IRA Charitable Donation Provision Extended to 2009

December 9, 2008 The Legal Intelligencer

A provision of the Tax Code allowing for the charitable donation of Individual Retirement Account assets that would have otherwise expired in 2007 has been extended through Dec. 31, 2009, as part of the Emergency Economic Stabilization Act of 2008. The Pension Protection Act of 2006, or PPA, liberalized the rules allowing for the direct donation of assets held in an IRA to charitable organizations. Under Code Section 408(d)(8), added by the PPA, IRA owners who have attained age 70-and-a-half are permitted to distribute up to $100,000 per year of IRA assets directly to a qualified charity without causing such a transfer to be taxable to the IRA owner. As originally enacted, this exclusion from income would have expired Dec. 31, 2007.

Prior to the PPA, if an IRA owner desired to make a lifetime charitable gift utilizing IRA assets, the IRA owner would be required to take a distribution of IRA assets and recontribute such assets to the charity. Besides the two-step mechanics of this process, the IRA owner would have to recognize taxable income equal to the amount of the distribution and would be required to claim a charitable deduction for the amount contributed to the charity. Although, in theory, the charitable deduction should offset the income recognized on the IRA distribution, that is not always the case because of the limitations imposed on charitable deductions under Code Section 170 (where deductible contributions are limited to a percentage of the donor's adjusted gross income). Under Code Section 170(b)(1)(A), charitable cash contributions to a public charity are generally deductible only to the extent of 50 percent of the donor's adjusted gross income.

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