The Congressional Research Service has updated its report on qualified distributions from Individual Retirement Accounts that expired on December 31, 2007 by reviewing currently proposed bills that would extend the provision.

Citations: RS22766

Full Text:

Date: Jan. 4, 2008

Qualified Charitable Distributions from
Individual Retirement Accounts: A Fact Sheet

Distributions from Individual Retirement Accounts (IRAs) must be included in gross income in the year the distribution occurs, and income taxes must be paid on the taxable portion of the distribution. Section 1201 of the Pension Protection Act of 2006 (P.L. 109-280) allows individuals to exclude from gross income distributions from Individual Retirement Accounts (IRAs) if they are made to a qualified charity.¹ This provision for Qualified Charitable Distributions (QCDs) expired on December 31, 2007. Several legislative proposals in the 110^th Congress would extend the provision for one year or two years, or would make the provision permanent.

The features of the QCD are

• Contributions must be from traditional or Roth IRAs. QCDs cannot be made from employer-sponsored IRAs (SEP-IRAs and SIMPLE-IRAs), or from defined contribution retirement plans (for example, 401(k) plans or 403(b) plans).²
• Individuals must be older than 70^1/2 when the QCD is made.
• Charities must be eligible to receive tax-deductible charitable contributions.
• The maximum QCD is $100,000, although a spouse can also make a $100,000 QCD if the couple files a joint income tax return.
• The $100,000 maximum QCD does not apply to the overall charitable deduction limit. Thus, individuals may make charitable contributions in excess of 50% of adjusted gross income.
• The distribution must be a trustee-to-trustee transfer; that is, a direct transfer from the IRA to the charity.
• The distribution first comes from taxable funds, then from any nondeductible IRA contributions. Previously, distributions would have been allocated proportionately between deductible and nondeductible contributions.

The following bills have been introduced in the 110^th Congress to extend this provision. It is uncertain whether Congress will act on any of these bills.

H.R. 3596. Representative Nick Lampson introduced the Charitable Tax Relief Act of 2007 on September 19, 2007. This bill would make the charitable distribution provision permanent.

H.R. 3970. Representative Charles Rangel introduced the Tax Reduction and Reform Act of 2007 on October 25, 2007. This bill would extend the charitable distribution provision until December 31, 2008.

H.R. 3996. Representative Charles Rangel introduced the Temporary Tax Relief Act of 2007 on October 30, 2007. Originally, this bill contained a provision that would have extended the charitable distribution provision until December 31, 2008; however, this provision was dropped from the bill on final passage. The final version of the bill, the Tax Increase Prevention Act of 2007, dealt only with the exemption from the alternative minimum tax and was signed by President Bush on December 26, 2007.

H.R. 4086. Representative Ron Klein introduced the Healthy Families and Dedicated Teachers Tax Relief Act of 2007 on November 6, 2007. This bill would make the charitable distribution provision permanent.

S. 819/H.R. 1419. Senator Byron Dorgan and Representative Earl Pomeroy introduced identical bills on March 8, 2007. The Public Good IRA Rollover Act of 2007 would make the charitable distribution provision permanent. In addition, the bills would remove the $100,000 tax-free distribution limit, allow contributions to a split-interest entity, and allow these contributions to a split-interest entity to be made tax-free after the age of 59^1/2.

S. 2264. Senator Pat Roberts introduced a bill on October 30, 2007, that would extend the charitable distribution provision until December 31, 2009.

¹ See CRS Report RL33703, Summary of the Pension Protection Act of 2006, by Patrick Purcell.

² A SEP-IRA is a Simplified Employee Pension. These plans were authorized by the Revenue Act of 1978 (P.L. 95-600). A SIMPLE-IRA is a Savings Incentive Match Plan for Employees. These plans were authorized by the Small Business Job Protection Act of 1996 (P.L. 104-188).