Washington Hotline


Tax Quote of the Week

“The point to remember is that what the government gives it must first take away.”

– John Strider Coleman

Obama and Biden Release Tax Returns

It has become customary for the President and Vice President to release tax returns on April 15th each year. President Obama and Vice President Biden have both released their 2009 returns.

President Obama had adjusted gross income of $5,505,409. Approximately $5.1 million of his income was from royalties on sales of his books. A substantial portion of the royalties were from sales overseas.

President and Mrs. Obama paid income tax of $1,792,414. They donated $329,100 to 40 charities.

In addition, President Obama took advantage of the tax provision that allows his Nobel Peace Prize Award of $1.4 million to be given directly to charities. He directed the transfer of his Nobel Prize to 10 different charities. With that action he avoided reporting the income on his tax return, but did not receive an additional charitable deduction.

The personal gifts were made to numerous charities. The largest personal gifts included $50,000 to CARE, $50,000 to the United Negro College Fund and $20,000 to the Boys and Girls Clubs. There were numerous gifts of $5,000 and $10,000 to other charities.

The Nobel Peace Prize of $1.4 million was allocated to 10 charities. The Fisher House Foundation of Rockville, Maryland and the Clinton-Bush Haiti Fund each received $250,000. The American Indian College Fund, Appalachian Leadership and Education Foundation, College Summit, Posse Foundation, Hispanic Scholarship Fund and United Negro College Fund all received $125,000. Africare and the Central Asia Institute each received $100,000.

Vice President and Mrs. Biden reported adjusted gross income of $333,182. They paid tax of $71,147. Vice President and Mrs. Biden made charitable gifts of $3,920. The gifts to 14 charities ranged from $40 to $500.

Sen. Schumer Predicts IRA Rollover by June

The House and Senate continued to work on the resolution of differences in the “tax extenders” bills passed by both chambers. Sen. Charles Schumer (D-NY) is a member of the Senate Finance Committee and Vice-Chair of the Senate Democratic Caucus. He stated this week that the extenders bill (H.R. 4213) “will be done this work period.” He indicated that it would pass prior to the month of June.

The two bills have been under discussion because of differences in the $31 billion of tax increases to pay for the tax extenders. The Senate bill tax offsets were used in the healthcare legislation, so they are no longer available. The House bill taxes hedge fund managers on “carried interests.” Hedge fund managers will pay future taxes at ordinary income rates rather than the current capital gain rates. With the potential increase of top ordinary income rates from 35% to 39.6% in 2011, there would be a very substantial increase in their taxes.

The House bill also includes strict standards for international compliance. Recent successful efforts by the IRS to collect taxes from individuals who have been hiding funds in Swiss bank accounts would be bolstered by the House provisions.

After House and Senate negotiators have agreed upon the tax provisions, it is expected that the bills will easily pass the House and Senate. The tax extender of greatest interest to the philanthropic community is the IRA charitable rollover. It permits transfers of up to $100,000 per IRA owner each year directly from the IRA to qualified charities. The tax extenders bill will enact the IRA charitable rollover retroactive to January 1, 2010.

Estate Must Pay Income Tax Liens

In the Matter of the Estate of Jerry Wayne Young Sr.

Decedent Jerry Wayne Young Sr. passed away intestate on July 28, 2003. His spouse Betty G. Young was appointed Administratrix of the Estate. On January 26, 2004, the United States filed a notice of a tax obligation against the estate in an amount of $240,459.73. The obligation was based upon a Notice of Federal Tax Lien (NOFTL) that had been created on October 8, 1997. The NOFTL was valid until June 11, 2007.

On December 3, 2009, the estate filed an amended objection to the claim of tax lien and claimed that the lien had expired after 10 years.

The court noted that a lien under 26 U.S.C. Sec. 6502(a) is valid if there is a “proceeding begun” within 10 years of the assessment of the lien. The estate claimed that the mere filing of the notice was not a “proceeding begun.”

However, the court reviewed the precedents and noted that in states where the probate court has full jurisdiction to adjudicate claims, the filing of the notice is sufficient to constitute the commencement of a proceeding. Under Mississippi law, the Chancery Court has “full jurisdiction” to decide various matters. Therefore, the IRS claim was validly filed within the 10 year period.

The estate also claimed that the NOFTL had not been timely refiled. The court noted that this does not invalidate the IRS tax lien, but merely may change the priority of the IRS claim with respect to other estate creditors, since they had not received timely notice.

Bonnie Nawara | Director of Estate & Asset Services
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