By Genevieve M. Moore, Morrison & Foerster LLP
Since 2006, individuals
age 70 ½ and older have had the ability to donate as much as $100,000 from
their traditional individual retirement accounts (IRAs) and Roth IRAs to
charity, annually, and exclude the donations from taxable income. The provisions governing the "Charitable IRA
Rollover,"1
as it is known, are scheduled to expire
at the end of this month.
According to surveys, the value of these
rollover gifts to charities in the first full year after the provisions were
enacted (2007) was more than $140 million, with approximately 60% of the gifts
being made to public universities, and almost 10% to junior colleges.2 The rollover provisions were extended in 2008,
for the 2008 and 2009 tax years. They expired
at the end of 2009, but were reinstated late in 2010 when President Obama
signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation
Act of 2010. This extension was again only
effective for two years, 2010 and 2011.
There have been efforts this year to
make the charitable rollover provisions permanent; i.e.,
the introduction of Senate Bill 557 and H.R. Bill 2502. The Senate bill would
lift the $100,000 limit, expand the class of permissible charitable donees, and
allow rollovers to be made by donors younger than age 70 ½. However, neither bill has seen any activity
since last summer.
These charitable rollover provisions
do not allow a donor to claim an income tax charitable deduction for the amount
passing to the charitable recipient, but they permit the donor to exclude the rollover
distribution from taxable income entirely.
For some donors, this is preferable to the alternative of withdrawing
funds from an IRA and then donating them to charity. The withdrawal/donation method requires the
donor to include the IRA income in his or her personal income, and then take a
charitable deduction, but for some taxpayers the income and the deduction
amounts are not a wash because of percentage limitations on charitable gifts,
and other limitations on their deductions. The charitable rollover provisions for IRAs have
been attractive for these taxpayers, and this month may present the last opportunity
to take advantage of these provisions.
There are certain conditions for
making a charitable IRA rollover, including:
- The donor must be 70 ½ or older.
- The donor must own a traditional or Roth IRA. Charitable rollovers cannot be made from 401(k)
plans or other types of retirement vehicles.
- The distribution must be made directly by the
custodian of the IRA.
- The distribution must be an outright gift made
to a public charity. Except in very
narrow circumstances, rollover gifts to supporting organizations, private
foundations, donor-advised funds, charitable remainder trusts, charitable gift
annuities, and pooled income fund are not permitted.
- The distribution cannot exceed $100,000 per donor for 2011.
- The donor cannot receive any goods or services in exchange for the gift.
- The donor must receive a substantiation receipt from the charity.
The restrictions will mean that the
charitable rollover provisions cannot be used by all taxpayers. However, those who can meet the requirements
may wish to take advantage of this opportunity this month - December 2011 -
before the ability to do so disappears.
Morrison & Foerster's Trusts and Estates group
provides sophisticated planning and administration services to a broad variety
of clients. If you would like additional
information or assistance, please contact Patrick McCabe at (415) 268-6926 or
PMcCabe@mofo.com.
© Copyright 2011 Morrison & Foerster LLP. This article is published with permission of
Morrison & Foerster LLP. Further
duplication without the permission of Morrison & Foerster LLP is
prohibited. All rights reserved. The views expressed in this article are those
of the authors only, are intended to be general in nature, and are not
attributable to Morrison & Foerster LLP or any of its clients. The information provided herein may not be
applicable in all situations and should not be acted upon without specific
legal advice based on particular situations.
[1] Internal Revenue Code Section 408(d)(8)(A)
[2]
Partnership for Philanthropic Planning.
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