[Note: The charitable provisions discussed in this article ended December 31, 2009. An updated version of this article outlining 2010 provisions will be released after December 31, 2010.]

           The Emergency Economic Stabilization Act signed into law in October 2008 has extended the IRA charitable rollover provisions for the years 2008 and 2009.  The original charitable rollover provisions were part of the Pension Protection Act of 2006 (the “Act”).  The Act contained several charitable giving incentives. One of these incentives permits taxpayers who have attained age 70 ½ to exclude from gross income distributions from individual retirement accounts (IRAs) up to $100,000 if the charitable distribution is made to a qualified charity.

           The Act allows a taxpayer to exclude from gross income “qualified charitable distributions” during tax years 2006 and 2007and now, by virtue of the legislative extension, 2008 and 2009. The exclusion may not exceed $100,000 per taxpayer per taxable year. The tax-free IRA qualified charitable distributions may be made from one or more IRAs, may be in the form of one or more distributions and may be donated to one or more charitable organizations. The exclusion is not available for distributions from active simplified employee pensions (SEPs) or SIMPLE IRA's. Dormant SEPs and SIMPLE IRAs in which the owner has not and will not receive a contribution during the year in question, are eligible. There is no carryover if a taxpayer exceeds the $100,000 limit in a tax year. The excess amount will be included in the taxpayer’s taxable income for the year in which the excess distribution is made.

            A “qualified charitable distribution” is any distribution from the IRA that is made on or after the date that the IRA owner attains age 70 ½ that would otherwise be a taxable distribution and is made directly by the IRA custodian to qualified charitable organizations. With a couple of exceptions, qualified charitable organizations are those charities described in Internal Revenue Code (IRC) Section 170(b)(1)(A) to which contributions are deductible up to 50% of the donor's adjusted gross income (AGI). These include churches, schools, hospitals and public charities, but for purposes of the IRA charitable distribution incentive do not include IRC Section 509(a)(3) supporting organizations and donor advised funds as defined in IRC Section 4966(d)(2).

            The distribution must be made directly by the IRA custodian to the charity. A distribution made to the individual IRA owner will not qualify for the tax-free distribution rule even if the individual subsequently donates the distributed amount to a qualified charity.

           IRA distributions that are qualified charitable distributions and excluded from the IRA owner’s taxable income cannot be claimed as charitable deductions.

           Qualified charitable distributions count toward the required minimum distribution amounts otherwise applicable to the IRA owner. IRA owners who are subject to the required minimum distribution rules (all traditional IRA owners who have attained age 70 ½) and who have charitable inclinations may find the charitable distribution rules advantageous. The charitable distribution incentives will allow eligible IRA owners to satisfy the required minimum distribution requirements and instead of a charitable deduction limited to 50% of the donor's AGI and further restricted by the itemized deduction limitations, the entire qualified charitable distribution (up to $100,000) is excluded from the donor's taxable income.

For additional information, please contact:

David M. Mosier, Esq.
Knox, McLaughlin, Gornall & Sennett, P.C.
120 West Tenth Street
Erie, Pennsylvania 16501-1461
Telephone (814) 459-2800; Fax (814) 453-4530
E-mail: dmosier@kmgslaw.com