IRA Charitable Rollover
CONGRESS MUST REINSTATE CHARITABLE TAX EXTENDERS

On February 12, by a greater than two-thirds majority, the House passed legislation (H.R. 644) that would make permanent the IRA charitable rollover and the enhanced deductions for donations of food and land conservation easements, all of which expired on January 1, as well as simplify the excise tax rate on the investment income of private foundations.  Unfortunately, the Senate is currently only considering a temporary extension of these measures through 2016.

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The Issue
The IRA Charitable Rollover provision allows individuals who have reached age 70½ to donate up to $100,000 to charitable organizations directly from their Individual Retirement Account (IRA), without treating the distribution as taxable income. The provision is part of a package of 55 temporary tax extenders that were reinstated retroactively for only the 2014 tax year, but expired again on January 1, 2015.

Latest News
Senate Finance approves expired giving incentives
The Senate Finance Committee approved legislation (S. 1946) on July 21 that would reinstate for the 2015 and 2016 tax years a package of expired tax provisions, which includes the IRA charitable rollover, the enhanced deduction for land conservation easement donations, and the enhanced deduction for food inventory donations.

IRA charitable rollover bill introduced

On April 30, Senate Finance Committee member Sen. Charles Schumer (D-NY), Sen. Susan Collins (R-ME), Sen. Kirsten Gillibrand (D-NY), and Sen. Thad Cochran (R-MS) introduced the standalone Public Good IRA Rollover Act (S.1159) for the 114th Congress. The legislation would expand and make permanent the IRA charitable rollover provision.  A House version of the bill, H.R. 637, was sponsored by Rep. Erik Paulsen (R-MN-03), Earl Blumenauer (D-OR-03), Ryan Costello (R-PA-06), and Tom Reed (R-NY-23). 

Charitable tax provisions pass House

On February 12, the House passed the America Gives More Act of 2015 (H.R. 644), by more than a two-thirds vote. The legislation packages together bills to restore permanently three expired charitable giving incentives, including the the IRA charitable rollover (H.R. 637), as well as a measure that would simplify the excise tax rate on the investment income of private foundations.

IS Position
Independent Sector supports the reinstatement and permanent extension of all charitable tax extenders, including the IRA charitable rollover. In March of 2015 Independent Sector along with several partners authored a letter to the Senate Finance Committee expressing the importance of speedy action on such provisions. The uncertainty caused by the need for an annual extension, as well as the fact that the provisions have been allowed to lapse, diminish the incentive effect of the IRA charitable rollover and other giving incentives, thereby reducing charitable giving and increasing the tax burden on older Americans.

Previously, on February 11, 2015, on the eve of the House vote on the America Gives More Act of 2015, Independent Sector joined with seven other nonprofit membership organizations to issue a collective press statement in support of passage of that important bill, as well as creating an Action Guide for individual and organization advocacy on this issue to #Act4Good.

In the past Congress, Independent Sector organized a sector-wide letter that was sent to all U.S. Senate offices in support of legislation to renew and enhance the expired IRA charitable rollover. Nearly 500 organizations from across the country signed on. In advance of a House Ways and Means Committee markup in May 2014, IS and 252 organizations sent a letter to the panel, urging them to extend permanently the three charitable giving incentives.

Furthermore, in November 2014, Independent Sector and 1,031 organizations sent a letter to every Member of Congress in support of legislation that would make the IRA charitable rollover and other extenders permanent in any year-end deal. IS President and CEO Diana Aviv also joined with sector leaders to send a letter published in POLITICO to the President and leaders in Congress, on December 2.

Background
The IRA Rollover was first enacted in 2006 as part of the Pension Protection Act. The provision expired and has been reinstated multiple times, and expired most recently on January 1, 2015. The provision allows individuals aged 70½ and older to donate up to $100,000 from their IRAs to public charities without having to count the distributions as taxable income.  Individuals may begin taking distributions from their IRAs as early as age 59½, but are required to begin taking them at age 70½. Normally, these distributions are subject to income taxes.

Since the provision was first enacted, Americans have made millions of dollars of new contributions to nonprofits -- including social service programs, religious organizations, arts and cultural institutions, schools, and health care providers -- that benefit people every day.  

As originally enacted and renewed, the provision mandates the following:

  • Eligibility Age. Taxpayers age 70½ and older are required to make annual distributions from their IRAs which are then included in the taxpayers’ adjusted gross income (AGI) and subject to taxes.The IRA Charitable Rollover permits those taxpayers to make donations directly to charitable organizations from their IRAs without counting them as part of their AGI and, consequently, without paying taxes on them.
  • Annual Cap. A donor’s total combined charitable IRA rollover contributions cannot exceed $100,000 in any one year.
  • Eligible Charities. Charitable contributions from an IRA must go directly to a public charity that is not a supporting organization. Contributions to donor-advised funds and private foundations, except in narrow circumstances, do not qualify for tax-free IRA rollover contributions.
  • Eligible Retirement Accounts. Distributions can only be made from traditional Individual Retirement Accounts or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are ineligible for the tax-free treatment.
  • Directly to the Charity. Distributions must be made directly from the IRA trustee payable to the public charity.
  • No Gifts in Return. Donors cannot receive any goods or services in return for charitable IRA rollover contributions in order to qualify for tax-free treatment.
  • Written Receipt. In order to benefit from the tax-free treatment, donors must obtain written substantiation of each IRA rollover contribution from each recipient charity.

Resources

Joint Letter to the Senate Finance Committee

Independent Sector joint press statement

IRA charitable rollover one-pager

CRS Report: "Qualified Charitable Distributions from Individual Retirement Accounts: Features and Legislative History" (January 2014)


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