How the New Tax Changes Will Impact Ministers and Churches

Every church and minister will be affected.

Church Law and Tax 1997-11-01

How the New Tax Changes Will Impact Ministers and Churches

Every church and minister will be impacted

Clergy Status-Employee or Self-employed—Retirement Plans, Clergy Compensation, Computation of Social Security Tax, Tax Withholding and Estimated Tax Reporting, Unemployment Taxes and Churches

Article summary. In August the President signed into law two major tax bills-the Taxpayer Relief Act and the Balanced Budget Act. These new laws contain a number of provisions that will be of interest to ministers and churches. The more important provisions are summarized in this feature article, with several examples and a review of all effective dates.

Once again Congress has enacted sweeping tax changes that will impact every taxpayer. This article will review those provisions of greatest relevance to ministers and churches.

Key point. The Taxpayer Relief Act was passed by huge majorities in Congress (389—43 in the House, and 92—8 in the Senate). It contains over 800 amendments to the Internal Revenue Code, and adds more than 300 new sections.

Individuals

1. Child tax credit. One of the key provisions of the Taxpayer Relief Act is the creation of a new child tax credit. Here is how it works. If you have one or more children under 17 years of age, and you earn less than a specified amount of income, then you will be able to claim a $400 credit on your 1998 tax return for each child. The credit increases to $500 in 1999. Here are some key considerations to note:

! Qualifying child. To qualify for the credit, you must have a child who (1) is under 17 years of age; (2) is your child, descendent, stepson or stepdaughter, or foster child; and (3) is claimed by you as a dependent on your tax return.

! Phaseout for high—income taxpayers. The child care credit is reduced by $50 for each $1,000 of adjusted gross income in excess of $110,000 for married couples filing jointly. For single persons, the credit is reduced by $50 for each $1,000 of adjusted gross income in excess of $75,000. These amounts are not adjusted for inflation.

! Refundable child care credit. Some lower income families will be eligible to receive a supplemental credit. To qualify, a family must be eligible to receive the earned income tax credit. Unfortunately, the amount of this credit is so difficult to compute that few eligible families will be able to claim it. Congress anticipated this problem, and has instructed the IRS to determine “whether a simplified method of calculating the credit can be achieved.” We will report any progress in future issues of this newsletter. For now, here is a “ballpark test” that can be used-the supplemental credit will not be available unless you (1) qualify for the earned income credit, and (2) your earned income credit exceeds your share of FICA or self—employment taxes.

Key point. The child tax credit is in addition to the personal exemption amount ($2,650 for 1997) that can be claimed for each dependent child.

Key point. The child tax credit is in addition to the dependent care credit you can claim if you pay someone to care for your dependent child who is under 13 (or a disabled dependent) so that you can work. This credit is 30% of the amount you pay for dependent care. You can only count expenses of up to $2,400 for one child, or $4,800 for two or more children. The credit is phased out for persons earning above a specified amount.

Key point. Tax credits benefit taxpayers far more than deductions or exclusions, since they represent a dollar—for—dollar reduction in taxes.

Key point. The new law introduces the HOPE credit, lifetime learning credit, and education IRA. Each of these provisions will be of direct relevance to churches that operate schools or that have scholarship funds for students, or whose members contribute to the postsecondary educational expenses of their children.

2. Home office expenses. Many ministers and church staff members maintain an office in their home and perform some of their duties in their home office. Are expenses associated with the home office deductible as a business expense? Unfortunately, it has become much more difficult in recent years to claim a home office deduction. The Taxpayer Relief Act makes it a little easier. Consider the following:

! Background. Prior to 1976, home office expenses were deductible whenever they were “appropriate and helpful” to the taxpayer’s business. In 1976 Congress narrowed the home office deduction by making it available only when the office is used regularly and exclusively as a principal place of business, or as a place of business used to meet clients in the normal course of business. In 1993, the United States Supreme Court announced a very narrow interpretation of a taxpayer’s “principal place of business.” Commissioner v. Soliman, 113 S. Ct. 701 (1993). The Court concluded that a physician did not qualify for a home office deduction even though he used his home office regularly and exclusively for business, because the “essence of his professional service” was performed in hospitals. It focused on the place where the primary income—generating functions are performed, and the amount of time spent at each location. Under this analysis, the only possible conclusion was that the physician’s principal place of business was at the hospitals where he worked, and not his home office where he performed largely administrative tasks.

! The new law. The Taxpayer Relief Act repeals the Soliman decision and recognizes that some taxpayers will be eligible for a home office deduction if they use their home office for largely administrative tasks-even if their income—generating activities occur at another location. This is a major break for taxpayers with home offices. The new law provides that a home office qualifies as a principal place of business if:

(1) the office is used by the taxpayer to conduct administrative or management activities related to a trade or business, and

(2) there is no other fixed location where the taxpayer conducts substantial administrative and management activities of the trade or business

As before, the home office must be used regularly and exclusively for business purposes.

Taxpayers who meet these new requirements are eligible for a home office deduction even if they conduct some administrative and management activities at a fixed location of their business outside their home-so long as those activities are not substantial. For example, a taxpayer occasionally does minimal paperwork at another fixed location of the business. Further, taxpayers can claim a home office deduction even though they conduct substantial non—administrative or non—management business activities at a fixed location of their business outside their home. For example, a taxpayer meets with or provides services to customers or clients at a fixed location that is away from home. It is this rule that overturns the Soliman decision, and makes the home office deduction available to many more persons.

! Effect of an office in the church. What if a minister has a home office, but an office is also available at the church? Is a home office deduction ever available under these circumstances? In the past, the answer has been “no,” at least for ministers who are employees for federal income tax reporting purposes. For an employee to qualify for a home office deduction, the use of a home office must not only be regular and exclusive, but it also must be for the “convenience of the employer.” This has meant that the home office must be essential for the employee to perform his or her work. This is simply not the case when an office is available in the church. The courts and the IRS have ruled that if an employer provides employees access to an office on its premises for the performance of their duties, and an employee elects to conduct these duties at home as matter of personal preference, then the employee’s use of the home office is not for the “convenience of the employer” and there is no deduction allowed.

In summary, if a self—employed taxpayer in fact does not perform substantial administrative or management activities at any fixed location of the business away from home, then the second part of the new test is met whether or not the taxpayer elected not to use an office away from home that was available. However, for employees, the fact that they elect not to use an office on their employer’s premises that is available to them for administrative activities will still be relevant in deciding whether or not they meet the “convenience of the employer” requirement.

Example. Rev. V reports his income taxes as an employee. He has an office at his church, but also maintains an office in his home where he occasionally does research and other work—related activities. He also uses his home office to monitor investments, and assist his children with their homework. Rev. V is not eligible for a home office deduction for two reasons. First, his home office is not used exclusively for business purposes. And second, his home office is not for the convenience of his employer since an office is available at the church where Rev. V can perform all of his work—related duties.

Example. Rev. H is pastor of a small congregation. He reports his income taxes as an employee. The church does not maintain an office for Rev. H, and so he performs all of his work—related administrative tasks at a home office that he uses regularly and exclusively in performing his duties. While H performs all of his non—administrative duties (preaching, sacraments) at the church, all of his administrative tasks (sermon preparation, business planning) are performed at his home office. While Rev. H might not have qualified for a home office deduction under the Soliman ruling, he clearly qualifies under the new rules that take effect in 1999.

Example. Rev. K has an office at the church, but she also has a home office which she uses regularly and exclusively to counsel with church members. Does she qualify for a home office deduction? While she uses her home office as a place for meeting with clients in the normal course of her activities, the home office still must be used for the convenience of her employer. This means that it is essential to use her home office to perform her duties. This is very unlikely if not impossible when an office is maintained in the church.

Key point. Taxpayers who qualify for a home office deduction get an additional tax break-travel between their home and church (or other business location) is not commuting since they are not traveling between home and work. Rather, they are traveling between two business locations. In many cases this will convert nondeductible “commuting” expenses into a deductible business expense.

3. Health insurance deduction for the self—employed. Under current law, self—employed persons can deduct health insurance costs for themselves (and their spouse and children) as follows: 40 percent in 1997; 45 percent in 1998 through 2002; 50 percent in 2003; 60 percent in 2004; 70 percent in 2005; and 80 percent in 2006 and thereafter. This deduction is not allowed in any year in which the self—employed person is eligible to participate in a subsidized health plan maintained by an employer of either the self—employed person or his or her spouse.

The Taxpayer Relief Act accelerates the health insurance deduction for self—employed workers as follows: 40 percent in 1997; 45 percent in 1998 and 1999; 50 percent in 2000 and 2001; 60 percent in 2002; 80 percent in 2003 through 2005; 90 percent in 2006; and 100 percent in 2007 and thereafter.

4. Real estate reporting requirements. Under current law, persons who close real estate transactions are required to file an information return (Form 1099S) with the IRS. This return reports the details of the transaction, and is designed to disclose persons who may owe capital gains tax. The Taxpayer Relief Act exempts sales of personal residences with a gross sales price of $500,000 or less ($250,000 or less for single taxpayers) from this reporting requirement, beginning after May 6, 1997. The purpose of this change is to relieve taxpayers of the reporting requirement on transactions that will be exempt from the capital gains tax under new rules (explained below) that took effect after May 6, 1997.

Key point. To qualify for this exemption, a home seller must provide the buyer with written assurance that no capital gain tax will be payable on the transaction. The IRS will issue further guidance on this requirement.

5. “Continuous levy” authority of the IRS extends to social security payments. Under current law, taxpayers who do not pay a tax within 10 days of notice and demand by the IRS are subject to “levy.” A levy is a procedure the IRS uses to collect the tax deficiency. It permits the IRS to seize property owned by the taxpayer. Generally, a levy does not apply to property acquired after the date of the levy-with one exception. A levy on wages is “continuous” from the date it is first made until the debt is paid in full.

The Taxpayer Relief Act permits the IRS to impose a continuous levy on federal payments for which eligibility is not based on the income or assets of the taxpayer. To illustrate, the IRS will now be able to treat social security checks like wages. This means that a levy against such payments will “continue” until the tax deficiency is paid. The new law specifies that such levies can attach up to 15 percent of any payment due the taxpayer.

This provision took effect on August 6, 1997.

6. Earned income credit modifications. Certain low—income workers are entitled to claim a refundable earned income credit (EIC) on their tax return. A refundable credit is a credit that not only reduces income taxes, but allows a refund to taxpayers whose credit exceeds their tax liability. The amount of the credit depends on the number of children the taxpayer has, and it is phased out for taxpayers with adjusted gross income above certain limits. The Taxpayer Relief Act makes certain changes to the earned income credit, including the following:

! Fraud or recklessness. A taxpayer who fraudulently claims an EIC is ineligible to claim the EIC for the next 10 years. A taxpayer who erroneously claims the EIC due to reckless or intentional disregard of the law is ineligible to claim the credit for the next 2 years. This provision took effect January 1, 1997.

! Definition of adjusted gross income. The EIC is phased out for taxpayers with adjusted gross income above specified levels. The new law provides that tax—exempt interest and nontaxable distributions from pensions, annuities, and IRAs (if not rolled over into similar tax—favored products) are not counted in computing adjusted gross income for purposes of determining eligibility for the EIC. This provision takes effect in 1998.

7. Foreign earned income credit. United States citizens generally are subject to federal income tax on all their income, whether derived in the United States or in a foreign country. However, citizens working in foreign countries may be eligible to exclude from their income for federal income tax purposes certain foreign earned income and housing costs. To qualify for these exclusions, the individual must either (1) be a resident of the foreign country for an uninterrupted period that includes the entire tax year, or (2) be present overseas for 330 days out of any 12 consecutive month period. The maximum exclusion for foreign earned income under current law is $70,000 per year.

The Taxpayer Relief Act increases the $70,000 annual foreign earned income exclusion by $2,000 per year beginning in 1998, until it reaches a maximum of $80,000 in the year 2002. In addition, the credit will be indexed for inflation beginning in 2008. This credit is claimed by many American missionaries serving in foreign countries.

8. Increase in standard deduction of dependents. Under current law, the standard deduction of a taxpayer who is claimed as a dependent on another’s tax return cannot exceed the lesser of (1) the standard deduction for an individual (projected to be $4,250 for 1998), or (2) the greater of $500 (indexed for inflation) or the dependent’s earned income. In other words, a minor child who works outside the home, and who is claimed as a dependent on his parents’ tax return, is eligible for a reduced standard deduction based on this formula.

The Taxpayer Relief Act increases the standard deduction for a taxpayer who is claimed as a dependent on another’s tax return to the lesser of (1) the standard deduction for individuals, or (2) the greater of (a) $500 (indexed for inflation), or (b) the individual’s earned income plus $250. The $250 amount will be indexed for inflation after 1998. The new standard deduction rules take effect in 1998.

Example. Rev. L’s daughter is 17 years old and works part—time in a local restaurant. Assuming that she earns $2,000 in 1997, and is claimed as a dependent on her parents’ tax return, her standard deduction under current law is the lesser of (1) the standard deduction for an individual ($4,000 for 1997), or (2) the greater of $500 or the dependent’s earned income ($2,000). This formula permits the daughter to claim a standard deduction on her own tax return in the amount of $2,000.

Example. Same facts as the previous example, except that the year is 1998. Under the new rules, the daughter’s standard deduction is the lesser of (1) the standard deduction for individuals (projected to be $4,250 in 1998), or (2) the greater of (a) $500, or (b) the dependent’s earned income ($2,000) plus $250. This formula permits the daughter to claim a standard deduction on her own tax return in the amount of $2,250-an increase of $250 over the 1997 deduction.

9. Estimated tax penalties. Taxpayers are subject to an “addition to tax” for any underpayment of estimated taxes. This penalty is not assessed if the total tax liability for the year (reduced by any withheld tax and estimated tax payments) is less than $500. The Taxpayer Relief Act increases this amount to $1,000, beginning in 1998.

Key point. This provision is relevant to ministers, who always pay estimated taxes because their wages are exempt from tax withholding (unless they elect voluntary tax withholding).

10. Estimated tax requirements. Under current law, a taxpayer is subject to a penalty for underpayments of estimated taxes. The penalty is avoided if a taxpayer makes timely estimated tax payments at least equal to (1) 100 percent of the previous year’s tax liability, or (2) 90 percent of the current year’s tax liability. The 100 percent of last year’s tax liability exception is increased to 110 percent for individuals with adjusted gross income of more than $150,000 for the previous year.

The Taxpayer Relief Act changes the 110 percent of last year’s tax liability rule to 100 percent of the previous year’s tax liability in 1998; 105 percent of the previous year’s tax liability in 1999, 2000, and 2001; and 112 percent of the previous year’s tax liability in 2002.

Education

1. HOPE scholarship tax credit. The Taxpayer Relief Act provides welcome relief to families with children in college or vocational training. Beginning in 1998, taxpayers can claim a “HOPE” credit against federal income taxes of up to $1,500 per student per year for 50 percent of qualified tuition and related expenses (not including room, board, and books) paid during the first two years of the student’s postsecondary, undergraduate education in a degree or certificate program. Here are some of the key provisions:

! Effective date. HOPE scholarship credits are available for tuition expenses and academic fees paid after December 31, 1997, for education furnished in academic periods beginning after such date.

! Eligible taxpayers. Who qualifies for the HOPE scholarship credit? The law provides that the credit is available for tuition expenses incurred by a taxpayer, or the taxpayer’s spouse or dependent child.

Example. A church member would like to claim a HOPE tax credit for monies he pays for scholarships on behalf of members of his church who are attending college. He is not eligible for the credit with respect to any student who is not his spouse or dependent.

Example. A student attending a church—related college incurs $9,000 in tuition expenses for 1997. The student’s mother pays this entire amount. She is not eligible for a HOPE credit, even if she claims her son as a dependent, since the credit is not available until 1998.

Example. Same facts as the previous problem, except the year is 1998. The parent would be eligible for a HOPE credit in the amount of $1,500-assuming that she meets the conditions summarized below.

Example. A parent pays $10,000 in tuition fees incurred by his son during 1998 while attending seminary as a full—time student. The parent is not eligible for a HOPE credit, since the tuition was not incurred during the first two years of postsecondary, undergraduate education.

Example. A parent pays the full $5,000 tuition for 1998 on behalf of his daughter who attends a church—operated high school. The parent is not eligible for the HOPE credit, since the credit is limited to the first two years of postsecondary, undergraduate education.

! First two years of college. The HOPE credit applies only to tuition incurred during the first two years of a college or vocational program leading to a degree or certificate.

! Amount of credit. The credit is 100 percent of the first $1,000 of tuition and fees, and 50 percent on the next $1,000 of tuition and fees-for a total available credit of $1,500. Remember that a credit is a direct dollar—for—dollar reduction in income taxes. It is far more beneficial than a tax deduction which merely reduces taxable income.

Example. A student who incurs tuition of $1,000 is eligible for a $1,000 HOPE credit. A student who incurs tuition of $2,000 or more is eligible for a $1,500 HOPE credit.

Key point. The amount of the HOPE credit is indexed for inflation after the year 2000.

! Eligible students. To be eligible for a HOPE credit, a student must be enrolled at least half—time in a degree or certificate program leading to a recognized educational credential at an eligible educational institution.

! What expenses are eligible for the credit? The credit is available with respect to amounts paid for tuition and academic fees. It is not available with respect to amounts paid for books, meals, lodging, student activities, athletics, insurance, transportation, and similar personal expenses.

! Phaseout for high—income taxpayers. The HOPE credit is phased out for single taxpayers with adjusted gross income between $40,000 and $50,000. The credit is phased out for married taxpayers who file jointly with adjusted gross income between $80,000 and $100,000. These amounts will be indexed for inflation after 1999, although the first year when an adjustment can be made is 2001.

Example. A student incurs $5,000 in tuition expenses during her first semester of college in 1998. Her parents pay this entire amount. They have adjusted gross income of $50,000 for 1998. They are eligible to claim a HOPE credit of $1,500.

Example. Same facts as the previous example, except that the parents have adjusted gross income of $100,000. They are not eligible for a HOPE credit because their income is too high.

! Which year is the credit claimed? The HOPE credit is available in the year the tuition expenses are paid-so long as the education begins or continues during that year or during the first three months of the next year.

Key point. Congress gave the IRS authority to issue regulations providing that the HOPE credit will be “recaptured” if a student receives a refund of tuition for which a credit was previously claimed.

! What about loans? Qualified tuition expenses paid with the proceeds of a loan are eligible for a HOPE credit. The credit is not applied to the repayment of the loan itself.

! Reporting requirements. The new law specifies that parents cannot claim the HOPE credit unless their tax return reports the name and social security number of the eligible student. Tax returns for 1998 and future years will allow parents to provide this information.

2. Lifetime learning credit. Here’s another break for parents with children in college-taxpayers are allowed a “lifetime learning credit” against federal income taxes equal to 20 percent of tuition and academic fees incurred during a year on behalf of the taxpayer, or the taxpayer’s spouse or dependent child. Here are some of the details:

! Effective date. This credit applies to tuition expenses incurred after June 30, 1998, for education furnished in academic periods beginning after such date.

! Eligible taxpayers. The credit is available for tuition expenses incurred by a taxpayer, or the taxpayer’s spouse or dependent child.

! Amount of credit. The credit is 20 percent of the first $5,000 of tuition and academic fees. This means that the maximum credit will be $1,000 per year. However, for expenses paid after December 31, 2002, up to $10,000 of tuition and academic fees will be eligible for the 20 percent lifetime learning credit. This means that the maximum credit will increase to $2,000 per year.

! No two—year limitation. Unlike HOPE credits, the lifetime learning credit is not limited to the first two years of postsecondary, undergraduate education. It can be claimed for an unlimited number of years.

! Multiple children. The lifetime learning credit can be claimed in any one year on behalf of any number of eligible students.

Example. A church member has three dependent children who are attending college (one church—related college and two public universities). The parent may claim a credit of $1,000 for each of these three students, assuming that they each incur tuition expenses of at least $5,000 per year and all other conditions are met.

Key point. The amount of the lifetime learning credit is indexed for inflation after the year 2000.

! Eligible students. The lifetime learning credit is available to students at both undergraduate and graduate educational institutions (and postsecondary vocational schools). In addition, students need not be enrolled half—time or full—time.

Key point. There are important differences between students who qualify for HOPE credits and the lifetime learning credit. Consider the following:

! HOPE credits are available only with respect to postsecondary, undergraduate education. Lifetime learning credits are available for both undergraduate and graduate education.

! HOPE credits are available only for the first two years of undergraduate education. There is no limit on how often lifetime learning credits can be claimed.

! HOPE credits cannot be claimed for more than two years for the same student. Lifetime learning credits are not subject to this limitation.

! Like HOPE credits, lifetime learning credits are available with respect to education that is at least half—time. But unlike HOPE credits, lifetime learning credits also are available with respect to “any course of instruction at an eligible educational institution to acquire or improve job skills of the individual.” In other words, many continuing education courses and professional seminars would qualify for the lifetime learning credit-if offered by an eligible educational institution.

Example. A parent incurs tuition expenses of $10,000 in 1998 for a child who attends seminary. The parent is eligible for a lifetime learning credit of $1,000 (unless phased out because of the parent’s adjusted gross income).

What expenses are eligible for the credit? Same as for HOPE credits (see above).

! Phaseout for high—income taxpayers. Same as for HOPE credits (see above).

! Which year is the credit claimed? Same as for HOPE credits (see above).

! What about loans? Same as for HOPE credits (see above).

! Choice of credit. If a taxpayer claims a HOPE credit with respect to a student then the lifetime learning credit will not be available with respect to that same student for the year, although the lifetime learning credit may be available with respect to that student for other years. Also, taxpayers who claim an exclusion for distributions from an “education IRA” (explained later in this article) with respect to a student will not be able to claim a lifetime learning credit for that student during the same year.

3. Education IRAs. Taxpayers are given yet another break for education expenses under the new law-they can contribute up to $500 each year to an “education IRA.” Here is how it works. A taxpayer establishes an education IRA and designates a “beneficiary” (usually, the taxpayer’s child). The taxpayer contributes up to $500 each year into the account, up until the beneficiary’s 18th birthday. Earnings on an education IRA generally accumulate tax—free-provided they are distributed for the post—secondary educational expenses of the beneficiary. Here are some more specifics:

! Effective date. Parents can begin contributing to education IRAs on or after January 1, 1998.

! Annual contribution limit. Parents can contribute a maximum of $500 each year to an education IRA. This amount is phased out for higher income taxpayers. The phaseout begins at $95,000 of adjusted gross income for single parents, and is phased out completely at $110,000. The phaseout begins at $150,000 of adjusted gross income for married couples filing jointly, and is phased out completely at $160,000.

! Qualified expenses. Earnings must be distributed for “qualified expenses” in order to accumulate tax—free. Such expenses include post—secondary tuition, fees, books, supplies, equipment, and certain room and board expenses. Room and board expenses qualify only if the beneficiary is enrolled on at least a half—time basis. Further, “room and board expenses” are defined to mean the minimum room and board allowance as determined by the college or other academic institution in computing costs of attendance for federal financial aid programs.

Key point. Expenses for elementary and secondary school expenses do not qualify.

! Termination of education IRAs. Any balance remaining in an education IRA when a beneficiary attains 30 years of age must be distributed, and the earnings portion of such a distribution will be included in the beneficiary’s taxable income and subject to an additional ten percent penalty tax because the distribution was not for educational purposes.

Key point. However, prior to a beneficiary reaching age 30, the balance in the education IRA may be “rolled over” (without penalty or tax) to another education IRA benefiting a different beneficiary-if the new beneficiary is a member of the family of the original beneficiary.

! Interaction with HOPE credits and lifetime learning credits. In any year in which an exclusion is claimed for a distribution from an education IRA, neither a HOPE credit nor a lifetime learning credit may be claimed with respect to educational expenses incurred during that year on behalf of the same student. The HOPE credit and lifetime learning credit may be available in other years with respect to that beneficiary.

! Qualified educational institutions. Education IRAs can be distributed for the qualified educational expenses incurred by beneficiaries attending post—secondary undergraduate or graduate educational institutions. Some vocational institutions also qualify.

! Tax treatment of distributions. An education IRA will consist of two components-all annual contributions made to the account plus accumulated earnings. Distributions from the account likewise will consist of both contributions and earnings. The portion of an annual distribution that comes from annual contributions is always tax—free to the beneficiary, but the portion that comes from earnings may not be. Here are two rules to keep in mind:

(1) Qualified education expenses equal or exceed the annual distribution from an education IRA. The full amount of the distribution is tax—free to the beneficiary.

Example. A college student is the beneficiary of an education IRA established by her parents. The parents have made annual contributions of $500 for eight years (for a total of $4,000), and the account has accumulated an additional $1,000 in earnings, for a total account balance of $5,000. During one year the student incurs $10,000 of educational expenses, and $1,000 is distributed from the education IRA for these expenses. This distribution represents $800 of contributions and $200 of earnings. These amounts are computed on the basis of the ratio of total contributions ($4,000) to the total account balance ($5,000, representing contributions and earnings). Since the qualified educational expenses exceed the amount of the distribution, the full amount of the distribution is tax—free.

(2) Qualified education expenses are less than the annual distribution from an education IRA. This scenario will be far less common, especially for the next several years. However, it may apply to students who are taking only a few courses. The earnings component of a distribution (see the previous example) will be partially tax—free and partially taxable. You compute these amounts by multiplying the earnings component of the distribution times the ratio of educational expenses to the total amount of the distribution.

Example. Same facts as the previous example, except that the student’s educational expenses are only $600 for the year in question. Since her education expenses are less than the amount of the distribution, a portion of the distribution allocated to earnings will be tax—free and a portion will be taxable. The tax—free portion is computed by the ratio of educational expenses ($600) divided by the total distribution ($1,000)-or 60 percent. Taking 60 percent of the earnings component of the distribution ($200, as computed in the previous example) yields a tax—free earnings distribution of $120. This leaves a taxable portion of $80, which should be included in the beneficiary’s taxable income.

! Technical requirements. Parents cannot treat an existing IRA as an education IRA. You must establish a separate IRA that you specifically designate as an education IRA.

4. Penalty—free withdrawals from an existing IRA to pay for educational expenses. Beginning in 1998, the 10 percent penalty that applies to early distributions from an IRA will not apply to amounts used for qualified higher education expenses (including graduate courses) of the taxpayer or the taxpayer’s spouse, child, or grandchild. The penalty—free withdrawal is available for “qualified higher education expenses,” meaning tuition, fees, books, supplies, equipment required for enrollment, and room and board. All expenses must be incurred at a post—secondary educational institution, including a graduate program.

5. Extension of employer—provided educational assistance exclusion. In the past, an employee’s taxable income did not include amounts paid by an employer for educational assistance if such amounts were paid pursuant to an educational assistance program that met certain requirements. This exclusion was limited to $5,250 of educational assistance per employee during a calendar year, and applied whether or not the education was job related. The exclusion expired for graduate education beginning after June 30, 1996, and for undergraduate education beginning after June 30, 1997. The Taxpayer Relief Act extends this exclusion for undergraduate education for courses beginning before June 1, 2000. The exclusion does not apply to graduate—level courses.

Retirement

1. Increase IRA phaseout limits. Under current law, if an individual (or his or her spouse) is an active participant in an employer—sponsored retirement plan, the $2,000 IRA deduction limit is phased out over the following levels of adjusted gross income: (1) $25,000 to $35,000 for single persons; and (2) $40,000 to $50,000 for married persons filing jointly. The Taxpayer Relief Act contains two important modifications in these rules, effective in 1998:

(1) Spouse’s participation not considered. An individual will not be considered to be an active participant in an employer—sponsored retirement plan merely because his or her spouse is an active participant in such a plan. However, the maximum deductible IRA contribution for an individual who is not an active participant, but whose spouse is, is phased out for taxpayers with adjusted gross income between $150,000 and $160,000.

(2) Phaseout limits increased. The deductible IRA phaseout ranges are increased as follows:

Joint Returns

tax year phaseout range (adjusted gross income)

1998 $50,000—$60,000

1999 $51,000—$61,000

2000 $52,000—$62,000

2001 $53,000—$63,000

2002 $54,000—$64,000

2003 $60,000—$70,000

2004 $65,000—$75,000

2005 $70,000—$80,000

2006 $75,000—$85,000

2007 and thereafter $80,000—$100,000

Single Taxpayers

tax year phase out range (adjusted gross income)

1998 $30,000—$40,000

1999 $31,000—$41,000

2000 $32,000—$42,000

2001 $33,000—$43,000

2002 $34,000—$44,000

2003 $40,000—$50,000

2004 $45,000—$55,000

2005 and thereafter $50,000—$60,000

Example. Rev. B is not a participant in an employer—sponsored retirement plan. Rev. B’s spouse works for a secular employer, and is a participant in an employer—sponsored retirement plan. The combined adjusted gross income of the couple is $80,000. Neither can make a deductible contribution to an IRA during 1997.

Example. Same facts as the previous example, except that the year is 1998. Rev. B is eligible to make a deductible $2,000 to an IRA. The fact that Rev. B’s spouse is an active participant in an employer—sponsored retirement plan does not affect Rev. B’s eligibility.

2. “Roth” (“backloaded”) IRAs. Another new IRA that debuts in 1998 is the so—called “Roth” or “backloaded” IRA. It is named in honor of Senator William Roth (R—Del.), its chief advocate. Here is how it works. Taxpayers can make annual nondeductible contributions of up to $2,000 to a Roth IRA, and distributions from such an IRA are not taxed if they are made after a five year holding period, and are made as a result of the account holder’s: (1) attaining age 59 and 1/2 or older, (2) death, (3) disability, or (4) purchase of a first home. Further, earnings on Roth IRAs accumulate tax—free. Here are some more details:

! Phaseout for higher income taxpayers. Roth IRAs are phased out for single taxpayers with adjusted gross income of $95,000 to $110,000, and for married taxpayers filing jointly with adjusted gross income of $150,000 to $160,000.

! Rollovers. A regular IRA may be rolled over to a Roth IRA. Only taxpayers with adjusted gross income of less than $100,000 are eligible for this provision.

Caution. If you roll over your regular IRA into a Roth IRA prior to 1999, the amount that would have been included in taxable income had the funds been withdrawn are included in your taxable income over a four—year period. The ten percent penalty on early withdrawals from an IRA does not apply.

Key point. If you expect your income tax rate to drop when you retire, it ordinarily will not be advantageous to roll over your existing IRA into a Roth IRA. But if you are younger and a disciplined saver and investor, and expect your tax rate to increase when you retire, then a rollover should be considered. Discuss the specifics of your situation with a financial planner or CPA.

! Maximum IRA contribution. Persons who cannot (or do not) make contributions to a deductible IRA or a Roth IRA can continue to make contributions to a nondeductible IRA, as under prior law. However, the new law clarifies that in no case may contributions to all of a taxpayer’s IRAs for the same year exceed $2,000.

! No age limit on contributions. Unlike a regular IRA, taxpayers can make contributions to a Roth IRA after they reach age 70 and 1/2.

! Technical requirements. A Roth IRA must be separately established, and it must be designated as a Roth IRA when it is created.

Example. Rev. G opens a Roth IRA. Contributions made by Rev. G each year are not tax—deductible. However, following a five—year holding period Rev. G may make tax—free distributions from the Roth IRA on account of any one or more of the following conditions: (1) attaining age 59 and 1/2 or older, (2) death, (3) disability, or (4) purchase of a first home.

Key point. In summary, the advantage of a Roth IRA is that it is “backloaded.” This means that annual contributions to the IRA are not tax—deductible, but that earnings and distributions are nontaxable if they meet the requirements mentioned above. This will be a major tax break for many taxpayers, and will make Roth IRAs preferable in some cases to ordinary IRAs.

Key point. In general, a Roth IRA will be preferable to a regular IRA if your tax rate remains the same or increases during retirement. If your total effective tax rate drops during your retirement years, a regular IRA may be more attractive (though not significantly).

Comparing Regular and Roth IRAs

 Regular IRARoth IRA

annual contribution limit$2,000$2,000
both spouses can contributeyesyes
tax treatment of annual contributionstax—deductible (phaseout rules apply to higher income taxpayers)not tax—deductible
earningsaccumulate tax—free, but are taxed at distributionaccumulate tax free, and are not taxed at distribution (if on account of age, death, disability, or first—time homebuyer expenses)
distributionstaxed as ordinary incomenot taxed (if on account of age, death, disability, or first—time homebuyer expenses)
how long can contributions be madeuntil age 70 and 1/2 (for deductible IRAs)no limit

3. No penalty for early IRA withdrawals by first—time homebuyers. Under current law, a 10 percent “additional tax” applies to distributions from an IRA prior to age 59 and 1/2. Beginning in 1998, the Taxpayer Relief Act permits taxpayers to withdraw funds from their IRA prior to age 59 and 1/2 for “first—time homebuyer expenses” without triggering the 10 percent penalty (up to $10,000). The expenses must be incurred to buy or build a principal residence for yourself, or a child or grandchild.

Caution. To avoid the 10 percent tax on premature IRA distributions, you must use the distribution within 120 days to build or buy a first—time home.

Caution. To be considered a “first—time homebuyer,” you must not have had an ownership interest in a principal residence during the 2—year period ending on the date of acquisition of the principal residence.

4. Repeal of 15 percent tax on excess distributions from a retirement plan. Under current law, a 15 percent tax is imposed on excess distributions from most types of retirement plans (including IRAs and tax—sheltered annuities). Excess distributions generally are those in excess of $160,000 for 1997, or $800,000 in the case of a lump—sum distribution. Congress suspended this tax for the years 1997 through 1999. The Taxpayer Relief Act repeals it permanently. The new law also repeals the assessment of the 15 percent penalty to “excess accumulations” of funds within a retirement account.

5. Modification of section 403(b) exclusion allowance. Under current law, annual contributions to a 403(b) annuity cannot exceed the “exclusion allowance.” In general, the exclusion allowance is the excess (if any) of (1) 20 percent of the employee’s “includible compensation” multiplied times his or her years of service, over (2) the total employer contributions for an annuity excluded for prior years. The Taxpayer Relief Act provides that the term “includible compensation” shall not include elective deferrals (by salary reduction agreement) into a 403(b) annuity or a cafeteria plan. The effect of this change, which took effect on January 1, 1998, will be to increase the amount that some employees can contribute to their 403(b) annuity.

Key point. Congress enacted legislation in 1996 removing salary reduction contributions to both 403(b) annuities and cafeteria plans from the definition of “compensation” for computing the limits on employer contributions to 403(b) annuities and other defined contribution retirement plans under Code section 415. The Taxpayer Relief Act applies this same definition of compensation in the context of the exclusion allowance.

Capital gains

1. Capital gains tax rate reduction. Under current law, gain or loss in the value of an asset is not recognized for income tax purposes until a taxpayer disposes of the asset. On the sale or exchange of a “capital asset,” the “capital gain” is taxed at ordinary income tax rates, except that individuals are subject to a maximum rate of 28 percent on the net capital gain. A capital asset generally means any property, with some exceptions (including depreciable real estate used in a taxpayer’s trade or business, and property held for sale to customers). Common examples include real personal residences and investments.

The Taxpayer Relief Act contains the following modifications:

! Reduction in rate of tax. The maximum rate of tax on net capital gain of individuals is reduced from 28 percent to 20 percent. This means that taxpayers who are in the 28 percent (or higher) income tax bracket will pay a capital gains tax of 20 percent. Lower—income taxpayers whose ordinary income is taxed at the 15 percent rate will pay a capital gains tax of 10 percent.

Key point. The lower capital gains tax rates apply to sales and exchanges of capital assets after July 28, 1997. For the lower tax rates to apply, the capital asset must have been held by the taxpayer for more than 18 months.

Key point. For capital assets held for more than 1 year but not more than 18 months, the maximum capital gains tax rate is 28 percent.

Key point. The capital gains rate on depreciable real estate used in a taxpayer’s trade or business is reduced to 25 percent.

! Additional tax rate reduction in 2001. Beginning in the year 2001, the maximum capital gains rates for assets which are held for more than 5 years are 18 percent (for persons in the 28 percent or higher ordinary income tax bracket) and 8 percent (for persons in the 15 percent ordinary income tax bracket). The 18 percent rate applies only to assets that are acquired on or after January 1, 2001.

Example. Rev. C is in the 28 percent ordinary income tax bracket. Rev. C sells securities in December of 1997 resulting in a capital gain of $10,000. The securities were purchased in 1995. The capital gains will be taxed at 28 percent ($2,800) since they were not held for more than 18 months beginning after July 28, 1997.

Example. Same facts as the previous example, except that Rev. C waits until March of 1999 to sell the securities. If the gain remains $10,000, it will be taxed at the lower 20 percent rate ($2,000) since the securities were held for more than 18 months after July 28, 1997. If Rev. C waits until the year 2006 to sell the securities, the lower 18 percent tax rate will apply. Of course, by waiting for the lower capital gains tax rates to take effect, Rev. C assumes the risk that the value of the securities will decrease.

Key point. Securities with growth potential as opposed to high income (dividends and interest) are favored by the lower capital gains tax rates.

2. Sales of personal residences. Under current law, no gain is recognized on the sale of a principal residence if (1) a new residence is purchased that is at least equal in cost to the sales price of the old residence, and (2) the new residence is used as a principal residence of the taxpayer at some point within a “replacement period” that begins two years prior to the sale of the old residence and ends two years after the sale. Also, under present law an individual can exclude on a one—time basis up to $125,000 of gains from the sale of a principal residence if the taxpayer (1) has attained age 55 before the sale, and (2) has owned the property and used it as a principal residence for 3 or more of the 5 years preceding the sale.

The Taxpayer Relief Act eliminates these rules for sales of principal residences occurring after May 6, 1997. The new rules are much more liberal, and will greatly benefit many taxpayers. Here is breakdown of the new rules:

! Higher nontaxable amounts. Most importantly, after May 6, 1997 a married couple (who file a joint return) can exclude up to $500,000 of gain from the sale or exchange of a principal residence. Single taxpayers can exclude up to $250,000.

! Holding period. To qualify for the full exclusion, a taxpayer must have owned and occupied the residence as a principal residence for at least 2 of the 5 years prior to the date of sale or exchange. But, unlike the former law, the tax benefit may not be lost completely if this “holding period” is not satisfied. Taxpayers who sell a home without meeting this requirement get a partial benefit if they had to sell their home on account of a change of place of employment, health, or other unforeseen circumstances. The partial benefit is the fraction of $500,000 (or $250,000 for single taxpayers) equal to the fraction of 2 years that the home was owned and occupied as a principal residence.

A special rule applies to persons who become physically or mentally incapable of self—care and who move into a licensed facility (including a nursing home). If they owned and occupied a residence for at least 1 year before moving into such a facility, the 2—year “holding period” rule will not apply to them.

! Multiple sales allowed. The old rule that permitted only one exclusion of up to $125,000 for taxpayers at least 55 years of age is out the window. Taxpayers can claim the $500,000 exclusion every two years, and there is no minimum age requirement!

! Remarriages. Assume that John is a single taxpayer who has never excluded gain from the sale of a home under the new rules. He marries Jane, who has used the exclusion within 2 years prior to their marriage. John can still claim up to a $250,000 exclusion of gain from the sale of residence. Once two years have passed since the last exclusion was allowed to either of them, they can exclude up to $500,000 of gain on a joint return.

Example. Rev. T is 60 years old, and is considering moving into a smaller and less expensive home. The new law permits Rev. T to do so without being concerned about whether this is the right time to exercise the once in a lifetime exclusion of up to $125,000 in gains from the sale of a residence. The gains Rev. T realizes from selling his current home and buying a less expensive home will be nontaxable gain under the new law-assuming that he lived in the old home for at least 2 years. And, if he later decides to relocate to another home (and at least 2 years have elapsed), he again can exclude the gain from tax.

Example. Rev. R accepts a position at a church and purchases a new residence. One year later she accepts a position in another church in another state. She sells her former home and purchases a less expensive home resulting in a capital gain of $50,000. Since Rev. R owned and occupied her former home for less than 2 years on account of a change in employment location, she is eligible for a partial exclusion in capital gains. The exclusion is the same fraction as the fraction of 2 years that she owned and occupied her former home. Since she owned and occupied the former home for 1 year, the fraction is one—half. This means that she will pay capital gains tax on only half of her $50,000 gain.

Example. Rev. G is a widower. In December of 1997 he sells his home and purchases a less expensive home. He excludes the capital gains from tax under the new rules. He remarries in 1998, and his wife sells her home after the marriage. She has never excluded gain from the sale of a residence under the new rules. They can claim an exclusion of up to $250,000 on their 1998 joint tax return.

Key point. The new law does not “force” taxpayers to replace a current residence with a residence of equal or greater cost in order to avoid capital gains tax.

Estate taxes

1. Estate tax relief. Some people unexpectedly find themselves subject to federal estate taxes because of insurance proceeds, successful investments, and inheritances. The estate tax is substantial-it begins at a 37 percent rate. Fortunately, there are ways to reduce it. Under current law, estates of less than $600,000 are exempt from tax (unchanged since 1987). This amount is increased under the new law as follows:

year   ;&nbs p;effective exemption

1997 $600,000

1998 $625,000

1999 $650,000

2000 $675,000

2001 $675,000

2002 $700,000

2003 $700,000

2004 $850,000

2005 $950,000

2006 and thereafter $1 million

These rates are not indexed for inflation.

Key point. A common technique for reducing estate taxes is through a credit shelter trust. A married couple can double their effective exemption through such a trust, meaning that in the year 2006 and thereafter a married couple can pass up to $2 million tax—free with such a trust. Without it, the estate tax would be avoided completely at the death of the first spouse, but the surviving spouse could then shelter only $1 million from tax.

Key point. Some estates that include a family—owned business are eligible for a $1.3 million exemption amount beginning in 1998.

2. Annual gift exclusion. Under current law, a taxpayer can exclude up to $10,000 in gifts made to each donee during a calendar year without affecting the $600,000 lifetime exemption from estate taxes described above. Gifts of more than this amount reduce the $600,000 estate exemption. For married couples, the exclusion is available to each spouse. To illustrate, a couple with three children can give up to $60,000 each year ($20,000 to each child), without affecting their exemption from estate taxes. Many couples have used this technique to reduce estate taxes by reducing the size of their estate that will be distributed at death. The $10,000 annual gift exclusion has remained unchanged for several years, meaning that its real value has been steadily eroded by inflation. The Taxpayer Relief Act provides that the $10,000 annual gift exclusion will be indexed for inflation beginning in 1999 (rounded to the next lowest multiple of $1,000).

Employment taxes

1. Delay in penalty for failure to deposit payroll taxes electronically. Current law requires a “phase in” of the electronic deposit of payroll taxes under the Electronic Federal Tax Payment System (EFTPS). Employers that deposited payroll taxes of more than $50,000 in 1995 were required to begin depositing such taxes electronically not later than January 1, 1997. The Small Business Jobs Protection Act of 1996 postponed this deadline until July 1, 1997. The IRS announced in June of 1997 that it would not impose penalties for failure to comply through the end of 1997-for employers that make timely deposits using paper forms while converting over to the EFTPS system. The Taxpayer Relief Act provides that no penalties will be assessed for failure to use the EFTPS system to deposit payroll taxes prior to July 1, 1998.

Tax—exempt organizations

1. Increase in charitable mileage rate. Under current law, taxpayers can deduct out—of—pocket expenses incurred in performing services on behalf of a church or other charity. Since 1984, taxpayers have been permitted to value the use of a car while performing charitable services at a “standard charitable mileage rate” of 12 cents per mile. The Taxpayer Relief Act increases this rate to 14 cents per mile for miles driven on or after January 1, 1998. The new rate is not indexed for inflation.

2. Corporate sponsorship payments. While this provision will not be directly relevant to most churches, it will be relevant to a number of other religious organizations (including parachurch ministries, broadcasters, denominational agencies, and schools). The Taxpayer Relief Act specifies that “qualified sponsorship payments” received by a tax—exempt organization will not be subject to the unrelated business income tax (UBIT). A qualified sponsorship payment is defined as a payment made by a business to a charity in exchange for the use of the business’s name or logo by the charity.

The new law cautions that this exception will not apply to:

(1) Advertising of a company’s products or services “including messages containing qualitative or comparative language, price information, or other indications of savings or value, an endorsement, or an inducement to purchase, sell, or use such products or services.”

(2) Any payment which entitles a company to advertise its name or logo “in regularly scheduled and printed material” published by the charity-unless “related to and primarily distributed in connection with a specific event conducted by” the charity.

(3) Any payment made in connection with any qualified convention or trade show activity.

Key point. This provision applies to payments made or received on or after January 1, 1998.

Example. A charity agrees to run ads in a monthly publication for any company that contributes $10,000. Payments received under this arrangement are subject to UBIT. The new law specifies that if a portion of a lump sum payment, if made separately, would be a qualified sponsorship payment, then such portion will be treated as a separate payment. To illustrate, if the company in this example was provided ads and an acknowledgment in exchange for its financial contribution, then the contribution can be divided into two parts-the portion allocated to the ad (which is not a qualified sponsorship payment) and the portion allocated to the acknowledgement (which is a qualified sponsorship payment). The portion allocated to the acknowledgement is that portion that exceeds the fair market value of the advertising provided to the company. It is not subject to UBIT.

Example. A church is planning a pictorial directory of its membership. It informs the congregation that any business that contributes $1,000 to the project will have its name listed as a sponsor at the end of the directory. This acknowledgement does not subject the financial support to UBIT.

Example. Same facts as the previous example, except that the congregation is informed that any business contributing at least $1,000 to the project will be able to publish an ad at the end of the directory. Income received by the church under this arrangement probably will be subject to UBIT, since the ads will not be “related to and primarily distributed in connection with a specific event conducted by” the church.

Example. A church is planning a public concert with a famous musician. To raise funds for the event, it allows local businesses to pay a fee in return for an ad in the printed program that will be distributed to each person attending the concert. The church receives payments from three local music companies. Income received by the church under this arrangement probably will not be subject to UBIT, since the ads are “related to and primarily distributed in connection with a specific event conducted by” the church.

3. Eliminate gift tax filing requirements for gifts to charity. Persons who donate more than $10,000 to any one person or organization in the same year are required to file a federal gift tax return with the IRS. Gifts to churches and other charities are exempted from this requirement. The Taxpayer Relief Act clarifies that this exemption applies only to gifts of a donor’s entire interest in property to the church or charity. It does not apply to a gift of a partial interest in property. This provision applies to gifts made after August 5, 1997.

Example. John contributes $15,000 in cash to his church in 1997. He is not required to file a gift tax return with the IRS, because he has made a gift of his entire interest in the funds to his church.

Example. Joan gives her home to her church in December of 1997. She is not required to file a gift tax return with the IRS, even though the home is worth more than $10,000, because she gave her entire interest in the property to the church.

Example. Same facts as the previous example, except that Joan reserved a “life estate” in the home, which permits her to remain in the home for the rest of her life. Joan must file a gift tax return with the IRS, since she made only a partial gift of her property to the church.

Example. Jack gives ten acres of land to a church in 1998. The deed provides that if the property ever ceases to be used for church purposes, then title will revert back to Jack or his heirs. Jack has retained a partial interest in the property since title may revert to him or his heirs in the future. As a result, he must file a gift tax return with the IRS. Jack’s interest is known as a “possibility of reverter.”

Key point. It is common for churches to receive gifts of partial interests in property. Church treasurers should be ready to advise these donors of their obligation to file a federal gift tax return. The form can be obtained by calling the IRS at 1—800—TAX—FORM.

Provisions addressing churches and ministers

1. Contributions on behalf of self—employed ministers to church retirement plans. The Taxpayer Relief Act provides that in the case of contributions made on behalf of a minister who is self—employed to a church plan, the contribution is nontaxable to the extent that it would be if the minister were an employee of a church and the contribution were made to the plan. This provision takes effect in 1998.

2. Church plan exception to group health coverage. Under the Health Insurance Portability and Accountability Act (enacted in 1996), group health plans may not condition participation on an employee’s health or medical condition. The Taxpayer Relief Act provides that certain church plans do not violate this nondiscrimination requirement merely because the plan requires evidence of good health in order for an individual to enroll in the plan, for individuals (1) who are employees of an employer with 10 or fewer employees, or self—employed, or (2) who enroll after the first 90 days of eligibility under the plan. This provision applies to a church for a particular year if the plan required evidence of good health as of July 15, 1997, and at all times thereafter.

3. Religious schools exempt from federal unemployment tax. The Balanced Budget Act contained a provision exempting from federal unemployment tax any work performed in an elementary or secondary school that is operated primarily for religious purposes. The exemption is available even though a religious school is not operated, supervised, controlled, or principally supported by a church or a convention or association of churches. This provision took effect as of August 7, 1997.

© Copyright 1997, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m69 m71 c0697

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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