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Bob
Parrish CPA, P.C. HOME
(941) 387-0926 ~ It Is:
Introduction
Objectives
Your Questions
What You Will Need
Warning
Intro Summary
Related Information
*Plain English Explanation
Object Restated
Why or How It Works
Alternatives
Cost V. Benefit
Other
Reserved
*Tech Analysis & Citations
Commentary
Law
Regs
Cases
Revenue Procedures
Revenue Rulings
Private Letter Rulings
*TAX KILLERS
Title 1
Title 2
*COST KILLERS
Title 1
Title 2
*PREPARE
FOR ADVISER
Entrance Interview
From Your Other Business, or Financial Records
From Corporation or Organization Records (meetings, etc.)
*DO IT YOURSELF
Action
Checklist - What To Do
PRINT ALL THE REQUIRED DOCUMENTS
OBTAIN THE STANDARD WORKPAPER FORMS NEEDED
FINAL STEPS
*FINANCIAL ACCOUNTING
Financial
Statement Presentation
Notes
to Financial Statements
How to
Make Entries
What
Kind of Records to Keep
Bookkeeping
Methods - Cash, Accrual and Other
How the
Business Entity Affects the Recording
*COMPLIANCE
Title 1
Title 2
*ALERTS - DANGERS
Action Checklist
Alerts
& Dangers - Risks
Asset
Protection
Your
Defense
*TOOLS
Title 1
Title 2
*SAMPLES
Title 1
Title 2
*REQUIRED REPORTS
Title 1
*CHECKLIST FOR DEPLOYMENT
Title 1
*CHECKLIST FOR MONITORING
Title 1
*INDEX
Charitable Planning - Private Foundations ~ {Also Known As Family Foundations}
Preface ~ Client Letter - What this idea is about
Dear
Client:
Introduction ~ What it does - Results of this
The Private Foundation is useful for establishing and maintaining a long-term program of charitable giving, while at the same time yielding certain income tax benefits and maintaining some control of the investment strategies.
Private foundations are created to make charitable contributions on behalf of a particular family. However, the public may contribute ot the Private Foundation and claim deductions on the tax return of the person making the gift. The governing board is often limited to family members. A private foundation receives its funds from, and is subject to control of, an individual family, corporation or other group of limited number. In contrast, a community foundation receives its funds from multiple public sources and is classified by the IRS as a public charity.
Learning Objectives (What You Asked) ~ Your Questions: The following questions will be answered
This Topic OBJECTIVE is or What it Does
What You Will Need
| You Will Need | What or How Much? |
| Time | |
| Materials or Tools | |
| Library | |
| Who This Applies To & Industry Type | |
| When To Do This | |
| Special Circumstances or Warnings | |
TOP
Engagement Status Letter ~ WARNING!
You have not engaged Bob Parrish CPA PC, Bob Parrish CPA, pro1040, Consulting on line, any related parties, or the ISP to perform any services for you or offer you advice. This entire site is for educational or informational purposes only. You are not to use the forms, concepts, strategies, or knowledge without assistance from a professional. The author, the corporation, the ISP, Bob Parrish CPA, Bob Parrish CPA, P.C. or other parties related to those or this site do not guarantee or warrantee in any manner the suitability, usefulness, accuracy, timeliness, or results of any portions of this site, nor the links contained in this site which link to other areas. At times, information is taken from other sources and is believed to be accurate, but no verification or confirmation is performed. Furthermore, if any federal or state law invalidates a portion of this disclaimer, the other portions still apply. In addition, any allegations or actions are restricted to arbitration only and must be arbitrated by the Better Business Bureau in Sarasota Florida. Reading of these pages constitutes complete acceptance and agreement with all disclaimer provisions on all pages of this site. ....... Thursday, January 04, 2001 08:47 AM
Summary
| There was a gal named Sandy She thought giving was fine & dandy Setting up a family foundation Helped reduce the taxation |
Related Information
-
A few closely related topics & pages From Bob Parrish CPA PC (left-click this to expand it):
Plain English Explanation
Object Restated
Why or How It Works
Alternatives
Cost V. Benefit
Other
Reserved
Your Answers
This Topic OBJECTIVE is: What it does Explanation of this topic and how it may affect you (for how it may affect you also refer to : Financial Accounting: Bookkeeping & Financials ~ Compliance - What is required for protection, defense, etc. ~ Alerts & Dangers)
Positive Attributes:
Establishes a long term charitable giving plan
Allows for time to plan which charity should receive the gift(s)
Provides for an estate tax deduction
Provides for annual charitable giving - tax deductions
Establishes the "Family" as caring about charity work
Negative Attributes:
Limits the tax deduction
Taxes business investments and operations of business within the Foundation
Prevents "Self-Dealing", which some will perceive as an advantage and some a disadvantage
Deducting Contributions
The rules for claiming deductions to Private Foundations are complex. Those considering establishing a private foundation should only do so after obtaining qualified professional advice, based upon specific facts and circumstances.
Contributions of non-cash assets are subject to special rules, and there are annual limits on the amount that is deductible. The donor must consider the amount of gifts to public charities and private foundations, as well as gifts from prior years that have been carried over into the current year.
Ceiling on Corporate Deductions. A corporation's charitable deductions in any
tax year are limited to 10% of the corporation's taxable income--exclusive of
the charitable deduction and subject to some adjustments for certain other
deductions.
Ceilings on Individual Deductions. For contributions of cash or ordinary income property, an individual's charitable deduction to a private foundation in any tax year is generally limited to 30% of the individual's adjusted gross income (AGI). By contrast, gifts to public charities that are not private foundations are subject to an annual limitation of 50% of AGI. For contributions of appreciated capital gain property to a private foundation in any tax year, the individual's deduction is generally limited to 20% of the individual's adjusted gross income. Gifts of capital gain property to a public charity are limited to 30% of AGI in any one tax year.
Limitations Based On Cost vs. Fair Market Value. The charitable deduction for gifts to private foundations was generally limited to the lesser of the fair market value or the cost of the property. For the past few years, Congress has enacted temporary legislation to permit donors to deduct the full fair market value of such donations. The Tax and Trade Relief Extension Act of 1998 made permanent the deductibility of the fair market value of appreciated publicly traded stock given to private nonoperating foundations.
Carryover of Excess Contributions. If corporations or individuals make charitable contributions that are greater than the above limits for any year, the excess amount can usually be carried over to the next five taxable years. Thus, the maximum limitation on a contribution is the total AGI expected in the current and next five years times the applicable percentage limitation.
Start of Plain English Section
Why or How it works - Both Sides of the Equation and Examples:
What Is A Private Foundation?
A private foundation is a tax-exempt organization controlled by the founder or members of the founder's family. The founder and family members can make charitable contributions to the foundation during their lifetimes or at death. The foundation will then make distributions for religious, charitable, scientific, literary or educational purposes. Within these general parameters, the instrument creating the foundation can further limit the purposes for which distributions may be made.
Many individuals establish private foundations because they wish to benefit society by supporting religious or charitable endeavors. Rather than make gifts directly to these organizations, individuals can choose to establish private foundations, which permit the donor to take a charitable deduction for income tax purposes in the year the contribution is made, while deferring the determination regarding where the donation will go.
The foundation also serves as a way for family members to participate together in a worthwhile endeavor, fosters an interest in charitable activity in future generations, and educates family members on investment alternatives.
Utilizing a foundation as the recipient of a portion of an estate at death
also will reduce the estate taxes otherwise payable to the government. This may
be particularly useful if the children will otherwise have sufficient assets for
their support, and there is a desire that some of the assets be managed for
charitable
purposes.
How to Set Up The Private Foundation
A private foundation may be established as a trust or a corporation. Most people find that a trust is easier to administer than a corporation because trusts do not need to observe corporate formalities. However, a trust foundation can later be converted to a corporation foundation, if desired. A trust agreement is prepared and executed to govern how the foundation is created under a will or revocable trust at death. No separate trust agreement is necessary, and the family foundation provisions are included as part of the provisions of the will or revocable trust.
When the foundation is initially funded, an application for tax-exempt status must be prepared on Form 1023 and submitted to the IRS, together with a processing fee (currently $465).
After reviewing the request (and perhaps requesting additional information),
the IRS will issue a determination letter indicating that the foundation is a
tax-exempt organization and that donors may take an income and estate tax
deduction for contributions to the foundation, as discussed below.
Start of Plain English Section
Comparisons
There are many alternatives if the main objective is to fund charities:
Direct gifts with money or property to the charity
Charitable Remainder Trusts
Charitable Lead Trusts
Other
Contrasts
Start of Plain English Section
Cost v. Benefit Analysis ~ Its Value
Start of Plain English Section
Other
Start of Plain English Section
Reserved
Start of Plain English Section
Technical Analysis and Explanation
Commentary
Law
Regs
Cases
Revenue Procedures
Revenue Rulings
Private Letter Rulings
Commentary
Start of Revenue Procedures Section
Start of Private Letter Rulings
Tax Killers
This is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth. Activity Based Taxplanning (ABT) is a methodology developed by Bob Parrish CPA, that assists people with the tax issues by focusing on the activity (or actions - events) that are being undertaken or contemplated (or have already taken place). The, research is compiled from the myriad of sources to help you complete the activity with the least tax cost, while maintaining compliance the tax laws, other laws and regulations and place yourself in a position to protect your objectives.
Tax is a subject that many view in order to cut costs. Taxes are a cost just as any other cost. It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control. The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.
Cost Killers
Management Info Sys, Decision Support Systems, Activity Based Management and Costing, Cost Accounting)
Prepare for Your CPA or Attorney (or prepare for doing this yourself)
Entrance Interview
From Your Other Business, or Financial Records
From Corporation or Organization Records (meetings, etc.)
About the Preparation Procedures
If you have decided this task must be done, the first procedure is to be certain you have all the facts important to this topic. So that you may know the value, to you personally, of this topic you must have facts of your circumstances. So that you may comply with applicable rules, you must have all the facts. Factual research is time consuming and if not performed wisely will be very expensive if not performed properly, and thoroughly. IF you decide to make this a do-it-yourself project you should seek the advice of a professional qualified in your jurisdiction to assist you with defining important information and then to overview the information you have gathered.
What to gather - an Organizer and Prepare for your CPA, Attorney or Financial Adviser
Organizer
From Your Other Business, or Financial Records
From Corporation Records or Organization Records (meetings, etc.)
Start of Preparing For You CPA Section
Do It Yourself - Forms Required to Be Filed, Checklists, Etc.
DO
IT YOURSELF
Action
Checklist - What To Do
PRINT ALL THE REQUIRED DOCUMENTS
OBTAIN THE STANDARD WORKPAPER FORMS NEEDED
How to do this - What to Do
GENERAL SETUP & STARTUP
PRINT FORMS AND DOCUMENTS NEEDED
PRESENTATION STANDARDS
STARTING - FIRST THINGS FIRST, OBTAIN WHAT YOU NEED
OBTAIN THE ORGANIZER AND BE CERTAIN ALL INFORMATION IS AVAILABLE
OBTAIN AND SORT THE INFORMATION
OBTAIN THE STANDARD WORKPAPER FOLDER SETUP
OBTAIN THE STANDARD PRESENTATION LAYOUT
OBTAIN & OPEN ALL STANDARD DOCUMENTS OR WORKPAPERS
OVERVIEW & BECOME FAMILIAR WITH THE ENTRANCE INTERVIEW FORM
OVERVIEW THE LIST OF INFORMATION AND CLIENT OR BUSINESS RECORDS NEEDED
START THE REQUIRED COMPUTER PROGRAMS
OBTAIN THE CHECKLISTS IF NEEDED AND WORK ON THE JOB BY EACH TYPE OF ACTIVITY OR EVENT
OBTAIN THE STANDARD WORKPAPER FORMS NEEDED
LIST OF THE STANDARD FORMS AND W/P NEEDED
OBTAIN THE DOCUMENTS FOR THIS JOB
PLACE BLANK FORMS IN THE CORRECT SEQUENCE
GENERAL & FOR ALL JOBS
Instructions for finalizing and completion - for example instructions for the mailing of forms to the IRS
Actions Checklist
Report Cover Letter
Required Documents and attachments
DOING THE WORK
PRINT ALL THE REQUIRED DOCUMENTS OR MAKE COPIES AS NEEDED
DETERMINE THE CORRECT PRESENTATION STANDARD TO USE
ENGAGEMENT LETTER AND DISCLAIMER
PRESENTATION IN GENERAL
WHAT THE ENGAGEMENT IS LIMITED TO
WHAT SERVICES WERE PERFORMED
HOW THIS HELPS & BENEFITS
4 WAY TEST APPLICATION
Is it the TRUTH
Is it FAIR
Will it build GOODWILL and BETTER FRIENDSHIPS
Will it be BENEFICIAL to all
OVERVIEW THE WORK
BEFORE FINALIZING THE WORK PROCESS CONSIDER THE FOLLOWING
Compliance
Paying Bills or other events
The professional should perform functions the client does not have time for
The professional should perform necessary functions the client staff does not have training for
Reduce Costs
Reduce Risks
Setting Goals or objectives
Setting methods for monitoring
Setting dates, methods & procedures for follow-up
Setting guidelines for defining when variances from the guideline warrant policy or procedure changes
Identify the policies or procedures that need to be changed to accomplish the goal or objective
FINAL OVERVIEW BEFORE THE JOBS IS ENDED & CLOSED
LOOK AT THE ORIGINAL QUESTION - has it been answered, were more questions added?
THE ANSWER - limit the answer to a short paragraph of about 7 sentences. Did this solve the issue? The ANSWER is not considered the SOLUTION
THE SOLUTION - understand the objective or goal and restate it. Were the goals met? What might prevent obtaining the goals. Do the benefits outweigh the costs? Reduce Costs? Reduce Risks? Setting Goals or objectives:
Setting methods for monitoring
Setting dates, methods & procedures for follow-up
Setting guidelines for defining when variances from the guideline warrant policy or procedure changes
Identify the policies or procedures that need to be changed to accomplish the goal or objective
ACTIONS - checklist, calendar, columnar presentation showing separate columns for Client, CPA, Broker, Bookkeeper, Lawyer, Insurance Agent, etc.
COST v. BENEFITS ANALYSIS
PROPOSAL
FACTS DISCOVERED & USED
COMPUTATIONS & REPORTS
TECHNICAL ANALYSIS WITH CITATIONS AND AUTHORITY
FORMS - agreements, contracts, trusts, tax forms, financial reports, management information reports, policies or procedures
REQUIRED ATTACHMENTS
Overview - look at the steps required and the steps performed. Are there unusual items? Are there exceptions or adverse results of the procedures performed? Find resolutions for all unusual or adverse items.
Compliance - has compliance "substantially" been met. That is no "material" adverse results?
Math Check
Proof and spell check
Theory & overview by someone not performing the procedures
Close the case and archive it.
Financial Accounting - Bookkeeping and Financial Statements
Financial Statement Presentation
Notes to Financial Statements
How to Make Entries
What Kind of Records to Keep
Bookkeeping Methods - Cash, Accrual and Other
How the Business Entity Affects the Recording
Financial Statement Presentation
Back to Start of Financial Accounting: Bookkeeping & Financials
Back to Start of Financial Accounting: Bookkeeping & Financials
Back to Start of Financial Accounting: Bookkeeping & Financials
Back to Start of Financial Accounting: Bookkeeping & Financials
Bookkeeping Methods - Cash, Accrual and Other
Back to Start of Financial Accounting: Bookkeeping & Financials
How the Business Entity Affects the Recording
Sole Proprietor
Corporation - C & S
Partnerships - General, Limited, Limited Liability Company, Registered Limited Liability Partnership or Company
Trusts
Tax Exempt
Back to Start of Financial Accounting: Bookkeeping & Financials
Compliance Requirements - Requirements, Defense, Protection, Etc.
Information Reporting Requirements for the Foundation
A private foundation is subject to the following reporting and disclosures:
* Federal Tax Form 990PF. The foundation must file Form 990PF annually by the 15th day of the fifth month following the end of the foundation's taxable year. For a calendar year foundation, therefore, the report would be due on May 15.
* Filing With the State. A copy of 990PF must be filed with the state attorney general.
* Annual Publication of Notice. A notice that the 990PF will be filed must be published in a local newspaper where the foundation is located. The notice must list the name, address and telephone number of the foundation Trustees and must state that the 990PF will be available for inspection for 180 days after publication. Notice must be published annually prior to the due date for filing the 990PF.
Limitations and Special Taxes
To ensure that foundations fulfill their charitable purposes, the IRC limits how foundations may operate and imposes special taxes.
Tax on net investment income. The foundation must pay a tax equal to two percent (2%) of the foundation's net investment income (including dividends, interest, rent, and capital gains) for each taxable year. In general terms, the tax on net investment income may be reduced from 2% to 1% if 1) the foundation makes the required minimum charitable distributions (discussed below) in each of the prior five years and 2) the foundation's charitable distributions in the current tax year equals or exceeds the foundation's average charitable distributions over the last five years, plus 1% of the foundation's net investment income for the current tax year. If the foundation's net investment income tax liability will be $500 or more, the foundation must make quarterly estimated tax payments, otherwise an underpayment penalty may be imposed.
Prohibition on self-dealing. Because private foundations are charitable organizations, they must be used for charitable purposes and not for the benefit of the founders or substantial contributors. To enforce this policy, a foundation is prohibited from engaging in "self-dealing" transactions.
Generally, the prohibition on self-dealing means that contributors and their family members (and any businesses or trusts in which the family, taken as a whole, is a substantial owner or beneficiary) may not lend to or borrow from the foundation, sell assets to or purchase assets from the foundation, receive excessive compensation (although reasonable compensation for services is allowed) from the foundation, receive impermissible distributions, or conduct any other business with the foundation.
Minimum distributions to charity. The foundation is required to make an annual distribution for charitable purposes in an amount equal to 5% of the adjusted fair market value of the foundation's assets, as determined at the beginning of the year. This distribution must be made by the end of the following taxable year, plus one extra day.
Prohibition on excess business holdings. The Federal government does not want private foundations operating businesses because this would give the tax-exempt foundation an unfair advantage over competitors. The competitors are subject to income tax, and the foundation is only subject to the nominal tax on investment income discussed above. Therefore, a private foundation cannot continue to hold "excess business holdings".
Generally, a foundation is deemed to have excess business holdings if it holds more than a 20% share of a corporation's voting stock or other interests in a business enterprise. Ownership attribution rules apply in calculating this 20% amount.
Tax on unrelated business income. If the foundation earns income from carrying on a trade or business which is not substantially related to its exempt function, a tax is imposed on the unrelated business income, at the same rate as if the income was earned by a taxpayer subject to income tax. If the foundation's tax liability for unrelated business income will be $500 or more, the foundation must make quarterly estimated tax payments or an underpayment penalty may be imposed.
Prohibition on investments that jeopardize the foundation's charitable purpose. The trustees of the foundation may not imprudently invest the foundation's assets in a manner that would jeopardize the foundation's ability to carry out its charitable purposes.
Prohibition on Impermissible Expenditures: The foundation trustees may not make improper expenditures, such as disbursements for political activities, lobbying, and grants to individuals or noncharitable institutions without complying with specified guidelines
Back to Start of What is required for protection, defense, etc.
Alerts and Dangers
Action Checklist
Alerts & Dangers - Risks
Asset Protection
Your Defense
Back to Start of Alerts & Dangers
Back to Start of Alerts & Dangers
Back to Start of Alerts & Dangers
Back to Start of Alerts & Dangers
Tools - Spreadsheets - Documents - Checklists - Organizers
TOOLS
Spreadsheets & Math
Spreadsheets & Computations
Back to Start of Spreadsheets & Math
Sample Agreements - Trusts - Etc.
Back to Start of Contracts, Trusts, etc.
Required Reports
Back to Start of Reports Required
Checklist for Deployment
Checklists for Deployment
Back to Start of Checklists - Deployment
Checklist for Monitoring
Back to Start of Checklist - Monitoring
Index
Click on the text to expand or collapse the outline
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Introduction
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Objectives - Your Question
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Analyses
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Plain English Analysis - Your Answers
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Increase Wealth
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How To Do This
-
Tools
Contact Information
