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CRS Updates Report on Charitable IRA Distributions

MAY 22, 2008

RS22766

DATED MAY 22, 2008
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Citations: RS22766

 

Updated May 22, 2008

 

 

John J. Topoleski

 

Analyst in Income Security

 

Domestic Social Policy Division

 

 

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Summary

 

 

A provision of the Pension Protection Act of 2006 allows tax-free distributions from Individual Retirement Accounts (IRAs) for charitable purposes. This fact sheet describes the IRA charitable rollover provision, which expired on December 31, 2007. The following bills in the 110(th) Congress would extend the provision: H.R. 1419, H.R. 3596, H.R. 3970, H.R. 3996, H.R. 4086, H.R. 6049, S. 819, S. 2264, and S. 2286. This fact sheet will be updated as legislative activity warrants.
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Distributions from Individual Retirement Accounts (IRAs) must be included in gross income in the year the distribution occurs, and income taxes must be paid on the taxable portion of the distribution. Section 1201 of the Pension Protection Act of 2006 (P.L. 109-280) allows individuals to exclude from gross income distributions from Individual Retirement Accounts (IRAs) if they are made to a qualified charity.1 This provision for Qualified Charitable Distributions (QCDs) expired on December 31, 2007. Several legislative proposals in the 110th Congress would extend the provision for one year or two years, or would make the provision permanent.

The features of the QCD are

  • Contributions must be from traditional or Roth IRAs. QCDs cannot be made from employer-sponsored IRAs (Simplified Employee Pensions (SEP-IRAs) and Savings Incentive Match Plan for Employees (SIMPLE-IRAs), or from defined contribution retirement plans (for example, 401(k) plans or 403(b) plans).

  • Individuals must be older than 701/2 when the QCD is made.

  • Charities must be eligible to receive tax-deductible charitable contributions.

  • The maximum QCD is $100,000, although a spouse can also make a $100,000 QCD if the couple files a joint income tax return.

  • The $100,000 maximum QCD does not apply to the overall charitable deduction limit. Thus, individuals may make charitable contributions in excess of 50% of adjusted gross income.

  • The distribution must be a trustee-to-trustee transfer; that is, a direct transfer from the IRA to the charity.

  • The distribution first comes from taxable funds, then from any nondeductible IRA contributions. Previously, distributions would have been allocated proportionately between deductible and nondeductible contributions.

 

Legislation in the 110(th) Congress

The following bills in the 110(th) Congress would extend this provision.

H.R. 3596. Representative Nick Lampson introduced the Charitable Tax Relief Act of 2007 on September 19, 2007. This bill would make the QCD provision permanent.

H.R. 3970. Representative Charles Rangel introduced the Tax Reduction and Reform Act of 2007 on October 25, 2007. Among other provisions, this bill would extend the charitable distribution provision until December 31, 2008.

H.R. 3996. Representative Charles Rangel introduced the Temporary Tax Relief Act of 2007 on October 30, 2007. Originally, this bill contained a provision that would have extended the charitable distribution provision until December 31, 2008; however, this provision was dropped from the bill on final passage. The final version of the bill, the Tax Increase Prevention Act of 2007, dealt only with the exemption from the alternative minimum tax and was signed by President Bush on December 26, 2007.

H.R. 4086. Representative Ron Klein introduced the Healthy Families and Dedicated Teachers Tax Relief Act of 2007 on November 6, 2007. Among other provisions, this bill would make the charitable distribution provision permanent.

H.R. 6049. Representative Charles Rangel introduced the Energy and Tax Extenders Act of 2008 on May 14, 2008. Among other provisions, this bill would extend the charitable distribution provision until December 31, 2008. On May 21, 2008, H.R. 6049 passed the House by a vote of 263 -- 160.

S. 819/H.R. 1419. Senator Byron Dorgan and Representative Earl Pomeroy introduced identical bills on March 8, 2007. Among other provisions, the Public Good IRA Rollover Act of 2007 would make the charitable distribution provision permanent.

S. 2264. Senator Pat Roberts introduced a bill on October 30, 2007, that would extend the charitable distribution provision until December 31, 2009.

S. 2886. Senator Max Baucus introduced the Alternative Minimum Tax and Extenders Tax Relief Act of 2008 on April 17, 2008. Among other provisions, bill would extend the charitable distribution provision until December 31, 2009.

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