viewed as an time and treat the formation
indirect gift of the and funding of the partnership
shares to the and the subsequent gifts as
donees under occurring simultaneously
the step under the step transaction
transaction doctrine. Also, in this case,
doctrine. the IRS conceded that a 2-
month separation is sufficient
to give independent
significance to the funding of a
partnership and a subsequent
gift of LP units.
Date Type of
Senda v. 7/12/04 6/3/98 12/28/98 12/28/98 0 IRS Shares of The Petitioners presented no On January
Comr. (SFLP I) stock taxpayers' reliable evidence that 31, 2000,
(U.S. Tax transfers of they contributed the stock petitioner
Ct.) 12/2/99 12/20/99 12/20/99 0 Shares of stock to to the partnerships before gave to
(SFLP II) stock partnerships, they transferred the each child
coupled with partnership interests to an
transfer of the children. It is unclear additional
limited whether petitioners' 4.5-percent
partnership contributions of stock limited
interests to were ever reflected in partnership
their children, their capital accounts. At interest in
were indirect best, the transactions SFLP II.
gifts of stock were integrated and, in
to children, effect, simultaneous.
and thus, Therefore, the Court
stock and not concluded that the value
partnership of the children's
interests, partnership interests was
would be enhanced upon
valued for gift petitioners' contributions
tax purposes. of stock to the
partnerships and were
indirect gifts.
Date Type of
Estate of 3/6/01 1/1/95 1/1/95 1/1/95 0 Tax- Assets Transfers of All of the contributions of
Jones v. (JBLP) payer including property to property were properly
Comr. real partnerships reflected in the capital
(U.S. Tax 1/1/95 1/1/95 1/1/95 0 property were not accounts of the taxpayer,
Ct.) (AVLP) taxable gifts. and the value of the other
partners' interests was
not enhanced by the
contributions of decedent.
Therefore, the
contributions do not
reflect taxable gifts.
Date Type of
Shepherd 10/26/00 8/2/91 Leased 8/2/91 Varies IRS Fee Transfers Not every capital
v. Comr. Land interest in represent contribution to a
(U.S. Tax (8/1/91) ; timberlan separate partnership results in a
Ct.) Bank d subject indirect gifts gift to the other partners,
Stock to a long- to his sons of particularly where the
(9/9/91) term 25% contributing partner's
timber undivided capital account is
lease and interests in increased by the amount
stocks in the leased of his contribution, thus
three timberland entitling him to recoup the
banks and stocks. same amount upon
liquidation of the
partnership. Here,
however, petitioner's
contributions of the
leased land and bank
stock were allocated to
his and his sons' capital
accounts according to
their respective
partnership shares.
Upon dissolution of the
partnership, each son
was entitled to receive
payment of the balance in
his capital account.
AFR Promissory Notes
• Is a Note at the Applicable Federal Rate equal to its face amount?
• At Heckerling this year John Porter stated that there is a pending case where the
IRS is arguing that a note at the Applicable Federal Rate is valued at less than its
face value.
• The IRS’s argument is that 7872 is a safe harbor to avoid imputed interest, but is
not a safe harbor for treating the fair market value of a note at the Applicable
Federal Rate as equal to its face value.
• John Porter thinks that they are wrong, but contingencies should be put into
place in case a court decides otherwise.
Reasons To Keep The Note In Place
1. Continued Flexibility. Keeping the note in place permits the taxpayer to take advantage of one or more of the strategies described
herein, when the time is right, based upon future circumstances.
2. Keeping the Note in Place Allows the Taxpayer to Reverse the Transaction, at Least to a Great Extent, Based Upon Relative Values at
the Time of Reversal. For example, if the assets grow in value after the sale then the appreciation in value will remain under the trust,
but asset interests equal in value to the promissory note can be transferred back to the taxpayer in exchange for cancellation of the
note.
3. The Payments May be Needed for Living Expenses, to Pay Taxes and for Other Purposes. The taxpayer may be dependent on or may
favor receiving annual interest and possibly principal payments on the note to pay for living expenses, taxes imposed on the note
holder attributable to trust income, to make $16,000 per year per person annual exclusion gifts, and to give to charity. While the note
may be set to pay interest only, if the note holder wants to receive payments of principal to have more in cash flow, this can be
arranged if the Trustee of the borrower trust is agreeable to making prepayments.
4. Lender Relationships. Lenders that have approved the arrangement may prefer that it remain in place.
5. To Grandfather Low Rates. Many notes were implemented at very low interest rates to allow growth above the stated rate to remain
outside of the taxpayer’s estate. This will become more attractive if and when rates go up in value.
6. The Taxpayer Has Had Enough Planning For Now. Many taxpayers feel that they have been through an ordeal, or at least something
less than a completely enjoyable experience in tolerating advisor recommendations and the logistics of putting an installment sale into
place. Even asking them to make “another change” may be unappealing, despite our using all of our Dale Carnegie skills, grace and
even pleading.
7. More Control and Personal Financial Security for the Note Holder. The taxpayer may want to keep a large net worth and control
where a note would pass during his or her lifetime or upon death. It would be wise to carefully consider spending and possible needs
before forgiving or giving away a large asset, not to mention psychological issues that can arise if an individual believes that they may
run out of assets during their lifetimes.
Disadvantages Of Keeping A
Promissory Note In Place
1. Possible Loss of the Use of the Increased Federal Estate Tax Exemption. If Congress and the President act
retroactively to reduce the exemption, then taxpayers risk losing the ability to use the currently high
$11,700,000 estate tax exemption.
2. A Note Arrangement May Cause Issues with Lenders. Many taxpayers transfer income producing
property or assets that are leveraged by debt, so lenders will review loan ratios and trust and debt
arrangements to determine how those will impact the financing and financing terms.
3. Risk of Taxable Income on Death With Note Outstanding. Some authors have taken the position that it is
possible that there will be recognition of income on the death of a Grantor, as if the Grantor sold the
assets held by the disregarded trust to the trust in exchange for the promissory note before death.
4. The Taxpayer Might Unwisely Change Their Mind or be Subject to Undo Influence and Dismantle Part of
the Estate Plan. A perfectly happy married couple might enter into promissory note arrangements, with
the promissory notes being held by the surviving spouse, who loves the note more than the note holder,
and might remarry someone, have dementia, or be subject to undue influence.
Reasons To Forgive Or Gift The Note And Use The
Taxpayer’s Exemption
A. IRS Audit Considerations. If the taxpayer would prefer not to be audited by the Internal Revenue Service, it
would likely make sense to use their exclusion in 2021. There is probably a much lower chance that 2021 gift tax
returns will be audited than gifts made in 2022 and thereafter.
B. Yearly Interest From the Note Adds to the Gross Estate. Although the note is bearing interest at a low rate,
interest earned is still added to the taxpayer’s estate.
C. Notes in Place Still Can Be “Complicated” and Cumbersome. Many taxpayers have a hard time understanding
how they can be owed a note that is disregarded for income tax purposes, so they need multiple reminders to
make sure that the trustee of the trust makes the note payment to the taxpayer.
D. Creditor Claims. Creditors can seize the note, because a note owed to an individual is considered that individual’s
property. For similar reasons, the note can be taken away by someone asserting undue influence or assigned to a
spouse in the event of a divorce.
E. Valuation Discounts. The amount of the gift made upon forgiveness may be significantly less than the face
amount owed on the note. Court cases have confirmed that promissory notes bearing interest at less than the
normal fair market value rate will be subject to valuation discounts, as will a part ownership of a promissory
note.
F. State Tax Considerations. Taxpayers should also consider and plan for the state estate tax consequences of such
notes. Often times, notes retained by a Grantor will be considered to be property for purposes of state estate tax
calculations.
G. Finality. Many taxpayers and advisors might agitate over the fact that they simply are not sure what to do with a
note. Thus, eliminating the note can provide better simplicity and give taxpayers a sense of finality and closure.
Qualified Personal Residence
Trust (QPRT) Chart
Please email info@gassmanpa.com “Spreadsheets” for this free tool.
UPDATED QPRT Chart – Email info@gassmanpa.com for this free spreadsheet.
Disclaimer Planning
IRC Section 2518
Under IRC Section 2518 the recipient of a transfer has 9 months to make a
disclaimer.
If the disclaimer is valid under state law, then the disclaimant is not considered to
have transferred the disclaimed interest to whoever will receive it.
This allows a 9 month look-back for gifts made when it is not finally determined
whether the intended gift is appropriate.
For example, John has an $11,580,000 estate and gift tax exemption and intends to
use it, but is not so sure.
He makes an $11,500,000 gift to his wife, Mary in the form of an Assignment that he
executes that constitutes a transfer to Mary under state law.
The Assignment provides that if Mary does not accept or disclaims the gift, then it will
pass into a Dynasty Trust for John and Mary’s children.
IRC Section 2518
He executes this Assignment on December 31, 2020.
Assuming that Mary does not accept and use or control the assets
assigned, she has until 9 months after December 31, 2020 (October 1, 2021)
to disclaim some or all of the disposition.
Upon making the disclaimer Mary has caused John to be considered to

have made a gift directly to the Dynasty Trust for their children on December
31, 2020.
John can file a gift tax return in 2021 to report the transfer and allocate his
generation skipping tax exemption to the Trust if the Trust is drafted to be
GST exempt (the allocation will be automatic regardless if the Trust is
properly drafted).
Mary is not considered to have been a beneficiary of such gift.

IRC Section 2518
What if Mary is a beneficiary of the Trust or holds a testamentary power to appoint
the assets among John and Mary’s children, but not to Mary, her estate, her creditors,
or creditors of her estate?
Under the disclaimer statute a disclaimer by an individual will not be disregarded

under Section 2518 unless the individual making the disclaimer has no right to benefit
from or direct the disclaimed asset.
An exception to this applies if the person making the disclaimer is the spouse of
the donor. In that instance, the spouse will be permitted to make the disclaimer even
though he or she may receive benefits for health, education, maintenance and
support from a trust that receives the disclaimed property, but the disclaimant cannot
have any power of appointment over the disclaimed property (or the Trust in this
example). The spouse must therefore also disclaim any such power of appointment at
the time that she disclaims the property, or she will be considered to have gifted the
property to the Trust.
IRC Section 2518
What about if the donor is not married or a transfer
to a spouse would cause a reciprocal trust doctrine
issue:
Edwin Morrow published LISI Estate Planning

Newsletter #2831 on October 19, 2020 entitled “How
Donees Can Hit the Undo Button on Taxable Gifts”
which reads as follows:
From Ed Morrows LISI Estate Planning
Newsletter #2831
Tax Effect of a Qualified Disclaimer to the Donor
Often when a donee/beneficiary disclaims an intervivos gift, there is no gift tax effect to the
donor. If the gift is initially made to a child who disclaims, for example, but the assets simply
stay in trust for or pass to that child’s children, the gift is still complete. In such an instance,
however, it may now be subject to generation skipping transfer (GST) tax as well, since a
disclaimer does not invoke the predeceased ancestor exception. 12
What if, upon disclaimer, the assets pass back to the donor? Treasury regulations provide that if a
donee makes a qualified disclaimer, it “undoes” the gift for federal gift tax purposes if the asset
reverts to the donor:
(c)(1) The gift tax also applies to gifts indirectly made. Thus, any transaction in which an interest
in property is gratuitously passed or conferred upon another, regardless of the means or device
employed, constitutes a gift subject to tax. See further § 25.2512-8 relating to transfers for
insufficient consideration. However, in the case of a transfer creating an interest in property
(within the meaning of § 25.2518-2(c)(3) and (c)(4)) made after December 31, 1976, this
paragraph (c)(1) shall not apply to the donee if, as a result of a qualified disclaimer by the donee,
the interest passes to a different donee. Nor shall it apply to a donor if, as a result of a qualified
disclaimer by the donee, a completed transfer of an interest in property is not effected. See
section 2518 and the corresponding regulations for rules relating to a qualified disclaimer. 13
[emphasis added]
This gift tax regulation contains no time frame or limit as to this important effect, but references
§2518 and its regulations, which of course must be done within the later of nine months after the
gift or nine months after the disclaimant reaches age 21.
From Ed Morrows LISI Estate Planning
Newsletter #2831
The disclaimer regulations reinforce this conclusion:
(b) Effect of a qualified disclaimer. If a person makes a qualified disclaimer as described in

section 2518(b) and § 25.2518-2, for purposes of the Federal estate, gift, and generation-skipping
transfer tax provisions, the disclaimed interest in property is treated as if it had never been
transferred to the person making the qualified disclaimer. Instead, it is considered as passing
directly from the
transferor of the property to the person entitled to receive the property as a result of the
disclaimer. 14
[emphasis added]
Thus, if a donor gives property in September 2020 but the donee disclaims in March of 2021, the
gift is undone (if, under state law and the donative instrument, it reverts to the donor). Similarly,
if the donee does not become age 21 until March of 2023, and files a qualified disclaimer within
nine months of that date, the effect is exactly the same.
Just because a gift may come back to the donor through a voluntary action of another does not
make the original gift incomplete. 15 Otherwise, no gift would ever initially be complete, since
donees can always disclaim or later give it back.
Nuances of these conclusions, however, are discussed below.
IRA Disclaimer Planning
This gives much more flexibility to the family and advisors, not to mention that it could have locked
in the pre-SECURE Act IRA Required Minimum Distribution regime if the Plan Participant died in
2019.
Disclaimer planning can be useful. For example, many clients will name the surviving spouse as the
beneficiary of an IRA or pension account, with the alternate beneficiary being a Conduit Trust under
provisions that would allow the trustee of the Conduit Trust to amend the trust to become an
Accumulation Trust, or to disclaim the distribution with the alternate beneficiary being an
Accumulation Trust. The trustee of the Accumulation Trust may have the right to disclaim the
benefit so that it would pass to trusts for the descendants, and the trustees of the trusts for the
descendants may have the right to disclaim the benefit to go to a public charity or a private
foundation that might be formed by the family, and managed by family members who may receive
reasonable compensation for charitable activities, and maintaining the investments of the foundation.
Another use of disclaimers is to have Retirement Plan benefits payable to a trust for the benefit of
children which provides that the Trustee will be entitled disclaim assets to the Charitable Remainder
Trust which will benefit the individual’s descendants, in addition to a charity. This can help
effectuate some of the family’s charitable goals, while achieving income tax savings.
Please note that disclaimer planning will only work if the alternate beneficiary that eventually does
not disclaim is an appropriate individual, individuals, a Conduit Trust, or an Accumulation Trust, and
that beneficiary designations cannot be changed after the death of the Plan Participant.
DETERMINING HOW TO BEST ALLOCATE ASSETS AS BETWEEN A MARRIED
COUPLE - PART I
General Rules:
-Typically want each trust funded with at least $11,180,000 worth of assets on death for estate tax planning.
- May be funded from ½ of tenancy by the entireties assets via disclaimer and probate or by life insurance/pension/IRA assets.
Spouse 2 Trustee other than Spouse 1 could be Trustee

Spouse 1
Spouse 1 or Spouse 2 if Spouse 2 is sole grantor
(or vice versa)
Protected life
insurance and Lifetime By-
Spouse 1’s Spouse 2’s
annuity Gifting Trust
Revocable Revocable Pass Trust
contracts (Irrevocable) (Irrevocable)
“owned by the Trust Trust
insured.”
FLORIDA TBE
(Tenancy by the
Entireties)
1. Only exposed to creditors if 1. Safe from creditors of Spouse 1 1. Safe from creditors of
1. Assets held directly by 1. Safe from the creditors
both spouses owe the but exposed to creditors of both spouses.
revocable trust are subject to of the Grantor’s spouse.
creditor, if one spouse dies Spouse 2 (Maintain large 2. If divorce occurs,
Spouse 1’s creditor claims. 2. If funded by one spouse,
and the surviving spouse umbrella liability insurance should not be subject
2. Direct ownership of limited may benefit other spouse
has a creditor, the spouses coverage to protect these to rules for division of
partnership or LLC not in TBE and children during the
divorce, or state law or the assets.) property between
may have charging order lifetime of both spouses.
state of residence changes. 2. On Spouse 2’s death, can be spouses.
protection (meaning that if a 3. Otherwise can be identical
2. On death of one spouse, held under a protective trust, 3. May be controlled by
creditor obtains a lien on the to gifting trust pictured to
surviving spouse may disclaim which will continue to be safe the “entrepreneurial
limited partnership or LLC, the left.
up to ½ (if no creditor is from creditors of Spouse 1, spouse” by using a
Spouse 1 cannot receive
pursuing the deceased subsequent spouses, and Family Limited
monies from the limited
spouse) to fund By-Pass Trust “future new family.” Partnership.
partnership or LLC without
on first death.
the creditor being paid).
SEE NEXT PAGE FOR SECOND TIER PLANNING

A COMMON SOLUTION - to use a limited partnership or similar mechanisms and have no assets directly in the “high risk”
spouse’s trust, half to two-thirds of the assets held as tenants by the entireties, and half to two-thirds of the assets directly in
the “low risk” spouse’s trust.
DETERMINING HOW TO BEST ALLOCATE ASSETS AS BETWEEN A MARRIED
COUPLE - PART II
Subsidiary Entity Techniques:
-Limited partnerships and LLCs can be used to facilitate discounts, for estate tax purposes, and for charging order protection.
-Limited partnerships and LLCs can also be used to provide “firewall protection” from activities or properties owned.
Spouse 2 could be Trustee
Spouse 1 Trustee other than if Spouse 1is sole grantor
Spouse 2
Spouse 1 or Spouse 2 (or vice versa)
Spouse 1’s Spouse 2’s Gifting Trust Lifetime By-

Revocable FLORIDA TBE Revocable (Irrevocable) Pass Trust
Trust (Tenancy by the Trust (Irrevocable)
Entireties)
1. Assets held directly by 1. Safe from creditors of Spouse 1 1. Safe from creditors of 1. Safe from the creditors
1. Only exposed to creditors if
revocable trust are subject to but exposed to creditors of wife both spouses. of the Grantor’s spouse.
both spouses owe the
Spouse 1’s creditor claims. (Maintain large umbrella liability 2. If divorce occurs, 2. If funded by one spouse,
creditor, if one spouse dies
2. Direct ownership of limited insurance coverage to protect should not be subject may benefit other spouse
and the surviving spouse
partnership or LLC not in TBE these assets.) to rules for division of and children during the
has a creditor, the spouses
may have charging order 2. On Spouse 2’s death, can be property between lifetime of both spouses.
divorce, or state law or the
protection (meaning that if a held under a protective trust, spouses. 3. Otherwise can be identical
state of residence changes.
creditor obtains a lien on the which will continue to be safe 3. May be controlled by to gifting trust pictured to
2. On death of one spouse,
limited partnership or LLC, from creditors of Spouse 1, the “entrepreneurial the left.
surviving spouse may disclaim
Spouse 1 cannot receive subsequent spouses, and spouse” by using a
up to ½ (if no creditor is
monies from the limited “future new family.” Family Limited
pursuing the deceased
partnership or LLC without Partnership.
spouse) to fund By-Pass Trust
the creditor being paid).
on first death.
SECOND TIER 97% 96% 100%

3% 1% 3% Spouse 1,
PLANNING: Manager
FLP FLP FIREWALL LLC

LLC
Property or activity Leveraged

Investment
A COMMON SOLUTION - to use a limited partnership or similar mechanisms and have no assets directly in the “high risk” spouse’s trust, half to two-
thirds of the assets held as tenants by the entireties, and half to two-thirds of the assets directly in the “low risk” spouse’s trust.
THE CPA’S CHECKLIST FOR FLORIDA CREDITOR
PROTECTION PLANNING AND MAINTENANCE
1. Do the clients know about tenancy by the entireties protection?
2. Are the clients’ assets held as tenants by the entireties?

a. Were the right boxes checked when they opened an account?
b. Do they have out of state real estate that needs to be placed under a Florida LLC?
c. How will the client’s fund a bypass trust on the 1st death if everything is owned jointly? – Disclaimer
planning.
d. Are K-1’s being issued to both spouses or to the correct spouse or entity? If a husband and wife own S-
Corporation stock or a partnership interest as tenants by the entireties is it proper to be issuing separate
K-1’s to them for 50% each of the interest?
Often the CPA’s file is the only place to find documentation on how stock and LLC interests are owned.
e. How do stock certificates read?
f. What names are on contracts?
g. Is property held in a state that allows for tenancy by the entireties?
h. Have the clients considered a TBE owned LLC or family limited partnership.
i. Do their LLC’s have proper operative language?
3. Is the homestead more than ½ an acre within the city limits or more than 160 acres in the county?
Homestead is owned as tenants by the entireties as well?

4. Do they understand that the cash value of a life insurance policy is only protected when it is owned by the insured
individual?
5. Is life insurance payable to protective trusts that can benefit the surviving spouse and descendants without being
subject to their creditor claims?
Does the client own life insurance policies on any other person - if so, it will not be creditor protected.
6. Is there an inherited IRA - inherited IRAs are not protected from creditors under recent Florida case law.
7. Who is responsible for making sure that LLCs are properly established and maintained? An improperly drafted LLC
will not provide a Florida client with charging order protection or tenancy by the entireties status, even if intended
to do so. Many lawyer do not know how to do this properly, so how can accountants and clients themselves even
attempt this?
Single member LLC’s do not have charging order protection.
WARNING - It violates the unauthorized practice of law rules to set up LLC’s and to provide legal documents for
LLC’s. This puts the CPA firm at risk for malpractice and licensing purposes.
8. Do the clients own assets that may cause liability, such as investment real estate, a business or even a charitable
activity? Should these be placed in separate LLCs for liability insurance insulation purposes?
a. Some clients think that a flow-through tax entity allows creditor claims to flow through, which is not of
the case.
b. Many clients think that revocable trusts will shield them from creditor claims. There is a big difference
between avoiding probate and avoiding creditors.
c. Who is the manager? Exposure of the manager?
d. Do insurance carriers on agencies know how assets are owned?
9. Are proper formalities being followed so that one company or person is not considered an alter ego of the other
for liability insurance insulation purposes.
Are financial statements being prepared? For example, many CPA firms prepare a form 1065 for an entity taxes
as disregarded simply to help confirm appropriate fiscal conduct and accountability.
10. Is the client being realistic about what their risks and exposures are with respect to potential upside down loan
situations, guaranties, and real estate debt that may not be renewed. Why do some clients wait until it is too late?
A nudge here and there can save significant problems.
11. How much should the CPA know? Will communications with the CPA and other parties become discoverable?
Understand CPA client Florida litigation privilege – copies of letters or information given to third parties will be
discoverable.
12. Is the client being accurate and truthful on financial statements provided to lending institutions? How specific do
these statements need to be on issues such as joint assets and changes thereto.
Proper footnoting is crucial.

13. Are insurance agencies and carriers aware of exactly what is being insured? Is the client telling the insurance
carrier that the car is personal and not for business, while telling the IRS that the car is 90% business and is
owned by a company?
Can someone working for the CPA firm call the applicable insurance agencies to make sure that everything is
coordinated?
Make sure client understands exclusions, such as animals, pools, civic activities, church or synagogue activities,
etc.
14. What is the client’s cash-burn rate? Are they waiting for the economy to turn around, and what if it does not and
when do they run out of cash?
15. Schedule an annual review?
16. Consider new entities and trusts, including protective trust systems and limited liability entities. Segregate voting
from non-voting under entities.
17. Annual input from and participation with qualified lawyer.
18. Debt at the Debtor’s Best Friend

a. Is there one creditor who should be ahead of the others?
b. Are all loans documented by promissory notes and secured by mortgages and/or security agreements?
c. Review various debt-associated strategies, such as cross-collateralization and sale lease backs.
Charging Orders and an “Over Easy LLC Parent”
Consider making companies into multi-member LLCs for charging order protection and estate tax avoidance.
No “fraudulent transfer,” if someone else contributes to the entity to own part of it.
Advantages of Easy Over LLC Arrangement
1. No need to change the name or Tax Identification Number of subsidiary entity.
2. The new parent company LLC entity can loan money to the subsidiary entity, and
receive a lien on the assets.
3. The new parent company LLC can own life insurance used for buy/sell purposes
that is not exposed to creditors of the subsidiary.
4. The parent company LLC can be formed in another jurisdiction that has better
creditor protection and/or tax features without registering to do business where
the subsidiary operates.
5. This is a tactful way to eliminate present ownership agreements or arrangements

under the subsidiary in an indirect manner.
Disadvantages of Easy Over LLC Arrangement
1. The cost of forming a new LLC, and explaining the arrangement.
2. The cost of maintaining a separate LLC, which does not have to file federal income
tax returns.
3. Coordination of transition.
Friendly Judgments
The definition of “friendly judgments”:
Court orders declaring amounts owed by reason of a trial or

forfeiture; the judgment “attaches” to all real estate and
certain other assets upon filing in the public records by the
plaintiff. Once other creditors see a large judgment, they are
typically reluctant to spend money to be in “second place.”
20 years is a long time!

When you owe money to two creditors – have a friend buy
the position of the first creditor, and record the judgment to
be in front of the second creditor who does not yet have a
judgment.
Creditors May Compete – Who Will Get The First
Judgment?
If a debtor with a reasonable income and $200,000 of exposed assets has three
separate creditors with potential judgments of $800,000 each. The creditor
willing to sell their rights to pursue a judgment for the least amount (perhaps
$125,000) can sell it to a friend, colleague, or even a family member who pays
an arm’s-length amount, as documented by having various persons and entities
bid for the privilege of having a “first judgment” against the debtor.
The purchaser buys all rights to the cause of action, files in court to obtain the
judgment, based upon the original debt amount, and requires the debtor to
pledge the debtor’s assets as collateral under a work-out agreement that may
allow the debtor to pay a lesser amount over a period of years to be relieved
from the obligation. Upon default, whatever is left of the $800,000 becomes
due and payable.
Are the other two creditors now going to pursue this debtor? Would there be
anything for them to get if they do?
Florida Laws – The Most Generous In The United States
(Creditor Protection in 2 Minutes)
ASSETS THAT ARE DIFFICULT FOR A
CREDITOR EXEMPT ASSETS ASSETS EXPOSED TO CREDITORS
CREDITOR TO OBTAIN
Homestead Limited partnership and similar entity Individual money and brokerage accounts.
-Up to half acre if within city limits. interests.
-May be immune from fraudulent transfer
statute.
IRA Foreign trusts and companies. Joint assets where both spouses owe money.
-Includes ROTH, Rollover, and Voluntary
IRAs, but possibly not inherited IRAs.
Permanent Life Insurance Note – foreign entities are very rarely Personal physical assets, including car,
-Must be owned by insured. recommended and must be reported to IRS - except for $4,000 exemption ($1,000 if
homestead exemption is claimed in
bankruptcy).
401(k) Foreign bank accounts. One-half of any joint assets not TBE where
-Maximize these! one spouse owes money.
Tenancy by the Entireties (joint where only one Vocabulary:
spouse is obligated)
EXEMPT ASSET – An asset that a creditor cannot reach by reason of Florida law – protects Florida
- Must be properly and specially titled – joint with
right of survivorship may not qualify. residents.
529 College Savings Plans CHARGING ORDER PROTECTION – The creditor of a partner in a limited partnership, limited
liability limited partnership, or properly drafted LLC can only receive distributions as and when they
Annuity Contracts
would be paid to the partner.
Wages of Head-of-Household FRAUDULENT TRANSFER - Defined as a transfer made for the purpose of avoiding a creditor.
Wage Accounts (for 6 months) Florida has a 4 year reach back statute on fraudulent transfers. A fraudulent transfer into the
Up to $4,000 of personal assets – or possibly homestead may not be set aside unless the debtor is in bankruptcy. It takes 3 creditors of a debtor
less in bankruptcy. who has 12 or more creditors to force a bankruptcy.
Upon filing a Chapter 7 Bankruptcy, an individual debtor may be able to cancel all debts owed and
keep exempt assets, subject to certain exemptions.
Annuities and life insurance policies are not always good investments, and can be subject to sales
charges and administrative fees.
There is a lot more to know- but this chart may be a good first step.
Insolvency / Foreclosure Tax Planning
1. Dispute debt amount and document and assert lender malfeasance - debt
reduced as the result of negligence or inappropriate conduct by a creditor
or affiliate thereof will not be taxable. N Sobel, Inc. v. Commissioner, 40
B.T.A. 1263 (1939); Zarin v. Commissioner, 916 F.2d 110 (3d Cir. 1990), rev’g
92 T.C. 1984 (1989).
2. Have a non-related entity acquire debt owed by the taxpayer, and maintain
the amount owed until proper planning can be effectuated.
3. Make the taxpayer insolvent before the debt is discharged – a divorce may
be necessary to transfer IRA and pension accounts on a tax-free basis
under a qualified domestic order.
4. Consider having debt reduced in a Chapter 11 bankruptcy.
5. See CREST technique.
TAX PLANNING FOR INSOLVENCY AND THE DISCHARGE OF
INDEBTEDNESS:
WHAT THE BUSINESS AND TAX PLANNING PROFESSIONALS
CAN DO TO REDUCE TAXES AND AVOID UNPLEASANT
SURPRISES
The Section 108 Income From Discharge
of Indebtedness Shuffle
What entity will help protect a solvent taxpayer from income when his or her entity
becomes insolvent and discharges debt?
LLC OR
DISREGARDED LLC TAXED AS CORPORATION
TAXED AS S C CORPORATION
LLC PARTNERSHIP
CORPORATION
Insolvency will be determined Income will be limited to the

Income from discharge or
Income from discharge or at the S corporation level and C corporation - many
related to foreclosure/deed
related to foreclosure/deed in not flow through as K-1 S corporations will convert
in lieu will flow through
lieu will be considered as income to the shareholder. to C corporation status
pro-rata to each partner
having been received by the However, income related to before insolvency related
with insolvency determined
taxpayer/owner. foreclosure/deed in lieu will sales or other transactions.
at the partner level.
flow through to the
shareholders
Cancellation of Indebtedness and S Corporations-
Convertible Real Estate S corporation Technique
(CREST)
• While LLCs owning real estate are normally best taxed as partnerships,
or to be disregarded for income tax purposes, there are significant
advantages to having leveraged real estate in an LLC that is taxed as an
S corporation if there is a possibility that there will be debt that exceeds
the value of the real estate, and a consequent loan workout to reduce
debt owed to a lender, in foreclosure, or due to a possible reduction in
debt due to future legislation.
• An S election can be made up to 75 days in arrears, but only if the
Operating Agreement or other corporate documents do not have
provisions that would not be permitted under the S corporation rules.
• Capital account language is normally contained in an Operating
Agreement that has been prepared for the purposes of being taxed as a
partnership or disregarded for income tax purposes and should now be
eliminated along with other changes if the entity may want to make a
retroactive S election.
Partnership v. S Corporation- Which is Better to Hold Real Estate?
PARTNERSHIP S CORPORATION
Advantages and Disadvantages
Partners receive basis for indebtedness incurred by the partnership. Shareholders do not receive basis for indebtedness incurred by the
corporate, unless the loan is made by such shareholder.
On the death of a partner, the partnership’s (inside) tax basis of its No similar basis adjustment mechanism applies to S corporations.
assets can receive a step-up in income tax basis, if a Section 754
election is in place for the partnership
When a new partner buys into a partnership corporation, their When a new shareholder buys into an S corporation, their
depreciation write-off and underlying basis in their partnership depreciation write-off and underlying basis if and when the real
interest will be based upon the price that they pay. estate is ever sold has to be based upon the historic basis and
depreciation taken, versus being based upon the price they pay.
Appreciated real property can generally be distributed from the Distributions of appreciated real property to the shareholders are
partnership tax-free to the partners. treated as if the property was sold at
its fair market value to the shareholders.
No restrictions apply as to who can own partnership interests. S corporations can only be owned by individuals (who are not
nonresident aliens), estates, certain trusts, and certain tax-exempt
organizations. (Nonresident aliens can be potential current income
beneficiaries of an electing small business trust.) S corporations
cannot be owned by any person or entity not listed above, including
nonresident aliens, for-profit corporations, and partnerships.
Partnerships can have more than one class of stock, and income and S corporations cannot have a “second class of stock,” and income
distribution preferences can be drafted in virtually any manner, so allocation and distribution rights must be
long as they have substantial economic effect pro rata to ownership
DOI income insolvency exclusion is determined at each partner’s DOI income insolvency exclusion is determined at the corporate
level. level.
SECTION 1202 STOCK
A taxpayer may exclude up to 100% of the gain (Possibly limited to 50% under new
proposals) from the sale of a “Qualified Small Business” under Section 1202, if the
following requirements are met:
1. Must be stock of a C-Corporation acquired after 1993.
2. Stock must have been acquired at original issue in exchange for money or
other property, or as compensation for services performed for the
corporation.
3. The Corporation must be a “qualified small business” immediately before and

immediately after the issuance of stock. (i.e. Cash and basis of property held
by the corporation does not exceed $50,000,000)
4. During substantially all of the taxpayer’s holding period, the Corporation

meets the active trade or business requirements of § 1202(e).
5. The qualifying stock must be held for more than five years.
Section 1202 – Active Trade or Business Requirement
80% of the assets of the corporation must be used in the active conduct of one or more
“qualified trades or businesses”. A qualified trade or business is defined by exclusion and
means any business other than the following:
Specified Service Business Under Section 1202 Businesses Limited Under Section 1202, but Not Limited
\\
(which also arise under Section 199A) Under Section 199A
- Health - Engineering
- Law - Architecture
- Accounting - Any banking, insurance, financing, leasing, investing, or similar

business.
- Actuarial Science
- Any farming business (including the business of raising and
- Performing Arts harvesting trees).
- Consulting - Any business involving the production or extraction of products

of a character with respect to which a deduction is allowable
- Athletics under section 613 or 613A (i.e. oil, gas, and mining businesses).
- Financial Services - Any business of operating a hotel, motel, restaurant, or similar

business.
- Brokerage Services
- Investing Trading, or dealing in securities,

commodities etc.
- Principal asset is reputation or skill of one or more

employees.
Section 1202 – Active Trade or Business
Requirement
In determining whether 80% of the assets are used in a the active conduct of a
qualified trade or business, any assets (including cash) held as part of the reasonably
required working capital needs of the business are treated as used in the active conduct
of such business.
Once a corporation has been in existence for more than two years, no more than
50% of the total assets of the corporation can qualify as used in the active conduct of a
qualified trade or business by reason of being held as working capital.
A corporation will not satisfy the active trade or business requirement if more
than 10% of the corporation’s total assets (in excess of its liabilities) are stock or
securities in other corporations which are not subsidiaries of such corporation, or held as
part of the reasonably required working capital of the corporation.
A corporation will also fail the active trade or business requirement if it holds
more than 10% of the total value of its assets in real property which is not used in the
active conduct of a qualified trade or business.
Flow Through Income Planning Considerations
SECTION 1202 – AMOUNT OF ELIGIBLE
GAIN THAT CAN BE EXCLUDED
The amount of gain excluded cannot exceed the greater of:
1. $10,000,000
2. Ten times the taxpayer’s basis in the stock.
The Patagonia Gift
(And Other Fun
Billionaire Gifts to
501(c)(4)’s)
The Patagonia Gift
What it looks like after the gift.
No gift tax on transfer
Perpetual Purpose Trust

(Taxable Trust Locking in Mission The Holdfast Collective
or Other Commitments) A 501(c)(4) Organization
-controlled by donor family
Taxable transfer, but only
Taxed on value of this
Pays no tax when it sells Patagonia
Voting stock. Only pay 100% of voting stock
stock to conduct activities
$17.5M of gift tax. Minimized economic rights
Has $3B in assets to pursue climate
If all vote and value transferred to Trust,
advocacy and other charitable or social
Would have been more like $1.2B
welfare activities.
POLLING QUESTION
A 501(c)(4) can be used for political activities:
A. True
B. False
The Other Big c4 Gift: Barre Seid
What it looks like after the gift.
Donates 100% of Tripp Lite The Marble Freedom Trust

$1.65B in value A 501(c)(4) Organization
(Controlled by Leonard Leo, Not
Donor)
No gift tax on transfer Immediately after donation, 501(c)(4) sells the stock.
If no retained control, no estate tax No tax paid on gain – would have been in the hundreds of millions
on donor’s death either.
Has $1.6B in assets to pursue counter climate
advocacy and other charitable or social
welfare activities.
Why Is This Happening?
501(c)(4)’s Get Most of the Benefits of a 501(c)(3)
FAIR MARKET VALUE

AVOIDING TAX ON TAX-EXEMPTION CHARITABLE
GIFT TAX FREE APPRECIATED ASSET CONTRIBUTION
TRANSFER No tax on (1) passive DEDUCTION
If donated prior to investment income
Transfer of assets not sale*, the donor will (with some
not pay tax on a For Cash
subject to gift tax. exceptions*) or (2)
subsequently sold and For Most
Unless pulled back into income sufficiently
asset. The donee will Publicly Other
estate*, no estate tax related to exempt
recognize the gain, but Traded Assets
at donor’s death. purposes.
is a tax-exempt entity. Stock
Yes, but beware IRC

501(c)(4) 501(c)(4) – Social Welfare Organization
2036
Basis
501(c)(3) Private Foundation (e.g. grantmaking family or company foundation)
Only!
501(c)(3) Public Charity, Private Operating Foundation or Donor-Advised Fund
POLLING QUESTION
Would you like to be added to the Thursday Report?

A. Yes
B. I am already subscribed
C. I would rather have a spinal tap
VERY STRICT
SELF-DEALING
Operational Flexibility RULES Tax Rules
No excessive
• Needs to operate exclusively private benefit • LESS favorable contribution
for charitable, educational, No inurement deduction rules for gifts for
religious, or scientific income tax
purposes (no other significant
purpose) • Contributions deductible for
Private estate and gift tax.
• 5% minimum distribution
requirement
Foundation • EXCEPT FOR 1.39% NII, does
not pay tax on income that
• Cannot hold more than 20% is sufficiently related to
of active trade or business Requirements to Qualify charitable purposes (e.g.
(subject to exceptions) tuition, admission, etc.)
None – other than general 501(c)(3) or and
• Stricter set of investment operating test. PF is the default status for a • EXCEPT FOR 1.39% NII,
criteria (4944) 501(c)(3) generally does not pay tax
on passive income, except:
• Can not (a) lobby, (b) grant to • Debt-financed income
non-public-charities except • S-corporation income
with ER, (c) no partisan • Certain income from
candidate activity. controlled subsidiary
VERY STRICT
Operational Flexibility SELF-DEALING Tax Rules
RULES
• Needs to operate exclusively No excessive • MOST favorable
for charitable, educational, private benefit contribution deduction rules
No inurement
religious, or scientific for gifts for income tax
purposes (no other significant
purpose) Private • Contributions deductible for
estate and gift tax.
• ~4.25% direct activity Operating
requirement (complicated) Foundation • EXCEPT FOR 1.39% NII, does
not pay tax on income that
• Cannot hold more than 20% is sufficiently related to
of active trade or business Requirements to Qualify charitable purposes (e.g.
(subject to exceptions) tuition, admission, etc.)
To obtain benefits of POF status, need to
• Stricter set of investment pass an income test and one of the assets • EXCEPT FOR 1.39% NII,
criteria (4944) test, endowment test, or support test generally does not pay tax
on passive income, except:
• Can not (a) lobby, (b) grant to In short, need to do enough DIRECT • Debt-financed income
non-public-charities except charitable activity (not grants, not • S-corporation income
with ER, (c) no partisan investments). • Certain income from
candidate activity. controlled subsidiary
POLLING QUESTION
Which of the following topics would you like to see a

presentation on?
A. Asset Protection
B. Charitable Planning
C. Estate Tax Planning Techniques
D. Mathematics of Estate Planning
No distributions
Operational Flexibility that provide a Tax Rules
benefit
No compensation
• Part of an existing public • Most favorable contribution
at all.
charity, but SOME of the deduction rules for gifts for
operating requirements of a income tax
PF. DAF at a
Public • Contributions deductible for
• Can only make grants to public estate and gift tax.
charities except with ER or Charity
FPCE Determination • Does not pay tax on income
that is sufficiently related to
Requirements to Qualify
• NO minimum distribution charitable purposes (e.g.
requirement tuition, admission, etc.)
Needs to be sponsored by a public charity
• Very little transparency (no • Generally, does not pay tax
separate reporting) on passive income, except:
• Debt-financed income
• No donor control/only advice • S-corporation income
• Certain income from
• Bad fit for direct activities controlled subsidiary
FMV transactions Tax Rules
Operational Flexibility only
No excessive • NO charitable contribution
private benefit deduction
• Needs to operate exclusively
No inurement
for social welfare activity
(charity + other stuff for public 501(c)(4) • Contributions deductible for
good). gift tax BUT NOT estate tax.
Social
• No set distribution Welfare • Does not pay tax on income
requirement – just needs Organization that is sufficiently related to
operations ‘commensurate in charitable purposes (e.g.
scope’ to assets. tuition, admission, etc.)
Requirements to Qualify
• Needs to invest prudently • Generally, does not pay tax
Just needs to be organized and operated for
under state law, but no PF on passive income, except:
501(c)(4) purposes
rules • Debt-financed income
• S-corporation income
• Can do unlimited lobbying • Certain income from
controlled subsidiary
• Can do SOME candidate
activity. • Proxy tax on investment
income used to lobby.
Why Is This Happening?
Once the money is in, a 501(c)(4) can function like
a “SuperFoundation” – all of the good, a lot less of the bad
Entity Type: Private Foundation 501(c)(4)
Activities it can support Charitable, educational, scientific, and Everything a PF can do….AND anything that advances
religious activities (501c3) “social welfare”
Lobbying Cannot support any Can do an unlimited amount.
Partisan Candidate Activity Cannot support any Can do a lot, as long as it’s not ‘primary’
Minimum Distribution 5% minimum distribution requirement Not applicable – just needs activities “commensurate in
scope” to its assets
Owning a Company Cannot own more than 20% (in combination No limitations!
with disqualified persons) of an active trade
or business.
Transactions with Insiders Self-dealing rules – very strict Only have to deal with excess benefit transaction rules –
as long as FMV, it’s OK
Net Investment Income Tax 1.39% tax on net investment income Does not apply – only have to deal with UBIT
To recap: Why is the Patagonia gift
important?
A glimpse into our future:
1. Not new (at least since 2016) – but highlights what
advisors have been talking about and implementing in
terms of 501c4’s as supercharged alternatives to
foundations for years.
2. Many UHNW donors have eliminated taxable income
without charitable contributions – for them, 501c4’s only
represent upside.
3. Scale of these foundation-alternatives (and the tax subsidy
to them) could quickly become immense.
The 15% Minimum Corporate Tax
• The Act imposes a 15% corporate minimum tax on the
approximately 200 largest corporations that currently pay less
than the corporate tax rate.
• The current statutory corporate tax rate is 21%. However, some
200 or more large corporations use tax loopholes to avoid paying
that rate and actually pay below 15%.
• The corporate alternative minimum tax (AMT) imposes a 15%
minimum tax on adjusted financial statement income for
corporations with profits in excess of $1 billion. Corporations are
generally eligible to claim net operating losses and tax credits
against the AMT, and are eligible to claim a tax credit against the
regular corporate tax for AMT paid in prior years, to the extent
the regular tax liability in any year exceeds 15 percent of the
corporation’s adjusted financial statement income.
• This provision is effective for taxable years beginning after
December 31, 2022.
(continued)
Which corporations are subject to the tax?
• The Act seeks to implement taxes on corporations by applying an “Average Annual Adjusted
Financial Statement Income Test.” A corporation meets this test for a taxable year if “the average
annual adjusted financial statement income for the 3-taxable-year period ending with such
taxable year exceeds $1 billion.”
• Exceptions are created by the Act where the “applicable corporation” shall not include any
corporation which (a) has a change in ownership, or (b) has a specified number (to be
determined) of consecutive taxable years, including the most recent taxable year, in which the
corporation does not meet the average annual adjusted financial statement income test, and the
Secretary determines that it would not be appropriate to continue to treat such corporation as
an applicable corporation. This means that once a corporation becomes an “applicable
corporation” it will remain as such even if Financial Statement Income drops below the
applicable threshold in one year.
• For corporations that would otherwise be an “applicable corporation” but have not been in
existence for three taxable years, the Average Annual Adjusted Financial Statement Income Test
will be applied on the basis of the period during which such corporation was in existence.
• U.S. subsidies of foreign-parented corporations are subject to the tax, however foreign
corporations engaged in trade with the U.S. are not.
(continued)
How to Calculate Adjusted Financial Statement Income (overly simplified)
• The starting point will be the bottom line net income of the corporation
as reported on financial statements prepared in accordance with
Generally Accepted Accounting Principles (GAAP)
• Net income is then adjusted for the following:
1. Differences in Tax vs Book Depreciation
2. Reduced for state and local income tax expenses
3. Exclude any income, cost, or expenses related to defined benefit plans
otherwise included in Financial Statement Income. Taxable income and expenses
of defined benefit plans are then added back in. (Note – This reduction only
applies for purposes of calculating the tax owed. Income of defined benefit plans
is included in the calculation to determine if the Corporation is subject to the new
minimum tax.)
4. Other items such as adjustments for differences in tax years, income from
partnerships or disregarded entities owned by the corporation, foreign source
income, and other items determined appropriate by the Secretary.
5. 80% of income may be offset by net operating losses generated after
December 31, 2019.
(continued)
• To summarize the corporate tax provisions,
companies with at least $1 billion in income will be
required to calculate their annual tax liability two
ways:
• (1) with longstanding tax accounting methods, which are
generally 21% of profits less deductions and credits, and
• (2) applying the 15% rate to reported earnings, known
as book income.
• Whichever of these two methods is greater is what
the corporation will owe.
POLLING QUESTION
Would you like to be a BETA reader for our new

charitable giving book?
A. Yes
B. No
Stock Buyback Tax
• The Act imposes a 1% excise tax on certain domestically
traded corporations when they repurchase stock from
their shareholders. Foreign corporations are generally
not subject to this tax except where a U.S. subsidy of a
publicly traded foreign parent corporation acquires
stock of the foreign corporation from a third party. This
measure is estimated to raise $74 billion.
• Republican and Democratic lawmakers alike have
criticized U.S. corporations for greatly favoring
buybacks over growth-producing investments. For
example, in 2018, Senator Rubio (R-FL) proposed
legislation to tax corporate stock buybacks as
dividends, intending to increase business investment
and create jobs.
Stock Buyback Tax (continued)
• Stock Buybacks in Action: a company buys back stock,
thereby reducing the number of its outstanding shares
on the market, which increases the value per share for
remaining shareholders. Buybacks are one of the
mechanisms corporations use to shift their profits to
shareholders, the other being a dividend, which is a
cash payment to shareholders that is taxed as income
tax. Buybacks are taxed as capital gains because they
increase the stock value, but they may not be taxed for
years, and in some cases are never taxed at all because
the taxable event is when the stock is sold. Some
investors will hold on to their stocks for life, and upon
death, the investor’s heirs will benefit from the step-in
basis.
Stock Buyback Tax (continued)
• The Inflation Reduction Act subjects corporations to a
tax equal to 1% of their stock repurchases, thereby
ensuring the shifted profits are taxed in some form.
• Some argue against stock buybacks and say that
companies should be spending a far larger portion of
their profits to reinvest in the core business, rather
than returning cash to equity investors. The argument
is that by reinvesting in the company itself, companies
can hire more workers and build more manufacturing
facilities and products. Others argue that stock
buybacks are good because they return money to
investors, thereby providing more opportunities for
investments in small businesses or budding industries
to promote innovation and growth.
Funding the IRS
• The Act allocates the 10-year funding for the IRS as follows:
• $3,181,500,000 for taxpayer services,
• $45,637,400,000 for enforcement,
• $25,326,400,000 for operations support, and
• $4,750,700,000 for business systems modernization.
• These appropriated funds are to remain available until September 30,
2031.
• These funds are in addition to the IRS’s annual funding, which is $13
billion for fiscal 2022.
• Note that this additional funding is to be distributed annually over ten
years. A future Congress could adjust the allocations away from
enforcement or decrease the funding altogether.
• The Congressional Budget Office determined that by investing $80
billion over the next ten years for tax enforcement and compliance, the
IRS will collect $203 billion (a net gain of approximately $125 billion in
tax revenue).
Funding the IRS (continued)
• Some concerns have been raised that the IRS’s increased
budget will give the Service more firepower to audit the
middle-class while the wealthy will be able to continue
dodging taxation (as they are more likely to be able to afford
sophisticated tax counsel). Such commentators worry that
when the IRS audits taxpayers, those making under
$200,000 will have to pay their fair share of taxes. We have
never considered that people paying taxes when they are
audited constitutes a tax. While the concerns are at least
valid from the standpoint of protecting middle-class
Americans, several friends of mine that make less than
$200,000 and pay their taxes prefer to see others pay their
fair share of taxes.
• The present underfunding of the IRS has invited and
encouraged tax fraud en masse, which will hopefully now be
significantly reduced.
Please Note:
1. This presentation does not qualify for Continuing Education
Credits if you did not sign up through CPAacademy.org.
2. 1 CPE NASBA requirements = 50 minutes and at least 3 polls. CPA

Academy will be issuing the credit. It will show in your CPA
Academy account in a few days.
3. If you did not register for the webinar through the CPA Academy
website registration link, you cannot get CPE credit. GoToWebinar
can track your attendance and polls if you log out and back in
through the CPA Academy Portal.
THIS COURSE COUNTS FOR 2 CPE CREDITS (YOU WILL NEED TO

ANSWER A MINIMUM OF 6 POLLING QUESTIONS AND PARTICIPATE
FOR A MINIMUM OF 100 MINUTES)
Please Note:
4. Today’s PowerPoint slides are available in the
“Handouts” section of your GoToWebinar side panel.
5. Within 3-5 hours after the webinar, all Non-CPA

Academy registrants will receive a follow-up email
with today’s recording and PowerPoint materials
whether you want them or not!
WARNING: They are not very good!
Year-End Tax Planning for the
Wealthy and 501(c)(4) Social Welfare
Organizations
Saturday, November 19, 2022
THANK YOU FOR THANK YOU FOR
PARTICIPATING! From 11:00 AM to 1:00 PM EST PARTICIPATING!
( 120 minutes)
Presented By:
Brandon Ketron, JD, LL.M. (Taxation), CPA Karl Mill, JD

Alan Gassman, JD, LL.M. (Taxation), AEP® (Distinguished)
karl@mill.law
brandon@gassmanpa.com agassman@gassmanpa.com
1245 Court Street

Clearwater, FL 33756

501c4s For The Wealthy

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501c4s For The Wealthy

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Year-End Tax Planning for the

Wealthy and 501(c)(4) Social Welfare

Brandon Ketron, JD, LL.M. (Taxation), CPA Karl Mill, JD

1245 Court Street

2. 1 CPE NASBA requirements = 50 minutes and at least 3 polls. CPA

THIS COURSE COUNTS FOR 2 CPE CREDITS (YOU WILL NEED TO

5. Within 3-5 hours after the webinar, all Non-CPA

WARNING: They are not very good!

For questions on how to

Alan Gassman Presents:

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Alan Gassman and Karl Mill Present:

Kettering Health Foundation

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Alan Gassman and Brandon Ketron

Re: Insurance Claims for Hurricane and Property Damages

Dear Clients and/or Their Advisors:

Insurance companies are understandably cautious in approaching claims

a. Bunching for 2022 or a later year.

b. $300 is no longer deductible regardless of itemized deductions.

c. Defer charitable gifting until 2023 if a higher tax bracket is expected.

5. The Kiddie tax applies at the bracket of the grandchild or great-grandchild’s

6. Trigger accounts receivable by conveying them to owners to pay more income

7. Consider installing a Defined Benefit or Cash Balance Pension Plan.

IRAs 2023 2022 2021

401(k), 403(b), Profit-Sharing Plans, etc. 2023 2022 2021

Annual Compensation 330,000 305,000 290,000

Elective Deferrals 22,500 20,500 19,500

Catch-up Contributions 7,500 6,500 6,500

Defined Contribution Limits 66,000 61,000 58,000

ESOP Limits 1,330,000 1,230,000 1,165,000

Other 2023 2022 2021

HCE Threshold 150,000 135,000 130,000

Defined Benefit Limits 265,000 245,000 230,000

Key Employee 215,000 200,000 185,000

457 Elective Deferrals 22,500 20,500 19,500

Control Employee (board member or officer) 130,000 120,000 115,000

Control Employee (compensation-based) 265,000 245,000 235,000

Taxable Wage Base 160,200 147,000 142,800

IRA Contribution Limit $6,500 $6,000 $6,000

IRA Catch-Up Contributions 1,000 1,000 1,000

Traditional IRA AGI Deduction Phase-out Starting at 2023 2022 2021

Joint Return 116,000 109,000 105,000

Single or Head of Household 73,000 68,000 66,000

SEP 2023 2022 2021

SEP Minimum Compensation 750 650 650

SEP Maximum Contribution 66,000 61,000 58,000

SEP Maximum Compensation 330,000 305,000 290,000

SIMPLE Plans 2023 2022 2021

SIMPLE Maximum Contributions 15,500 14,000 13,500

Catch-up Contributions 3,500 3,000 3,000

401(k), 403(b), Profit-Sharing Plans, etc. 2023 2022 2021

Annual Compensation 330,000 305,000 290,000

Elective Deferrals 22,500 20,500 19,500

Catch-up Contributions 7,500 6,500 6,500

Defined Contribution Limits 66,000 61,000 58,000

ESOP Limits 1,330,000 1,230,000 1,165,000

Other 2023 2022 2021

HCE Threshold 150,000 135,000 130,000

Defined Benefit Limits 265,000 245,000 230,000