ISSUE

The Legacy IRA Act of 2019 (H.R. 3832) – currently in the U.S. House of Representatives – could make IRA Charitable Rollovers even more attractive to your school’s donors.

 

SITUATION

Saltwater Christian College (SCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

SCC’s CFO is having lunch with us during audit fieldwork.  “I’ve got a question,” she states.  “We’ve heard you talk about ‘IRA Charitable Rollovers’ and their benefits to our advancement efforts for years.  Is there anything going on to expand these giving incentives?”

“Funny you should ask,” we say.  “There is a recent bill in Congress that would open the opportunities for IRA Charitable Rollovers to be “invested” in planned giving vehicles such as Charitable Remainder Trusts and Charitable Gift Annuities.”

“How will that work?”

“Basically, the current IRA Charitable Rollover limit would be increased from $100,000 to $400,000 annually.  Then, the donor could direct the funds into a “split-interest entity” (which includes a charitable remainder annuity trust, a charitable remainder unitrust, or a charitable gift annuity).  There are also some limitations on timing, beneficiaries, and pay-outs.”

She grins.  “Cool.  Our VP of Advancement will love this.”

For more on IRA Charitable Rollovers, see “Tax Tips” from May 11, 2016 at:

https://www.abhe.org/irs-charitable-rollover-made-permanent/

 

RULES

From H.R. 3832,  Legacy IRA Act:

To amend the Internal Revenue Code of 1986 to expand tax-free distributions from individual retirement accounts to include rollovers for charitable life-income plans for charitable purposes

IN THE HOUSE OF REPRESENTATIVES July 18, 2019

(C) QUALIFIED CHARITABLE DISTRIBUTION. — For purposes of this paragraph, the term ‘qualified charitable distribution’ means any distribution from an individual retirement account —

(i) which is made directly by the trustee —

(I) to a specified charitable organization, or

(II) to a split-interest entity, and

(ii) which is made on or after the date on which the individual for whose benefit the account is

maintained has attained —

(I) in the case of any distribution described in clause (i)(I), age 70½, and

(II) in the case of any distribution described in clause (i)(II), age 65.

From www.thomas.gov (Summary H.R. 3832):

The bill increases from $100,000 to $400,000 the annual limit on the aggregate amount of distributions for charitable purposes that may be excluded from the gross income of a taxpayer.

The bill permits tax-free distributions from IRAs to a split-interest entity for four years after the enactment of this bill. A split-interest entity is exclusively funded by charitable distributions and includes: a charitable remainder annuity trust, a charitable remainder unitrust, or a charitable gift annuity. A charitable gift annuity must commence fixed payments of at least 5% no later than one year from the date of funding.

A distribution to a split-interest entity may only be treated as a qualified charitable distribution if: (1) no person holds an income interest in the entity other than the individual for whose benefit the account is maintained, the spouse of such individual, or both; and (2) the income interest in the entity is nonassignable.

 

BOTTOM LINE

  • The IRA Charitable Rollover provision of the I.R.C. Section 408(d)(8) was made permanent by the 2015 PATH Act.
  • These rollovers can provide a great opportunity for your institution to acquire new donors and/or new contributed funds.
  • Donors should be very careful and meticulous when making these transfers – don’t try this at home.
  • H.R. 3832 could provide even greater opportunities for new avenues of charitable giving – film at 11.

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.

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