Monday December 4, 2023
President Signs Omnibus Spending Bill
The Consolidated Appropriations Act of 2023 was passed by the House on a vote of 225–201. Earlier, the Senate passed the bill on a bipartisan vote of 68 to 29. The Consolidated Appropriations Act will fund the federal government until September 30, 2023. This eliminates the need to pass a continuing resolution to fund the government.
Many members of Congress had hoped that there would be a substantial tax title in the bill. Congress, however, was unable to build a bipartisan consensus on the expanded child tax credit and the research and development amortization rules. Therefore, the bill did not include a major tax title. In addition, many of the small tax extenders that had been in previous bills were not included.
A major portion of the bill was a bipartisan retirement plan titled "SECURE 2.0." This bill includes multiple provisions designed to increase retirement savings. One helpful change is that the required minimum distribution (RMD) age will increase to 73 in 2023 and 75 in 2033.
SECURE 2.0 initially was passed by the House with a cost of $37 billion. The Senate version increased to $44 billion and the final bill was scored at $53 billion. House Ways and Means Committee Chair Richard E. Neal (D-MA) indicated the increased cost was "fully offset" by various provisions.
One of the provisions requires that the catch-up contributions for individuals over age 50 who have incomes of $145,000 or more to use a Roth IRA plan. This accelerates the payment of taxes on the catch-up contributions and will raise substantial revenue.
Another revenue raiser is a provision to limit the tax benefits for syndicated conservation easement charitable deductions. These deductions will be limited to 2.5 times the basis of the investors. This provision is estimated to raise $6.4 billion over the next decade.
The bill funds the Defense Department with $858 billion. The non-defense spending is $800 billion. There is an allocation of $44.9 billion for military and humanitarian aid to Ukraine. The U.S. disaster relief fund received by $40.6 billion.
A contentious issue for the past decade has been projects earmarked for home states and districts of congress members. This bill included $15.3 billion for over 7,200 projects that were earmarked for specific states or districts. A lawmaker whose district receives an earmark must, however, publish their request online and certify that they have no financial interest in the project.
Business, Moving and Charitable Mileage Rates for 2023.
In IR-2022-234, the Internal Revenue Service (IRS) published the standard mileage rates for business, moving, medical and charitable travel for 2023.
Each year, the IRS hires an independent contractor to study the fixed and variable cost of operating an automobile. With the increased cost of gasoline this past year, it was expected there would be an increase in the standard mileage rates for business, medical and moving travel. Because the charitable mileage rate is fixed in the Internal Revenue Code, it does not change.
- Business Mileage — The rate for business mileage will increase to 65.5 cents per mile. This is an increase of three cents from the rate used in the second half of 2022. While taxpayers who use vehicles for business purposes have the option to record and track their actual costs, most will typically use the standard mileage rate. If you have a leased vehicle used for business purposes, you are required to use the standard mileage rate.
- Medical or Military Moving Costs — If you track your mileage driven for medical purposes, it is deductible at $0.22 per mile. This mileage and your medical deductions would be deductible if they exceed the 7.5% of adjusted gross income (AGI) floor. Qualified active-duty members of the Armed Forces who are ordered to make a permanent change of station are an exception and may also deduct $0.22 per mile.
- Charitable Mileage — The rate for charitable mileage has been unchanged for several years and remains at $0.14 per mile. Individuals who desire a charitable deduction should record the date, the distance, the starting and ending points and the charitable purpose of each trip.
IRA to Gift Annuity or CRT Questions For JCT
The Consolidated Appropriations Act of 2023 included Division T, the SECURE 2.0 Act of 2022. Section 307 of the SECURE 2.0 Act permits a one-time election for a qualified charitable distribution (QCD) from a traditional IRA to a gift annuity, standard charitable remainder unitrust or charitable remainder annuity trust (CRT).
Following passage of major legislation, the Joint Committee on Taxation (JCT) publishes a guide that explains in detail the government position with respect to the provisions. The General Explanation of Tax Legislation is commonly called the JCT "Bluebook." Following the passage of the Consolidated Appropriations Act of 2023, JCT will eventually publish a Bluebook on the bill.
There are at least three significant Section 307 issues requiring guidance from JCT. These are whether the full $50,000 rollover will qualify for the required minimum distribution (RMD), whether it is possible to take both the $100,000 QCD for an outright gift and the one-time $50,000 QCD to a gift annuity or CRT in the same year and whether two spouses are permitted to each transfer $50,000 to a two-life unitrust.
- Required Minimum Distribution — Is the full $50,000 QCD an amount in fulfillment of the RMD or is just the charitable portion of that plan used to offset the RMD? There have been various drafts of the Legacy IRA Act, which was the basis for Section 307 (substantially reduced in scope from the Legacy IRA Act). At least one version of the Legacy IRA Act included a provision that the full value of the transfer would offset the RMD for that year. However, the JCT statement following the initial IRA rollover passed in the Pension Protection Act of 2006 included the outright charitable component. It will be important for JCT to explain if the full $50,000 amount or just the charitable portion will qualify for the RMD.
- Immediate and Life-Income QCDs — Is it permissible to use both the Section 408(d)(8)(A) $100,000 QCD and the Section 408(d)(8)(F) $50,000 QCD to a gift annuity or CRT in the same year? The draft Legacy IRA Act included a larger limit and the language of that Act specifically covered the combination of the two gifts. Because Section 408(d)(8)(A) and Section 408(d)(8)(F) are separate provisions, it is possible that JCT may permit both to be used in one year. It will be important for JCT to clarify this question.
- Spousal Joint Unitrust — Is it permissible for two spouses who are both over age 70½ to each contribute $50,000 from separately owned IRAs to the same charitable remainder trust? Subparagraph (F)(i) states that a taxpayer may make a QCD that is up to $50,000. Subparagraph (F)(ii) indicates QCDs must be the exclusive funding source to a charitable remainder unitrust. Subparagraph (F)(iii) states that the remainder in the CRT must be to a qualified exempt charitable organization. Subparagraph (F)(iv) states the charitable remainder trust must be non-assignable and only benefit the IRA owner and spouse. It is significant that (F)(ii) states the trust will be funded with "qualified charitable distributions." The language clearly contemplates that more than one QCD to a unitrust is permissible. Therefore, JCT should permit a spousal unitrust to be funded with $50,000 from each spouse, provided they both are over age 70½.
Applicable Federal Rate of 4.6% for January -- Rev. Rul. 2023-1; 2023-2 IRB 1 (15 December 2022)
The IRS has announced the Applicable Federal Rate (AFR) for January of 2023. The AFR under Section 7520 for the month of January is 4.6%. The rates for December of 5.2% or November of 4.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2023, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.