An article appearing in the
New York Times on Friday, October 22, 1999 states that the U. S.
Treasury Department has established new regulations that are designed
to crack down on the newest version of a tax-avoidance scheme called
a "chutzpah trust". This plan is an abusive extension of a
normal charitable remainder trust. In the normal remainder trust an
individual makes a donation of such property as some highly
appreciated stock shares to a trust which will pass the property
through to a charity when the donor dies. There are no capital gains
taxes charged to the donor because he or she no longer actually owns
the stock or other property; in addition, the former owner receives
an immemdiate deduction on his or her income taxes for the value of
the donated property. Finally, the former owner also receives an
annual income stream of approximately 7% annually. Under Federal
income tax rules, the donor of this property must pay taxes on the
investment earnings that are used for these payments, and these taxes
are assessed in a structured system that counts first earned income,
then capital gains, tax-exempt income from municipal bonds, any other
income and lastly return of principal.
In the tax-avoidance scheme, the
assets which are the subject of the trust are invested in situations
in which no taxable income will accrue to the former owner, and the
trustee borrows against those assets to provide income for the donor.
In the New York Times article, U.
S. Secretary of the Treasury Lawrence H. Summers in President
Clinton's cabinet is reported to have announced that the new, anti-abuse
regulations are intended to put an end to such plans by making them
subject to taxation. "Shutting down schemes like this helps us
build a culture of compliance," he is reported to have said.
However, Jonathan G. Blattmachr, who is a tax specialist partner in
the Milbank, Tweed, Hadley & McCloy legal firm of Manhattan, was
reported in the article as saying that the trusts complied with the
rules that Congress had created at the Treasury Department's request,
to set levels of income for taxing the stream of payments from
charitable remainder trusts. "You wrote the rules and now you
have to live with them," he said. "You can't change the
rules in the middle of a card game."
According to an article appearing
in the New York Times on Friday, October 22, 1999, the Federal
Communications Commission agreed on October 21 to provide greater
subsidies to large telephone companies, such as the regional Bell
companies and GTE, so as to help make phone service more affordable
for people living in rural and expensive-to-serve areas.
The new subsidies will more
than double the amount available to these firms; the new amount
will be US$437 million. It had been US$207 million before the
commission's approval vote on the 21st.
This increase in aid to help people
in rural or high-service-cost markets will most likely result in
increases in service charges for other telephone customers, but the
amount of these fee increases is unknown at this time.
The increased costs for other
consumers is brought about because of the way in which the subsidies
are funded by the commission. Funds are generated, for the most part,
from assessments levied by the commission upon AT&T, MCI
Worldcom, Sprint and other long-distance companies. These firms, in
turn, usually obtain the required sums from their customers by
passing the charges along to them in their monthly bills.
This action to increase subsidies
to companies serving rural or other expensive customers is part of a
broader initiative by the F.C.C. to change the nation's
telecommunications system in preparation for the advent of widespread
competition in local phone markets.
America's largest long-distance
carrier, AT&T, complained that the commission has made the
subsidies too large, and that it would now have to raise the present
US$0.99 fee that it charges each month to its customers, called the
"universal service connectivity charge". MCI Worldcom and
Sprint have both said that they would recover the increased
assessments in some way from their customers. Both companies charge
their customers a percentage of their long-distance calling bills to
pay for the commission's assessment.
The commission has not yet taken up
the question of subsidies that are part of the so-called access fees
charged by local telephone companies to long-distance carriers for
connecting calls to their local networks. A group of large
telecommunications carriers estimates that US$650 million of these
connection charges also go toward making local phone service
affordable to more customers.
According to an article appearing
in the New York Times on Friday, October 22, 1999, the U. S.
Securities and Exchange Commission has announced this week that it
had reached a settlement of charges against three men who had tried
to sell stock on the Ebay Internet auction site.
The S.E.C. says that this is
the first case of its kind, in which the Commission had brought
charges against anyone for selling securities in an on-line auction,
and that it has now issued cease-and-desist orders against the three
men: Richard Davis, 28, of Duncanville, Texas; John R. Hoff, 24, of
Hudson, Wisconsin; and Louis Sitaras, 37, of Jupiter, Florida.
According to the Commission, the
three have agreed to settle the case without admitting or denying the
charges. The auction site, Ebay, was not accused of any
wrongful acts in the case.
The S.E.C. said that such on-line
stock auctions are illegal. Helane Morrison, the S.E.C.'s district
administrator in San Francisco, issued a statement in which she said
that securities laws "apply in cyberspace, just as they do elsewhere."
In Washington, D. C., U.S.A. on
Thursday, October 21, 1999 Republican Senator Phil Gramm of Texas,
the head of the Senate Banking Committee, blocks passage of a bill
designed to overhaul the nation's financial system. This is a repeat
of his actions last October, when he, acting alone and using some
clever parliamentary maneuvers, sent a similar bill to a quiet
oblivion just when it had seemed that it would gain approval in the
Senate and be signed into law.
Senator Gramm's opposition both
last year and now has been sparked by his strong antipathy towards
anything which could be even remotely thought of as stretching the
provisions of the Community Reinvestment Act, which calls for greater
lending by banks to their inner-city neighborhoods.
Senator Gramm has once again
placed himself head-to-head against the President and Congressional
Democrats, who believe that laws are needed to stop discxriminatory
lending practices by the banking community. Many bank lobbyists are
upset at his opposition, preferring instead to have the overall bill
passed rather than to have its prospects blocked by debate over
lending practices that they have learned to get along with.
Senator Gram, who has a reputation
as a stern negotiator, is opposing the measure for purely personal
reasons. Banks, securities firms and insurance companies have by now
worked out and largely eliminated their former mutual antagonisms,
and they now feel that a bill to permit them to work in each other's
fields should be passed.
Senator Gramm says that he supports
that general principle, but that his opposition is directed
towards the bill's section concerning inner-city lending. His goal is
to have a bill passed which would replace the historic Glass-Steagall
Act with one that could be called the Gramm-Leach Act, for himself
and the chairman of the House Banking Committee, Jim Leach, an Iowa Republican.
Some of his personal opposition to
the inner-city lending provisions has been fueled by the actions of
the measure's proponents. Some of them have demonstrated right on his
front lawn in suburban Washington. They went heavy-footed over his
flower beds and ripped up his tulips.
Senator Gramm is a strong supporter
of Governor George W. Bush of Texas, who he expects to be the next
President, and he feels that there could be a new bill introduced
next year by a new administration, a bill which he could fully support.