Kutchins Robbins & Diamond: CPA and CFP, Chicago, IL- Newsletter

Mobile C.A.R.E. Foundation is a non‑profit, 501(c)3 organization dedicated to providing children in Chicago's underserved neighborhoods with free, ongoing medical care and health education for asthma. Started in 1999 by Dr. Philip H. Sheridan, Sr., Dr. Philip H. Sheridan, Jr., and Dr. Paul J. Detjen, Mobile C.A.R.E. Foundation now serves approximately 2,800 children, ages 0‑ 19, in 20 public and Catholic schools on the west and south sides of Chicago. The program is made possible by the ongoing financial and iD‑kind support of generous contributors such as Children's Memorial Hospital Foundation, Forest Therapeutics, Glaxo, Inc., Merck & Co., Michael Reese Health Trust, WGN‑TV Children's Charities and W.P. & H.B. White Foundation, among many others.

In the Foundation's 2000 Annual Report, Dr. Philip H. Sheridan, Sr., chairman of the board, writes: "The health of our patients continues to improve steadily, and often very dramatically. The sleepless nights, the emergency room visits, the absence from school, and even the close shaves with death are now things of the past‑and will be for the children who are projected to visit our currently operating Breathmobile and our second Breathinobile in 2001. All of this would not be possible without our donors."

The second Breathmobile Dr. Sheridan mentioned in his message will be put into service in August, according to Laurie Baker, MPH, executive director of the Mobile C.A.R.E. Foundation. "Starting in September of this year, we will be serving 40 schools and hundreds more children," she says.

The budget to operate a Breathmobile is $500,000 per year per vehicle. Obtaining funding on a continuous basis is a big part of Ms. Baker's job. "We apply for a lot of grants," she says. In 2000, Mobile C.A.R.E. raised nearly $600,000 from many sources to support the currently operating program and the addition of a second Breathmobile.$600,000 from many sources to support the currently operating program and the addition of a second Breathmobile.

Asthma is a disease of the respiratory system. Children and adults with asthma suffer from periodic 'attacks' during which their airways become swollen or blocked. Asthma causes more school absenteeism than any other chronic health condition.

"Recent data shows that as many as 20% of children living in Chicago's underserved areas have current asthma symptoms," explains Ms. Baker. "Many of these children are not receiving proper treatment. And, uncontrolled asthma leads to missed school days, emergency room visits, hospitalization and even death."

Participating children and their families receive the following services free of charge:

A fully‑outfitted, mobile medical clinic, the Breathmobile, visits several Chicago locations on a rotating schedule. Area children are offered a medical exam for asthma symptoms. Based on their medical history and the exam, children are enrolled in the program.

The Breathmobile is staffed with physicians who are board‑certified pediatric and asthma specialists, nursing staff who are trained in asthma managements and community asthma educators.

The Foundation's administrative staff is obviously quite busy, and when tax time rolls around, things get even busier. Each year, the Foundation is required to submit an annual not‑forprofit audit along with its tax return.

Chris Cameron at KRD handles the audit for the Foundation and works closely with Ms. Baker and with office manager Josefina Salinas, who provide ‑him wla"a of‑the detail‑. Chris prepared the 1999 audit and has recently completed their 2000 audit.

"Chris was very conscientious while he was working on the Foundation's annual audit," says Ms. Baker. "He understood that we have a lot going on in our office and was quite respectful of our time. He visited the office several times over the course of a month, and the audit went quite smoothly under his direction. He was also instrumental in helping us organize our financial records and in setting up an efficient filing system so we'll be able to find things more easily next year."

New Retirement Distribution Rules Provide for Smaller RMDs

0n January 11, 2001, the IRS released new proposed regulations that simplify required minimum distribution (RMD) calculations for individual retirement accounts (IRAs) and qualified company plans such as a 40 1 (k), profit sharing or 403 (b) plan. The new rules completely restate and replace the 1987 proposed regulations, but technically do not take effect until January 1, 2002. However, the IRS is allowing taxpayers to use either the existing or new proposed regulations for 2001 distributions. Qualified plan paticipants cannot use the new rules until their company's plan is amended for these changes.

The three main changes to the new distribution rules are:

A simplified method for calculating lifetime distributions that are not dependent on beneficiary designations and calculation methods.
More favorable rules regarding post‑death distribution options.
Flexibility in making beneficiary changes after the required beginning date (RBD).

As with the previous rules, RMI)s are calculated by dividing the participant's account balance by a life expectancy factor. Under the old rules, this life expectancy factor was based on multiple factors, including the designated beneficiary and calculation method (i.e., term, recalculation, hybrid) that was elected at time of RBD. In total, there were seven possible ways to determine this life expectancy factor. Under the new rules, there are only two ways: Uniform Table or Joint Life Expectancy Table for spouses who are at least 10 years younger than the account owner (which preserves even longer distribution periods than the Uniform Table). Everyone now gets to use the Uniform Table (i.e., MDIB table under old rules) to benefit from a longer distribution period.

Regardless of how long the account owner lives, the account can never drop to zero (assuming positive investment returns). With the old rules, one of the drawbacks of electing recalculation was that life expectancy was zero upon the account holder's death. This effectively meant acceleration of post‑death distributions, particulary when there was no designated beneficiary. Under the new rules, the account holder's life expectancy does not drop to zero upon death, but rather, is the account holder's life expectancy as of his/her birthday in the year death occurred.

With the new rules, the designated beneficiary(s) is determined at death, not at RBD. This does not mean however that a new beneficiary(s) can be determined after death. Rather, the deceased account holder's beneficiary selections are frozen at time of death. Despite this freeze, the new rules allow for potentially valuable shifting among named beneficiaries up until the end of year following the account holder's year of death. Once the identify of the beneficiary(s) is finalized, distribution options depend on whether the account holder's death is before or after RBD and whether the designated beneficiary is a spouse.

For death before RBD, a spousal beneficiary must take required distributions under either a five‑year rule or over his/ her life expectancy (beginning no later than December 31 of the year the deceased spouse would have reached age 70 1/2, or December 31 of the year after the year in which the deceased spouse died). A spouse also has the option to roll over the IRA and treat it as the spouse's own IRA. A nonspousal beneficiary can similarly take required distributions under a five‑year rule or over his/her life expectancy. If multiple beneficiaries are designated, and separate accounts have‑not been established, then the beneficiaries must collectively take required distributions under the five‑year rule or over the oldest beneficiary's life expectancy. For death after RBD, the distribution options are generally the same except the five‑year rule (and special spousal rules) is eliminated.

Post mortem planing now becomes more significant with the new rules, particularly through the use of disclaimers, separate accounts, and cash outs of "bad beneficiaries." Because the new rules permit switching among existing designated beneficiaries up until the year after the year of account holder's death, beneficiaries are able to decide on the most effective distribution plan. For example, a spouse can elect to disclaim part or all of his/her inheritance to take full advantage of the deceased spouse's unified credit exemption. In the case of multiple beneficiaries, new rules still base distributions on the shortest life expectancy. To ensure that a beneficiary can use his/her own life expectancy, the account holder's IRA can be split into separate IRAs naming individual beneficiaries.

Beneficiaries can also be entities such as a charity or estate. Under the rules, a charity or estate is deemed to have no life expectancy, and consequently, requires the deceased account holder's assets be distributed by December 31 of the year following the year of death. These "bad beneficiaries" can now be cashed out up until the end of the year following the year of death, preserving a longer distribution schedule for other individual beneficiaries.

As evident from these selected provisions, while the new proposed regulations simplify minimum distribution rules, planning becomes increasingly important. Please call our office for planning assistance. Q

The 2001 Social Security wage base climbed to $80,400, up from $76,200 in 2000. The FICA rate (combined Social Security rate of 6.2% and Medicare tax rate of 1.45%) remains at 7.65%. Self‑employed tax rate also remains at 15.3% (combined 12.4% and 2.9%)

There are also higher Social Security earnings limits this year. Workers under age 65 can cam up to $10,680; above that amount they lose $1 in benefits for every $2 they earn. Workers age 65 and older have no earnings limit.

People who receive Social Security benefits are required to pay taxes on some of their benefits if their total ln=is exceeds a certain limit. Couples whose combined in( between $32,000 and $44,000 and individuals with income between $25,000 and $34,000 may have to pay federal income tax on up to 50% of their benefits. For those whose income is below these levels, benefits are not taxed. For those above these levels, up to 85% of benefits may be taxed. If you are age 25 or over, you can request an estimate of benefits at any time at www.ssa.gov.)

If you pay a household worker at least $1,300 in wages in 2001, you are required to report his or her wages and pay Social Security tax on those earnings with your tax return. Workers covered by this law include maids, cleaning persons, childcare providers (hence, the name "nanny tax"), gardeners and others who provide household services. The exception is for workers under age 18 who do not perform these jobs for a living; for example, a teenage babysitter.

New federal capital gains tax rates that were enacted in 1997 took effect January 1, 200 1. The rates with a delayed effective date apply to property held at least five years. For those in the 15% bracket, long‑term capital gains are taxed at 10%. The maximum capital gains rate for qualifying assets held over five years is now 8%, for those in a 15% bracket. The asset may have been purchased at any time. For those in higher brackets, longterrn gains generally are taxed at 20%. However, assets purchased after December 31, 2000, and held for more than five years will now be taxed at 18%. Those in higher tax brackets won't benefit from the new tax rates until 2006, unless they elect on their 2001 tax return to pay the tax on their gains to January 1, 200 1, and hold the stock until the year 2006.

Flexible work arrangements include flextime, reduced hours, telecommuting, compressed workweek, job sharing, and personal leave. Flexible work arrangements create a less rigid workplace, which allows the employer and employee greater control over productivity at work and over their personal responsibilities. In a flextime situation, employees work a standard number of hours each week, but choose their own starting and quitting times. Other flexible work topics to be covered in future issues.)

If you've been thinking about selling your home, both the IRS and the National Association of Realtors have good news for you. Sales of existing homes rose 4.8% in March to an annual rate of 5.44 million homes, just shy of the June 1999 record, according to the National Association of Realtors. In addition, new homes sales in March rose 4.2% to an annual rate of 1.02 million homes, another record, according to the U.S. Commerce Department.

More good news. You can exclude up to $500,000 of gain from the sale of a principal residence ($250,000 for single taxpayers) if you and your spouse file a joint return for the year. To be eligible, taxpayers must meet ownership and use tests, which require owning the home for at least two years and living in the property as the main residence for at least two years, during the five‑year period ending on the date of the sale. According to some experts, strong housing sales show that "consumers are still out shopping and feel confident enough to buy houses at a record rate, which appears to be strong evidence that the economy could escape an outright recession this year."

On a related topic, Federal Reserve policymakers cut short‑term interest rates by a half‑point, to 4% when they met May 15. The Fed has now trimmed rates by 2 1/2 percentage points in only 4 1/2 months, the most aggressive easing under Chairman Alan Greenspan. Any further signs of economic weakness could possible justify another Fed move at its June 26‑27 meeting.

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