On January 1, 2013, the Senate and House approved the American Taxpayer Relief Act of 2012 (the “Act”), which contains good news for charities as it provides a tax benefit for some taxpayers if they act by January 31, 2013. The Act also revives the Individual Retirement Account (“IRA”) charitable rollover in IRC Section 408(d)(8) until December 31, 2013.
Unless an IRA is a Roth IRA, the account owner must take yearly minimum required distributions starting at age 70½ and pay income tax on the withdrawals. Enacted by the Pension Protection Act of 2006, IRC Section 408(d)(8) allowed individual taxpayers age 70½ or older to direct lifetime contributions up to $100,000 per year from their IRAs to qualified charities. The distribution was not included in the individual’s gross income, but it counted towards satisfying the applicable minimum distribution requirement. Distributions to donor-advised funds, supporting organizations and private foundations are not “qualified charitable distributions.” The IRA charitable rollover had previously expired and been extended by other tax laws through December 31, 2011.
The Act made the following changes:
- The Act revived the IRA charitable rollover until December 31, 2013. A donor can again make a gift directly from the IRA to a qualified charity without recognizing the distribution on the donor’s individual federal return.
- The Act includes a special election that allows IRA charitable rollover distributions that are made to a charity prior to January 31, 2013 to be treated as if they were made on December 31, 2012.
- The Act allows donors who took IRA distributions between December 1, 2012 and December 31, 2012 to now donate cash to a charity until January 31, 2013, and the donor can elect to have the amounts contributed count towards satisfying all or part of the donor’s 2012 minimum required distribution from the IRA.
There are still potential state tax consequences to these distributions for donors.
If you have questions about this article, please contact Sean J. Fahey at 317-977-1472 or sfahey@hallrender.com. If you would like any further advice on charitable gift design planning for your charity, please contact your regular Hall Render attorney.
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FEDERAL TAX ADVICE DISCLAIMER. To comply with IRS Regulations, we inform you that any discussion of Federal tax issues contained in this memorandum was not intended or written to be used, and cannot be used (i) to avoid any penalties imposed under the Internal Revenue Code or (ii) to promote, market or recommend to another party any transaction or matter addressed herein.
