Issue
**DEVELOPMENT DIRECTOR ALERT** The PATH Act of 2015 made the “IRA Charitable Rollover” a permanent law. This can be very beneficial to your institution and some major donors.
Situation
Marathon Bible College (MBC), a public charity under I.R.C. section 501(c)(3) (and I.R.C. section 170(b)(1)(A)(ii)), calls us with a question from a donor. The major donor wants to know if they can make a an $80,000 contribution to the college out of theIr Individual Retirement Account (IRA). If so, the donor asked, “How would that work?”
First, we say that they should make sure that their Development/Fundraising Team is aware of this opportunity. Then we tell them that for the past several years, taxpayers who are age 70½ or older were allowed to make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000 per year. Eligible taxpayers did not include these contributions/distributions in gross income nor claim them as a deduction on their returns, thus they were not subject to the charitable contribution percentage limits.
The provision continually “expired” and – through 2014 – had been retroactively extended late in a following year. In 2013, there was a two-year retroactive extension that expired 12/31/13. In December 2014, Congress “extended” the provision to 12/31/14. So, the law had expired at 12/31/14 and we went through 2015 wondering if it would be extended. Now, with Section 112 of the PATH Act, Congress has amended I.R.C. section 408(d)(8)(F) to make the provision permanent. The PATH Act wording is: “Section 408(d)(8) is amended by striking subparagraph (F). EFFECTIVE DATE.—The amendment made by this section shall apply to distributions made in taxable years beginning after December 31, 2014.”
*Note that there is a current bill in Congress (The “CHARITY Act”) S. 2750, that would allow these “IRA Rollovers” to fund donor advised funds – which is currently not allowed.
Rules
From Internal Revenue Code section 408(d)(8)(A) and (B):
Distributions for charitable purposes.
(A) In general. So much of the aggregate amount of qualified charitable distributions with respect to a taxpayer made during any taxable year which does not exceed $100,000 shall not be includible in gross income of such taxpayer for such taxable year.
(B) Qualified charitable distribution. For purposes of this paragraph, the term “qualified charitable distribution” means any distribution from an individual retirement plan (other than a plan described in subsection (k) or (p) )-
(i) which is made directly by the trustee to an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2) ), and
(ii) which is made on or after the date that the individual for whose benefit the plan is maintained has attained age 70 ½.
A distribution shall be treated as a qualified charitable distribution only to the extent that the
distribution would be includible in gross income without regard to subparagraph (A) .
Bottom Line
This can be a great opportunity for your institution. Does it make sense to send a letter to donors ensuring that they are aware of this charitable giving opportunity? There are some limitations. You should consult with your qualified, knowledgeable tax advocates in order to “dot all the i’s and cross all the t’s”.
Specific questions? Email Dave Moja.
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.