As I reported in my post of December 17, the recently passed and signed tax act contained an extension for two years (i.e., 2010 and 2011) of the provision that permits tax-free distributions to charity from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer, per taxable year. Since the law was passed so late in the year, a special provision in the Act allows individuals to make “qualified charitable distributions” during January of 2011 and treat them as if made during 2010.
The “Technical Explanation of the Revenue Provisions Contained in the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” prepared by the Joint Committee on Taxation contains the following statement: “Thus, a qualified charitable distribution made in January 2011 is permitted to be (1) treated as made in the taxpayer’s 2010 taxable year and thus permitted to count against the 2010 $100,000 limitation on the exclusion, and (2) treated as made in the 2010 calendar year and thus permitted to be used to satisfy the taxpayer’s minimum distribution requirement for 2010.”
According to the Wall Street Journal, IRS spokesman Eric Smith issued the following statement on January 5: "Required minimum distributions (RMD) from an IRA received by a taxpayer cannot be rolled over to an IRA. As noted on page 24 of the 2009 IRS Publication 590, Individual Retirement Arrangements, ‘Amounts that must be distributed during a particular year under the required distribution rules are not eligible for rollover treatment.’ Moreover, there’s no provision in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act Of 2010, nor any hint in the Committee report for such RMD recontribution."
While it seems confusing as to whether a January 2010 direct IRA charitable contribution can qualify as a 2010 required minimum distribution, here is my interpretation of these seeming confusing provisions:
- A taxpayer who took a required minimum distribution in 2010 cannot now write a check in January of 2011 to a charitable organization for the amount of that RMD (assume $100,000) and thereby make the amount of that 2010 RMD non-taxable for 2010. The “charitable rollover” must be a direct transfer from the IRA custodian to the charity.
- A taxpayer who was required to take an RMD (assume $100,000) in 2010, but failed to do so may request a qualified charitable distribution from the IRA custodian payable directly to a charitable organization in January of 2011, treat it as a qualified charitable distribution in 2010, and (based on the language of the Technical Explanation) have that distribution treated as a non-taxable RMD for 2010.
- A taxpayer who took a $100,000 taxable RMD in 2010 may now request a $100,000 qualified charitable distribution from the IRA custodian payable directly to a charitable organization in January of 2011, and treat it as an additional 2010 IRA distribution that is not taxable in his 2010 return. This means that the taxpayer took two $100,000 distributions from his IRA applicable to 2010, the first of which was taken during 2010 and was taxable, and the second of which was taken in January of 2011 as a non-taxable qualified charitable distribution for 2010. This additional distribution for 2010 (taken in 2011) does not relieve the taxpayer of taking a required minimum distribution (assume $100,000) in 2011. The taxpayer may, however, take this RMD for 2011 as a qualified charitable distribution, and it will not be taxable in his 2011 tax return. Thus, the taxpayer has taken one $100,000 taxable distribution from his IRA and two $100,000 qualified charitable distributions, one of which must occur in January of 2011.
Note that this confusion would simply have not arisen had Congress responsibility extended the charitable rollover provisions for 2010 and 2011 in December of 2009, which it could have easily done.
Remember, as confusing as these provisions may be, they apply only to distributions from traditional or Roth IRAs. They do not apply to distributions from a section 401(k) plan or a qualified pension plan. If you have questions about qualified charitable distributions from your IRA email me at response @phdcpa.com.
Ronnie
Copyright 2011 Ronnie C. McClure, PhD, CPA
