By Conrad Teitell*
YOU can make it happen. Please reproduce this position paper and distribute it widely. Friends don’t let friends miss an opportunity to promote laws that will benefit charities and the people they serve. *This position paper was prepared by Conrad Teitell, Cummings & Lockwood, Six Landmark Square, Stamford, CT 06901, phone: (203) 351-4164, fax: (203) 351-4535, e-mail: firstname.lastname@example.org
IRA/CHARITABLE ROLLOVER: EXTENSION AND EXPANSION
The above is an executive summary of the Public Good IRA Rollover Act of 2007 recently introduced—with bipartisan support—in the Senate (S. 819) and the House (H.R. 1419).
Lead Senate co-sponsors are: Byron L. Dorgan (D-ND) and Olympia J. Snowe (R-ME). Original Senate co-sponsors are: John F. Kerry (D-MA), Charles E. Schumer (D-NY), Gordon Smith (R-OR), Blanche L. Lincoln (D-AK) and Norm Coleman (R-MN).
Lead House co-sponsors are: Earl Pomeroy (D-ND) and Wally Herger (R-CA). Original House co-sponsors are: Stephanie Tubbs Jones (D-OH), Jim Ramstad (R-MN), Jerry Weller (R-IL), Ron Lewis (R-KY), Mark Udall (D-CO), Dan Burton (R-IN), Melissa L. Bean (D-IL), Philip S. English (R-PA), Joseph Crowley (D-NY), Earl Blumenauer (D-OR), Dave Camp (R-MI) and Cathy McMorris Rodgers (R-WA).
Senator Byron Dorgan (D-ND) is–and has been—the driving force behind this legislation. He has sponsored it in two prior Congresses and it came close—but not close enough—to being enacted. The welcome (but limited IRA/charitable rollover of the Pension Protection Act ‘06) is an outgrowth of the efforts of Mr. Dorgan and his legislative aide, Allen Huffman.
History. Charities—as far back as 1982—have sought this legislation. The PPA’s IRA/charitable rollover is a good foot in the door. But now the door should be thrown wide open and the IRA/charitable rollover should be extended and expanded.
Making it happen. Enlisting a majority of the members of the House Ways and Means and Senate Finance committees as co-sponsors will go a long way toward enacting this legislation. It has the realistic potential of raising millions upon millions—and over time billions—of dollars to benefit the individuals served by our nation’s charities.
Educating legislators on the tax committees and their legislative aides about the IRA/charitable rollover: Don’t assume they know all about it. Legislators and aides are involved with many issues and interest groups seeking legislation. See pages 7 and 8 for a list of Senate Finance and House Ways and Means committee members.
Getting the legislators to sign on as co-sponsors.
Finding the money to pay for this legislation under the pay-as-you-go rules, concern about the tax gap and patching the AMT.
MAKING THE CASE
Current law (for 2006 and 2007). Allows an individual 70½ or over to transfer directly from his or her IRA up to $100,000 to publicly supported charities (except donor advised funds and supporting organizations). Private foundations aren’t qualified recipients (except for private operating foundations and passthrough foundations).
The Public Good IRA Rollover Act would (going-down-in-the-elevator summary):
Make the rollover permanent.
Remove the $100,000 cap.
Remove restrictions on the types of charities to which IRAs can be rolled over.
Allow a tax-free rollover for life-income plans (charitable remainder unitrusts, annuity trusts, gift annuities, pooled income funds) as long as the IRA owner is 59½ or over. The only beneficiaries of a life-income plan could be the donor, the donor and spouse or solely the spouse. A charity could also be a beneficiary. (Direct rollovers—as opposed to life-income rollovers—would be for IRA owners 70½ or older.)
Why life-income rollovers? Many individuals would like to give part or all of their IRAs to charity, but need the retirement income from their IRAs. Allowing them to roll over their IRAs at age 59½ or over to a charity’s life-income plan would allow them to keep retirement income and make a charitable commitment. The charities could plan on receiving the gift after the life interest terminates.
A life-income rollover is truly an All-American IRA/Charitable Rollover. It would encourage philanthropy by all Americans—not just those who can afford to part with their assets now and not just those who itemize their deductions on their tax returns.
The equivalent of a non-itemizer charitable deduction. The ability to roll over an IRA to charity directly—or for a life-income plan—gives charitable tax incentives to the approximately two-thirds of taxpayers who take the standard deduction. Not being taxed on income that would otherwise be taxed (withdrawal from an IRA) is the equivalent of a charitable deduction.
Simply stated, a rollover to a charity’s life-income plan is just putting an existing IRA in a different basket. The individual still receives life income. But now, there’s an eventual gift to charity. The charity can better plan for its future and these gifts will stimulate other gifts.
Why a rollover for life-income gifts starting at age 59½ instead of 70½ (as for direct rollovers). Typically, IRA owners don’t start drawing down their IRAs at 59½, but wait until 70½. Then they string out the payments over the lives of the owner and a spouse. And they can then s-t-r-e-t-c-h out the payments for a grandchild, for example, for many more years. By allowing a rollover of an IRA for a charitable life-income plan at age 59½, the government could start taxing IRA income much sooner. All income from a charitable rollover would be fully taxable.
An IRA rollover for a life-income gift comports with the government’s policy of encouraging individuals to provide for and safeguard retirement funds. An individual who receives income from a charitable remainder trust that has been funded by an IRA rollover can be viewed as simply changing the caretaker of his or her retirement funds. The stringent requirements of the Internal Revenue Code and Treasury regulations that are designed to safeguard the charity’s remainder interest also safeguard the individual’s life-income interest.
Examples of how the life-income charitable rollover would work:
Mary Gordon, a retired school teacher, transfers $50,000 from her IRA to Teachers’ College in exchange for an annuity that will pay her for life. The income she receives from the annuity is fully taxable as ordinary income—so the government receives just as much tax as if the gift annuity had not been created and the IRS taxed the withdrawals from her IRA.
Doctor Brown, a retired dentist, would like to make a significant gift to his dental school at his class’s 50th reunion. His major asset, apart from his house, is his IRA. He transfers $200,000 from his IRA to a charitable remainder unitrust that will make payments to Dr. Brown and his wife and then to the survivor for life. On the survivor’s death, the trust assets will be given to his dental school. All the income paid to the Browns will be fully taxable as ordinary income—so the government receives just as much tax as if the income was paid to the Browns directly from the IRA.
Under the Public Good IRA Rollover Act, IRAs can be transferred to four types of life-income plans. A short description of each follows.
The charitable gift annuity. In exchange for a gift, a charity pays a donor a fixed-dollar amount for life. The amount is set at the time of the transfer based on the age of the annuitant. Because the payments are lower than the payments would be had the same amount been transferred to an insurance company, a good part of the transfer is a charitable gift.
The charitable remainder unitrust. A transfer is made to a separately invested trust that annually pays the beneficiary a fixed percentage (set at the outset) times the fair market value of the trust assets as revalued each year. At the death of the beneficiary, all the assets belong to the named charity or charities.
The charitable remainder annuity trust. Similar to the unitrust (above), except that the beneficiary receives a fixed-dollar amount each year for life, with a remainder gift to charity.
The pooled income fund. A donor’s gift is transferred to a charity’s pooled fund and commingled with the gifts of other donors. Each beneficiary receives his or her share of the fund’s income for life. On the beneficiary’s death, the charity removes assets from the fund equal to the then value of the beneficiary’s interest in the fund and uses the assets for its charitable purposes.
Good public policy. Charities serve the public and relieve federal, state and local governments of burdens they would otherwise incur. IRA charitable rollovers would be significant additional sources of support for our nation’s charities.
Charitable gift enabler—billions of additional dollars for charities. According to IRS figures (Spring 2003, IR-2003-80), existing charitable life-income plans have a total value of almost $94 billion.
It is difficult enough to picture 1 billion dollars, let alone 94 billion. But some economists have given us a visual aid. A million dollars worth of thousand dollar bills makes a pile six inches high; a billion dollars worth of thousand dollar bills would stack up as high as the Washington Monument.
So it would take a pile of bills as high as 94 Washington Monuments to equal the amount that individuals have contributed to life-income plans to benefit charities.
Many trillions of dollars are currently in IRAs. Just imagine how many more Washington Monuments of thousand dollar bills will be given to charities after the Public Good IRA Rollover is enacted.
DETAILED EXPLANATION OF PUBLIC GOOD IRA ROLLOVER/S. 819; H.R. 1419 (followed by the actual bill)
An exclusion from gross income would be allowable for otherwise taxable IRA distributions for "qualified charitable distributions." A charitable deduction, however, wouldn’t be allowed. But the avoidance of income tax is the equivalent of a deduction—and an unlimited one to boot. The IRA rollover would be available to nonitemizers and itemizers.
Qualified charitable distribution. An IRA distribution that is made directly by the IRA trustee either to (1) an organization to which deductible charitable contributions can be made (a "direct distribution"), or (2) a "split-interest entity."
Split-interest entities are: charitable remainder annuity trusts and charitable remainder unitrusts (together referred to as a "charitable remainder trust"), pooled income funds and charitable gift annuities.
Direct distributions—eligibility. The exclusion would be available only if made on or after the date the IRA owner attains age 70½.
Distributions to a split-interest entity—eligibility. The exclusion would be available only if made on or after the date the IRA owner attains age 59½. And no one may have an income interest in the split-interest entity other than one or more of the following: the IRA owner, his or her spouse, a charitable organization.
Taxation of income received from a charitable remainder trust. All payments would be treated as ordinary income to the beneficiary notwithstanding the payments normal treatment under the four-tier provision of IRC §664(b).
Pooled income funds—special requirements. A pooled income fund would be eligible to receive qualified charitable distributions only if the pooled fund accounts separately for amounts attributable to those distributions. All distributions from the pooled income fund that are attributable to qualified charitable distributions would be treated as ordinary income to the beneficiary (that’s the current rule). Qualified charitable distributions to a pooled income fund wouldn’t be includible in the fund’s gross income.
Taxation of gift annuity payments. Payments from a charitable gift annuity funded with a qualified charitable distribution from an IRA would all be taxable as ordinary income. Thus the portion of the distribution from the IRA used to fund the annuity wouldn’t be an investment in the annuity contract—so the usual exclusion ratio rules wouldn’t apply.
Tax-free IRA rollovers wouldn’t limit other charitable deductions. Any amount excluded from gross income on an IRA rollover wouldn’t be taken into account in determining the deduction for charitable contributions under IRC §170.
S. 819 - H.R. 1419
To amend the Internal Revenue Code of 1986 to expand tax-free distributions from individual retirement accounts for charitable purposes.
To amend the Internal Revenue Code of 1986 to expand tax-free distributions from individual retirement accounts for charitable purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the "Public Good IRA Rollover Act of 2007".
SEC. 2. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS FOR CHARITABLE PURPOSES.
(a) IN GENERAL. -- Paragraph (8) of section 408(d) of the Internal Revenue Code of 1986 (relating to tax treatment of distributions) is amended to read as follows:
"(8) DISTRIBUTIONS FOR CHARITABLE PURPOSES. --
"(A) IN GENERAL. -- No amount shall be includible in gross income by reason of a qualified charitable distribution.
"(B) QUALIFIED CHARITABLE DISTRIBUTION. -- For purposes of this paragraph, the term 'qualified charitable distribution' means any distribution from an individual retirement account --
"(i) which is made directly by the trustee --
"(I) to an organization described in section 170(c), or
"(II) to a split-interest entity, and
"(ii) which is made on or after the date that the individual for whose benefit the account is maintained has attained --
"(I) in the case of any distribution described in clause (i)(I), age 70 ½, and
"(II) in the case of any distribution described in clause (i)(II), age 59 ½.
A distribution shall be treated as a qualified charitable distribution only to the extent that the distribution would be includible in gross income without regard to subparagraph (A) and, in the case of a distribution to a split-interest entity, only if no person holds an income interest in the amounts in the split-interest entity attributable to such distribution other than one or more of the following: the individual for whose benefit such account is maintained, the spouse of such individual, or any organization described in section 170(c).
"(C) CONTRIBUTIONS MUST BE OTHERWISE DEDUCTIBLE . -- For purposes of this paragraph --
"(i) DIRECT CONTRIBUTIONS. -- A distribution to an organization described in section 170(c) shall be treated as a qualified charitable distribution only if a deduction for the entire distribution would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph).
"(ii) SPLIT-INTEREST GIFTS. -- A distribution to a split-interest entity shall be treated as a qualified charitable distribution only if a deduction for the entire value of the interest in the distribution for the use of an organization described in section 170(c) would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph).
"(D) APPLICATION OF SECTION 72. -- Notwithstanding section 72, in determining the extent to which a distribution is a qualified charitable distribution, the entire amount of the distribution shall be treated as includible in gross income without regard to subparagraph (A) to the extent that such amount does not exceed the aggregate amount which would be so includible if all amounts were distributed from all individual retirement accounts otherwise taken into account in determining the inclusion on such distribution under section 72. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.
"(E) SPECIAL RULES FOR SPLIT-INTEREST ENTITIES. --
"(i) CHARITABLE REMAINDER TRUSTS. -- Notwithstanding section 664(b), distributions made from a trust described in subparagraph (G)(i) shall be treated as ordinary income in the hands of the beneficiary to whom is paid the annuity described in section 664(d)(1)(A) or the payment described in section 664(d)(2)(A).
"(ii) POOLED INCOME FUNDS. -- No amount shall be includible in the gross income of a pooled income fund (as defined in subparagraph (G)(ii)) by reason of a qualified charitable distribution to such fund, and all distributions from the fund which are attributable to qualified charitable distributions shall be treated as ordinary income to the beneficiary.
"(iii) CHARITABLE GIFT ANNUITIES. -- Qualified charitable distributions made for a charitable gift annuity shall not be treated as an investment in the contract.
"(F) DENIAL OF DEDUCTION. -- Qualified charitable distributions shall not be taken into account in determining the deduction under section 170.
"(G) SPLIT-INTEREST ENTITY DEFINED. -- For purposes of this paragraph, the term 'split-interest entity' means --
"(i) a charitable remainder annuity trust or a charitable remainder unitrust (as such terms are defined in section 664(d)) which must be funded exclusively by qualified charitable distributions,
"(ii) a pooled income fund (as defined in section 642(c)(5)), but only if the fund accounts separately for amounts attributable to qualified charitable distributions, and
"(iii) a charitable gift annuity (as defined in section 501(m)(5)).".
(b) EFFECTIVE DATE. -- The amendment made by this section shall apply to distributions made in taxable years beginning after December 31, 2006.
Make the case to Senate Finance and House Ways and Means committee members.
A telephone conference call with the legislator or his or her aide and six or so charities has proven to be effective. Although in-person meetings are best, the telephone conference can be a close second (and infinitely better than no meeting at all).
Urge your senator on the Finance Committee and representative on the Ways and Means Committee to co-sponsor the Public Good IRA Rollover Act.
My charity doesn’t have legislators on the tax-writing committees. How can I help?
House of Representatives/Committee on Ways and Means
|Congressperson||State||Dist||Tel. #*||Tax Staff||Staff Email**|
|Berkley, Shelley||NV||1st||5965||Bryan George||Byran.George|
|Blumenauer, Earl||OR||3rd||4811||Janine Benner||Janine.Benner|
|Crowley, Joseph||NY||7th||3965||Kevin Casey||Kevin.Casey|
|Davis, Arthur||AL||7th||2665||Jason Rosenberg||Jason.Rosenberg|
|Doggett, Lloyd||TX||25th||4865||Caryn Schenewerk||Caryn.Schenewerk|
|Emanuel, Rahm||IL||5th||4061||Robert Getzofs||Robert.Getzofs|
|Jones, Stephanie Tubbs||OH||11th||7032||Jorge Castro||Jorge.Castro|
|Kind, Ron||WI||3rd||5506||David Degennaro||David.Degennaro|
|Larson, John B.||CT||1st||2265||Jonathan Renfrew||Jonathan.Renfrew|
|Levin, Sander M.||MI||12th||4961||Jeff Ziarko||Jeff.Ziarko|
|Lewis, John||GA||5th||3801||Michaeleen Crowell||Michaeleen.Crowell|
|McDermott, Jim||WA||7th||3106||Jayme White||Jayme.White|
|McNulty, Michael R.||NY||21st||5076||Jim Glenn||Jim.Glenn|
|Meek, Kendrick||FL||17th||4506||Clarence Williams||Clarence.Williams|
|Neal, Richard E.||MA||2nd||5601||Ann Jablon||Ann.Jablon|
|Pascrell, Bill Jr.||NJ||8th||5751||Assad Akhter||Assad.Akhter|
|Pomeroy, Earl||ND||At Large||2611||Diane Oakley||Diane.Oakley|
|Rangel, Charlie B. (Chair)||NY||15th||4365||Jon Sheiner||Jon.Sheiner|
|Schwartz, Allyson Y.||PA||13th||6111||Kirk Freeman||Kirk.Freeman|
|Stark, Pete||CA||13th||5065||Chad Schearer||Chad.Schearer|
|Tanner, John S.||TN||8th||4714||David Burns||David.Burns|
|Thompson, Mike||CA||1st||3311||Elizabeth Thomas||Elizabeth.Thomas|
|Van Hollen, Chris, Jr.||MD||8th||5341||Phil Alperson||Phil.Alperson|
|Brady, Kevin||TX||8th||4901||Kimberly Thompson||Kimberly.Thompson|
|Camp, Dave||MI||4th||3561||Joanna Foust||Joanna.Foust|
|Cantor, Eric||VA||7th||2815||Shimmy Stein||Shimmy.Stein|
|English, Phil||PA||3rd||5406||David Stewart||David.Stewart|
|Herger, Wally||CA||2nd||3076||Dan Maclean||Dan.Maclean|
|Hulshof, Kenny C.||MO||9th||2956||Manning Feraci||Manning.Feraci|
|Johnson, Sam||TX||3rd||4201||Kathleen Black||Kathleen.Black|
|Lewis, Ron||KY||2nd||3501||Eric Bergren||Eric.Bergren|
|Linder, John||GA||7th||4272||Don Green||Don.Green|
|McCrery, Jim (Ranking)||LA||4th||2777||Jon Traub||Jon.Traub|
|Nunes, Devin||CA||21st||2523||Damon Nelson||Damon.Nelson|
|Porter, Jon||NV||3rd||3252||Trevor Kolego||Trevor.Kolego|
|Ramstad, Jim||MN||3rd||2871||Karin Hope||Karin.Hope|
|Reynolds, Thomas M.||NY||26th||5265||Dave Olander||Dave.Olander|
|Ryan, Paul||WI||1st||3031||Joyce Meyer||Joyce.Meyer|
|Tiberi, Pat||OH||12th||5355||Adam Francis||Adam. Francis|
|Weller, Jerry||IL||11th||3635||Jeanette Whitener||Jeanette.Whitener|
|*All first six digits of phone numbers are: 202-225 **All staff email address are email@example.com |
United States Senate/Finance Committee
|Senator||State||Tel. #*||Tax Staff||Staff Email**|
|Baucus, Max (Chairman)||MT||2651||Pat Bousliman||Pat_Bousliman@baucus|
|Cantwell, Maria||WA||3441||Jennifer Griffith - Leg Dir.||VACANT|
|Conrad, Kent||ND||2043||Steve Bailey||Steve_Bailey@conrad|
|Kerry, John||MA||2742||Kathy Kerrigan||Kathy_Kerrigan@kerry|
|Lincoln, Blanche||AR||4843||Anna Taylor||Anna_Taylor@lincoln|
|Rockefeller, John D.||WV||6472||Amy Barber||Amy_Barber@rockefeller|
|Salazar, Ken||CO||5852||Sam Mitchell||Sam_Mitchell@salazar|
|Schumer, Charles E.||NY||6542||Jeff Hamond||Jeff_Hamond@schumer|
|Stabenow, Debbie||MI||4822||Amanda Renteria||Amanda_Renteria@stabenow|
|Wyden, Ron||OR||5244||Josh Lamel||Josh_Lamel@wyden|
|Bunning, Jim||KY||4343||Jennifer Gray||Jennifer_Gray@bunning|
|Crapo, Michael D.||ID||6142||Mike Quickel||Mike_Quickel@crapo|
|Grassley, Charles E.||IA||4515||Mark Prater||Mark_Prater@grassley|
|Hatch, Orrin G.||UT||5251||Ike Brannon||Ike_Brannon@hatch|
|Kyl, Jon||AZ||4521||Lisa Wolski||Lisa_Wolski@kyl|
|Lott, Trent||MS||6253||King Muellar||King_Muellar@lott|
|Roberts, Pat||KS||4774||Jennifer Cook||Jennifer_Cook@roberts|
|Smith, Gordon H.||OR||3753||Kara Gitz||Kara_Gift@smith|
|Snowe, Olympia J.||ME||5344||Tucker Shumack||Tucker_Shumack@snowe|
|Thomas, Craig||WY||6441||Kimberly Pinter||Kimberly_Pinter@thomas|
|*All first six digits of phone numbers are: 202-224 **All staff email address are first name_last name@Senator’s last name.senate.gov|
You now have your marching orders. Here’s your marching song—Click on the link below for musical accompaniment.
THE I-RAs GO ROLLING ALONG*
O-ver hill, o-ver dale,
We will hit the D.C. trail,
As the I-RAs go roll-ing a-long.
It’s a beaut, hear them hoot
Ext-ra gifts and lots of loot,
As the I-RAs go roll-ing a-long.
Then it’s hi! hi! hee!
For the field of char-i-ty,
Shell out your I-RAs big and small.
For where e’er you go,
You will al-ways know
That the I-RAs go roll-ing a-long.
*Lyrics by Conrad Teitell
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