IRS Confirms Lack of Transition Relief for IRA Charitable Rollover Distributions under Tax Increase Prevention Act of 2014

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By Deborah M. Beers, Esq.

Buchanan Ingersoll & Rooney, Washington, DC

Background:

The Pension Protection Act of 2006 ("PPA") (Pub. L. No. 109-280) amended §408(d)(8) to provide that, for taxable years beginning after December 31, 2005, and before January 1, 2008, otherwise taxable IRA distributions from a traditional or Roth IRA would be excluded from gross income if contributed to qualified charities. The exclusion could not exceed $100,000 per taxpayer per taxable year. Amounts excluded from gross income were not taken into account in determining the account holder's charitable income tax deduction for the year. The provision did not apply to distributions from qualified retirement plans.

A qualified charitable distribution was defined as any distribution from an IRA that is made during the applicable period by the IRA trustee directly to a qualified public charity after the IRA owner has attained age 70 1/2.

The Emergency Economic Stabilization Act of 2008 (Pub. L. No. 110-343, signed October 3, 2008) extended the PPA provision, which had expired on December 31, 2007, through 2009, effective for distributions after December 31, 2007. The extension did not otherwise revise the terms of the exclusion. The "Tax Relief Unemployment Insurance Authorization and Job Creation Act of 2010," which was signed by the President on December 17, 2010, further extended the provision for another two years, through December 31, 2011. The 2010 Act also allowed taxpayers to treat distributions made for charitable purposes in January of 2011 as if they had been made in 2010.

Under the "American Taxpayer Relief Act of 2012" ("ATRA") (Pub. L. No. 112-240), which President Obama signed into law on January 2, 2013, the IRA charitable rollover provision, which had expired on December 31, 2011, was again extended retroactively from January 1, 2012, through December 31, 2013. The retroactive extension covered those taxpayers who had made direct distributions to charity from their IRAs during calendar year 2012.  However, because it was signed into law after the end of 2012, two transitional relief provisions – applicable to both the IRA charitable rollover and the "required minimum distribution" (RMD) requirement - were included in the law, as follows:

First, any portion of an IRA distribution made to a taxpayer (i.e., not directly to charity) during the month of December 2012 could be treated as a qualified charitable distribution if the IRA owner so elected, provided that:

  •   The distribution was transferred in cash to an eligible charity before February 1, 2013; and
  •   The distribution would otherwise satisfy the tax-free qualified charitable distribution rules, but for the fact that the distribution was not transferred directly from the IRA to an eligible charity.

Second, subject to election, a distribution contributed directly to charity by an IRA trustee during January 2013 could be treated as made in 2012. Thus, the distribution to charity could be used to satisfy the taxpayer's 2012 RMD (but not the 2013 RMD), and could also count against the taxpayer's 2012 $100,000 charitable rollover exclusion, leaving another $100,000 exclusion available for use during 2013.

The Tax Increase Prevention Act of 2014 (Pub. L. No. 113-295), which the President signed into law on December 19, 2014, once again retroactively extended the application of §408(d)(8) for 2014, but was silent concerning any transitional relief.

IRS Info. Letter 2015-0011(Feb. 18, 2015) and IRS Info. Letter 2015-0012 (Feb. 18, 2015

In letters to U.S. Rep. Ileana Ros-Lehtinen (R-FL) and one of her constituents, the IRS explained that there could be no waivers of the rules otherwise applicable to qualified charitable distributions for 2014. The letters explain:When ATRA became law in 2013, it contained several transition rules that allowed taxpayers to make [qualified charitable distributions] for 2012 even though made in 2013 or not directly from the IRA. The Tax Increase Prevention Act of 2014 did not include any transition rules.

Unfortunately, the IRS can treat as a 2014 [qualified charitable distribution] neither a contribution made to a qualified charitable organization in 2015 nor a contribution not made directly from the IRA. Legislative action would be required for this treatment.

Conclusion:

While these letters perhaps confirm the obvious, we observe that taxpayers have grown accustomed to both the retroactive reinstatement of the IRA charitable rollover provisions and, to some extent, transitional relief, which has been granted at least twice since 2006. Taxpayers who are counting on the benefits of the provision would be well advised, however, to make any 2015 RMD distributions from their IRAs directly to qualified charities, so that they can take advantage of any retroactive relief without reliance on any transitional rules.

We note that, on February 12, the House passed the America Gives More Act (H.R. 644), which would permanently extend the IRA charitable rollover. To date, the Senate has not acted.

For more information, in the Tax Management Portfolios, see Kennedy, 367 T.M., IRAs, Streng, 800 T.M., Estate Planning, and in Tax Practice Series, see ¶5610, IRAs.

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