Dave Moja | May 11, 2016 | TaxTips
Issue
**DEVELOPMENT DIRECTOR ALERT** The PATH Act of 2015 made the “IRA Charitable Rollover” a permanent law. This can be very beneficial to your institution and some major donors.
Situation
Marathon Bible College (MBC), a public charity under I.R.C. section 501(c)(3) (and I.R.C. section 170(b)(1)(A)(ii)), calls us with a question from a donor. The major donor wants to know if they can make a an $80,000 contribution to the college out of theIr Individual Retirement Account (IRA). If so, the donor asked, “How would that work?”
First, we say that they should make sure that their Development/Fundraising Team is aware of this opportunity. Then we tell them that for the past several years, taxpayers who are age 70½ or older were allowed to make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000 per year. Eligible taxpayers did not include these contributions/distributions in gross income nor claim them as a deduction on their returns, thus they were not subject to the charitable contribution percentage limits.
The provision continually “expired” and – through 2014 – had been retroactively extended late in a following year. In 2013, there was a two-year retroactive extension that expired 12/31/13. In December 2014, Congress “extended” the provision to 12/31/14. So, the law had expired at 12/31/14 and we went through 2015 wondering if it would be extended. Now, with Section 112 of the PATH Act, Congress has amended I.R.C. section 408(d)(8)(F) to make the provision permanent. The PATH Act wording is: “Section 408(d)(8) is amended by striking subparagraph (F). EFFECTIVE DATE.—The amendment made by this section shall apply to distributions made in taxable years beginning after December 31, 2014.”
*Note that there is a current bill in Congress (The “CHARITY Act”) S. 2750, that would allow these “IRA Rollovers” to fund donor advised funds – which is currently not allowed.