ANALYSIS OF IRA CHARITABLE ROLLOVER EXTENSION
The Pension Protection Act of 2006 (PPA) permitted
individuals to roll over up to $100,000 from an individual retirement account
(IRA) directly to a qualifying charity without recognizing the assets
transferred to the qualifying charity as income. While this initial provision
expired on December 31, 2007, it has been extended several times. On December
18, 2015 the President signed the PATH Act making this special provision permanent.
WHAT IS AN IRA CHARITABLE ROLLOVER?
The law uses the term "qualified charitable distribution”to
describe an IRA charitable rollover. A qualified charitable distribution is
money that individuals who are 70½ or older may direct from their traditional
IRA to eligible charitable organizations. The provision has a cap of $100,000
for charitable distributions from individual IRAs each year. Individuals may
exclude the amount distributed directly to an eligible charity from their gross
WHAT IS THE NEW EXPIRATION DATE OF THIS PROVISION?
This provision is now permanent.
DOES A DONOR ALSO RECEIVE A CHARITABLE DEDUCTION WHEN THEY
ROLL OVER ASSETS TO A CHARITY UNDER THIS PROVISION?
No. Under this provision, donors benefit by not having to
recognize the amount contributed directly from their IRA to a qualifying
charity. However, because donors exclude this contribution from their gross
income, they cannot take a charitable contribution deduction for the
contribution; to do so would result in a double benefit for donors and that is
TO WHICH CHARITIES MAY DONORS MAKE QUALIFIED CHARITABLE
Most contributions to public charities—other than supporting
organizations—are considered qualified charitable contributions. However,
distributions from IRA accounts to donor advised funds held by public charities
are not considered qualified charitable distributions under this charitable
rollover provision. (See What is a donor advised fund? on the Council’s
Individuals can make qualified charitable distributions to a
private operating foundation or to a private foundation that elects to meet the
conduit rules in the year of the distribution (see Definitions, below). Neither
private non-operating foundations nor split interest trusts (such as charitable
remainder trusts) are eligible for special treatment as qualified charitable
distributions under the law.
WILL AN IRA DISTRIBUTION TO A FUND HELD BY A COMMUNITY
FOUNDATION QUALIFY FOR THIS SPECIAL TREATMENT?
Yes, distributions to almost all types of funds typically
held by community foundations—such as scholarship, field-of-interest, and
designated funds—qualify. The exception to this general statement is that a
distribution to a donor advised fund will not qualify for this special
Is a donor limited to one IRA charitable distribution per
year, or can a donor request multiple transfers
Donors aged 70 ½ or older are limited to a maximum of
$100,000 in any one year as an IRA charitable distribution, however there is no
requirement that the entire amount be made in one transfer or that the entire
amount go to a single qualified charitable organization. Donors can request
multiple direct transfers from their IRA to qualified charities in a year, but
only $100,000 will be excluded from income as an IRA qualified charitable
WHAT IF DONORS WANT TO CONTRIBUTE MORE THAN $100,000 TO A
QUALIFIED CHARITY FROM AN IRA?
The law limits the amount that donors are able to exclude
from their income to $100,000. If donors wish to take funds from their IRA to
contribute more than $100,000 to charity, they cannot exclude the additional
amount from their gross income. Rather, they must follow the general rules
pertaining to percentage limitations and itemized contribution reductions.
(Both are discussed below.)
CAN DONORS CONTRIBUTE IRA ASSETS TO A DONOR ADVISED FUND?
Yes. However, since such distributions do not count as
qualified distributions from IRAs under these special rules, donors will have
to first recognize those distributions as income. They then must calculate
their charitable deduction according to the general rules pertaining to
percentage limitations and itemized contribution reductions discussed below.
UNDER WHAT CIRCUMSTANCES WILL THIS SPECIAL TREATMENT OF AN
IRA CHARITABLE ROLLOVER MOST LIKELY BENEFIT DONORS?
Generally, this new provision benefits donors who itemize
deductions and whose charitable contributions are reduced by the percentage of
income limitation. Traditionally, when individuals receive a distribution from
their IRA and make a corresponding charitable contribution, they must count the
distribution as income and then receive a charitable deduction for any amounts
they transferred to charity. For higher income taxpayers (see Definitions,
below), the charitable contribution deduction they receive may not totally
offset the taxes they must pay for receiving the distribution from their IRA.
In such cases, donors would potentially benefit more by using the charitable
rollover provision when making a charitable donation.
Other donors who may benefit: individuals who do not usually
itemize their deductions and individuals in states where the operation of state
income tax law would offer greater benefits as a result of a charitable
rollover. Donors will need to work with their professional advisers to
determine the effect of these rules on their specific tax situation.
This provision will also likely benefit donors whose
charitable contributions are reduced by the itemized deduction reduction.(See
HOW DO INDIVIDUALS MAKE A QUALIFIED CHARITABLE DISTRIBUTION?
Individuals must instruct their IRA trustee to make the
contribution directly to an eligible charitableorganization.
A DONOR WANTS TO UTILIZE THE IRA CHARITABLE DISTRIBUTION FOR
HIS/HER 2015 REQUIRED MINIMUM DISTRIBUTION. DOES THE COMMUNITY FOUNDATION NEED
TO PHYSICALLY RECEIVE THE CHECK BY DECEMBER 31, 2015 OR IS IT SUFFICIENT FOR THE
CHECK TO BE PUT IN THE MAIL?
To take advantage of the IRA charitable distribution, the
distribution must be sent directly from the IRA company to the charity. IRS
Publication 526 discussed the rules for delivery of charitable contributions
and explains that generally, the date of mailing would qualify as the date the
gift is made. Accordingly, if the IRA company mails the distribution check to
the charity by December 31st, it would be counted as an IRA distribution in
SHOULD A CHARITY RECEIVING A CONTRIBUTION DIRECTLY FROM AN
IRA PROVIDE A GIFT ACKNOWLEDGEMENT?
Yes. Individuals making a charitable contribution using IRA
funds must obtain a contemporaneous written acknowledgement of the contribution
to benefit from this new provision. IRS Publication 1771, Charitable
Contributions—Substantiation and Disclosure Requirements contains information
about substantiation of charitable contributions
MAY A CHARITY PROVIDE ANY GOODS OR SERVICES IN RETURN FOR
No. If donors receive any goods or services (e.g., tickets
to a fundraiser) that would have reduced their charitable deduction had they
made an outright gift to the charity, the rollover of assets from an IRA will
not qualify for the tax-free treatment under this provision. Gifts to the donor
that are disregarded (i.e., public recognition, token gifts, and insubstantial
benefits) will not disqualify the contribution from the tax-free treatment. IRS
Publication 1771, Charitable Contributions—Substantiation and Disclosure
Requirements contains information about disregarded benefits.
CAN INDIVIDUALS MAKE A QUALIFIED CHARITABLE DISTRIBUTION FOR
SPLIT INTEREST GIFTS?
No. Charitable lead trusts and charitable remainder trusts
are examples of giving vehicles that are not eligible to receive qualified
charitable distributions. Further, because individuals cannot receive a benefit
in return for an IRA distribution, any contribution donors make in return for a
charitable gift annuity would not be eligible for the tax-free treatment.
HOW WILL CHARITABLE DISTRIBUTIONS IMPACT THE MINIMUM
REQUIRED DISTRIBUTIONS FROM A TAXPAYER’S IRA?
Shortly after individuals reach the age of 70½, they are
generally required to receive distributions from their traditional IRA. For the
purposes of minimum required distributions, the IRS treats distributions from
an IRA the same, whether individuals use the distribution for personal purposes
or direct the distribution to a charity.
PERCENTAGE OF INCOME LIMITATION
In any given year, donors may not deduct more than 50
percent of their income for gifts of cash to public charities (30 percent, if
giving to private foundations). Although taxpayers can carry forward amounts
greater than 50 percent and deduct those amounts in future years, they will
face an immediate tax bill. These taxpayers also may lose some of the benefit
of the deduction if they die before the gift has been fully deducted. Donors
who consistently give above the limit will not be able to take advantage of the
ITEMIZED DEDUCTION REDUCTION
Higher income taxpayers will be required to reduce their
itemized deductions by 3 percent of the amount by which their income exceeds a
certain amount. This reduction of itemized deductions is often referred to as
the Pease Limitation.
Taxpayers subject to the reduction can lose up to 80 percent
of the value of their deductions because most itemized deductions must be
reduced by 3 percent of the amount by which the taxpayer’s income exceeds a
certain amount [which is adjusted annually for inflation]. For 2015, the
threshold is $258,250 for individuals, $284,050 for heads of households, and
$305,500 for married couples filing jointly. A large transfer from an IRA can
increase a taxpayer’s income to the point where this 3 percent reduction
Example: In 2015, a married couple filing jointly has
$500,000 in adjusted gross income (AGI). Because the couple’s AGI exceeded the
$305,500 threshold, the 3 percent reduction will apply to the couple’s itemized
Excess of couple’s AGI over $305,500 = $194,500
3% reduction x 3%
Reduction of itemized deductions $5,835.00
The couple’s itemized deductions will be reduced by the
lesser of $5,835 or 80% of the itemized deductions.
For larger estates, IRA accounts passed on to heirs
(non-spousal beneficiaries) may lose a substantial portion of their value to
estate and income taxes. Therefore, people may be encouraged to liquidate these
accounts during their lifetimes or designate a charitable beneficiary upon
death. The law gives people a way to make a difference during their lifetimes
by transferring IRA funds to charity without triggering taxes on the
Example: An individual has accumulated approximately
$1,000,000 in retirement assets; she has other sources of wealth for most
living expenses. This individual planned to leave a portion of her estate to
charity. She can now choose to transfer up to $100,000 of IRA assets to charity
annually. Unlike other lifetime withdrawals, this transfer is not subject to
tax. The donor can establish a special named fund at the community foundation
(other than a donor advised fund), and the gift can start addressing causes
important to her.
PRIVATE FOUNDATION CONDUIT RULES
A private foundation may elect to meet the conduit rules and
pay out 100 percent of the contributions the foundation received in its tax
year by the 15th day of the third month after the close of that tax year, in
addition to meeting its regular 5 percent distribution requirements. A private
foundation may elect to be or not to be a conduit private foundation from year
While a private non-operating foundation generally cannot
receive a qualified charitable contribution from an IRA, a private
non-operating foundation that elects to meet the conduit rules may receive such
WHO CAN TAKE ADVANTAGE OF THE RETROACTIVITY TO JANUARY 1,
The law is retroactive to January 1, 2015, but the
retroactivity only applies for donors who directed an IRA distribution directly
to charity in 2015 or who meet the special rules for December distributions
described below. Some professional advisers advocated in 2015 for individuals
to direct IRA distributions directly to charity in hopes that the IRA
charitable rollover would be extended again. The professional advisers made
this recommendation because there was relatively little downside if the donor’s
inclination was to make the charitable gift regardless of whether it received
the favorable treatment of the IRA charitable rollover. The rationale was that
if an individual made the IRA distribution directly to an eligible charity and the
IRA rollover was enacted retroactively later in the year, the individual could
treat it as an IRA charitable rollover. The rationale continued that if the IRA
charitable rollover was not enacted retroactively, the individual would just
treat the IRA distribution as income and take a corresponding charitable
WHO IS ELIGIBLE TO TREAT IRA DISTRIBUTIONS MADE JANUARY
1–DECEMBER 31, 2015, AS AN IRA CHARITABLE ROLLOVER?
Individuals whose IRA distributions were made directly to an
eligible charity may treat the distribution as a 2015 IRA charitable rollover.
All of the regular restrictions applicable to IRA charitable rollovers
regarding age and limits still apply. Individuals who personally received the
distribution from their IRA rather than directing the distribution to an
eligible charity may not treat the distribution as a 2015 IRA charitable
WHO IS ELIGIBLE TO TREAT IRA DISTRIBUTIONS MADE DECEMBER 1–
DECEMBER 31, 2015, AS AN IRA CHARITABLE ROLLOVER?
Individuals whose IRA distributions were made directly to an
eligible charity (and met all other requirements) may treat the distribution as
a 2015 IRA charitable rollover. In addition, individuals who personally
received an IRA distribution in December 2015 may treat that distribution (or a
portion thereof) as a 2015 IRA charitable rollover if the individual transfers
the amount in cash to an eligible charity by December 31, 2015. The Treasury
Department and IRS may issue guidance regarding the details of such transfers.
If such guidance is issued, we will update you.
DID THE IRA CHARITABLE ROLLOVER PASSED IN 2015 INCLUDE AN EXTENSION
DATE INTO JANUARY 2016
No. In 2012, the IRA Charitable Rollover extension was
passed to include an extension date. It stated that distributions made from January
1, 2012 - January 31, 2013 would be recognized for the 2012 tax year. The
December 18, 2015 PATH Act did not include this language. Therefore
distributions must be made by December 31 of a given tax year to be included in
that tax year.
This information is based on our continuing analysis of the
relevant legislation and regulations. We make every effort to ensure accuracy
of this document. The information is not a substitute for expert legal, tax, or
other professional advice, and we strongly encourage grantmakers and donors to
work with counsel to determine the impact of this legislation on their
particular situations. This information may not be relied upon for the purposes
of avoiding any penalties that may be imposed under the Internal Revenue Code.
Revised December 22, 2015.Source: Council on Foundations
For more information contact, Community Foundation of Acadiana at firstname.lastname@example.org.