Exempt Organizations Advisory - IRA Charitable Rollover Provision Clarified by IRS

In the January 29th edition of the Internal Revenue Bulletin, the IRS published Notice 2007-7, which clarifies several issues regarding the treatment of IRA charitable rollovers in the Pension Protection Act of 2006 (PPA). The guidance (which begins on page 13 of the Notice) ensures that Individual Retirement Account (IRA) owners age 70 ½ and older can directly transfer tax-free up to $100,000 per year to an eligible charity.

Section 1201 (a) of the PPA adds Section 408(d)(8) to the Code, which is applicable to distributions made in taxable years 2006 and 2007. Under the new Code section, if a qualified distribution from an IRA owned by an individual after the individual has attained age 70 ½ is made directly by the trustee of the IRA to certain charitable organizations [as described in Section 170(b)(1)(A)], that distribution, up to $100,000 per individual IRA owner, is excluded from gross income.

According to a recent Wall Street Journal article, at least $25 million has been given to charities through the rollovers since they were authorized in August. Several charitable groups, including the National Committee on Planned Giving, the American Council on Gift Annuities, the Association of Fundraising Professionals, the Council for Advancement and Support of Education, and Independent Sector, are banding together to work on legislation to make rollovers permanent, remove contribution limits and allow for an expanded version of the rollover provision to include donations from trusts and donor-advised funds.

Charities are hopeful that the current "charitable transfer" legislation, which is the first of its kind to expressly permit tax-free gifts from IRA accounts during the lifetime of the owner, will become permanent and more inclusive with the introduction of additional legislation in this Congressional session.