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Tuesday June 6, 2023

Washington News

Washington Hotline

Federal Debt Limit Agreement Avoids U.S. Default

With a vote of 314 to 117 in the House of Representatives and 63 to 36 in the Senate, Congress sent the Fiscal Responsibility Act of 2023 to the President. When the President signs the bill, the threat of a default on U.S. debt and obligations is avoided.

There was a sigh of relief in Congress, the White House, the financial markets and by world leaders. All were hoping for a compromise and bipartisan support for the bill.

After extended negotiations between President Biden and Speaker of the House Kevin McCarthy, a bipartisan compromise was reached. The bill suspends the debt limit of $31.4 trillion until January 2025. After the next election in November of 2024, the new Congress and Administration will need to set an updated limit.

The key compromises related to defense and nondefense spending. Both will be limited in 2024 and 2025. Nondefense spending growth in 2025 will be limited to a 1% increase. There are added work requirements for some adults to receive food stamps and a provision that most environmental reviews be completed in one year. This latter provision is designed to enable energy projects to move forward with construction.

Senate Majority Leader Charles Schumer and Minority Leader Mitch McConnell issued a rare joint statement urging support for the bill. While there are limits on defense, Senator Schumer emphasized the Senate may pass supplemental bills for the war in the Ukraine. He noted, "This debt ceiling deal does nothing to limit the Senate's ability to appropriate emergency supplemental funds to ensure our military capabilities are sufficient to deter China, Russia and our other adversaries and respond to ongoing and growing national security threats, including Russia's evil ongoing war of aggression against Ukraine."

After the bill passed the House, Senator McConnell stated, "The deal the House passed last night is a promising step toward fiscal sanity. But make no mistake: there is much more work to be done. The fight to reel in wasteful spending is far from over."

Updated IRS Charitable Deduction Tables


In TD 9974, the IRS published new "Use of Actuarial Tables in Valuing Annuities, Interests for Life or a Term of Years, and Remainder or Reversionary Interests."

Every 10 years, under Section 7520, the IRS is required to publish new mortality tables that are used to value annuities, interests for life or a term of years and remainder or reversionary interests. The latest tables are based on the 2010 census and are titled "2010CM."

The final regulations include the new 2010 CM mortality table and are effective on June 1, 2023. Deduction calculations from May 1, 2019 to June 1, 2023 may use the 2000CM table or the 2010CM table. Deductions on or after June 2, 2023 must use the 2010CM tables. An option exists to file an amended tax return for charitable gifts made between May 1, 2019 and June 1, 2023 with the caption, "AMENDED PURSUANT TO TD 9974."

Section 7520 generally requires the use of the most recent mortality tables and an interest rate that is 120% of the Federal midterm rate under Section 1274(d)(1) for the month of the valuation. If a charitable contribution is allowable, the taxpayer may elect under Section 7520(a) to use a Federal midterm rate for either of the two months preceding the month before the valuation date.

The actuarial tables based on 2010CM are available at IRS.gov/retirement?plans/actuarial?tables. The IRS webpage includes both the 2000CM and the 2010CM tables. The new tables will update the deduction calculations based on longer life expectancies. The new mortality tables will impact Table S (Single Life Remainder Factors), Table U(1) for unitrust single life factors and Table U(2) for two life unitrust factors.

The final regulations include rules on precision and decimal places. The final regulations permit calculations with more than the IRS number of decimal places. Calculations with more decimal places will be more precise, but many professionals will conform calculations to the IRS number of decimals in the final regulations.

Editor's Note: The new tables reflect increases in life expectancy between 2000 and 2010. With longer expectancies, deductions for life income agreements will generally be lower under the new tables.

Reduced Charitable Deductions with New IRS Tables


Under the final regulations set out in TD 9974 for "Actuarial Tables and Valuing Annuities, Interests for Life or a Term of Years, and Remainder or Reversionary Interest," the values of charitable deductions for annuity trusts, unitrusts and charitable gift annuities will be lower.

Charitable Remainder 5% Annuity Trust


Age
Trust Funding
2000CM Deduction
2010CM Deduction
80
$100,000
$64,568 $62,111
85 $100,000
$72,898
$71,659
90
$100,000 $79,831 $79,562
80/80
$100,000 $52,693 $50,247
85/85
$100,000
$62,911
$61,652
90/90
$100,000
$71,823 $71,579

Charitable Remainder 5% Unitrust


Age
Trust Funding
2000CM Deduction
2010CM Deduction
80
$100,000
$67,833 $65,805
85 $100,000
$74,846
$73,794
90
$100,000 $80,917 $80,706
80/80
$100,000 $57,755 $55,837
85/85
$100,000
$66,039
$65,017
90/90
$100,000
$73,624 $73,453

Charitable Gift Annuity


Age
Trust Funding
2000CM Deduction
2010CM Deduction
80
$100,000
$53,938 $50,745
85 $100,000
$58,804
$56,922
90
$100,000 $65,308 $64,847
80/80
$100,000 $48,908 $46,267
85/85
$100,000
$51,784
$50,148
90/90
$100,000
$53,790 $53,389

Applicable Federal Rate of 4.2% for June -- Rev. Rul. 2023-10; 2023-23 IRB 1 (15 May 2023)


The IRS has announced the Applicable Federal Rate (AFR) for June of 2023. The AFR under Sec. 7520 for the month of June is 4.2%. The rates for May of 4.4% or April of 5.0% 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.

Published June 2, 2023
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