Qualified charitable distributions extended through 2014 after failed efforts to make them permanent
In the waning hours of the lame-duck session, the House and Senate passed the Tax Increase Prevention Act of 2014 to retroactively extend a host of temporary tax provisions that expired at the end of 2013—including qualified charitable distributions from Traditional and Roth IRAs—after efforts to make the provision permanent failed. The one-year extension, from December 31, 2013, to December 31, 2014, means that the provision has sunset and qualified charitable distributions are no longer permitted under current tax laws.
Qualified Charitable Distributions
Qualified charitable distributions are tax-free distributions of Traditional or Roth IRA taxable assets paid directly to a qualified charity after the IRA owner (or IRA beneficiary) reached age 70½. A qualified charity is a charitable organization under Internal Revenue Code Section 170, which generally is a charity for which a taxpayer could claim income tax deductions.
Qualified charitable distributions also satisfied the IRA owner’s required minimum distribution (or IRA beneficiary’s required distribution (e.g., single life expectancy payments)).
Prior Legislation
Qualified charitable distributions were created by the Pension Protection Act of 2006 and were effective for tax years 2006 and 2007. This temporary provision was extended through 2009 by the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. The provision then expired at the end of 2009 when the Senate failed to act on a House bill to extend the provision. Several attempts were made in 2010 to extend qualified charitable distributions, but it was not until nearly a year later that President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which provided for a two-year extension of qualified charitable distributions through December 31, 2011. The popular tax break then expired at the end of 2011 when Congress failed to act on bills in both the House and Senate to extend the provision.
The provision was not again extended until January 2013 when President Obama signed into law the American Taxpayer Relief Act of 2012, which made permanent the Bush-era tax rates and extended qualified charitable distributions for two-years through December 31, 2013. The provision then again expired at the end of 2013, when the House and Senate adjourned after passing a two-year budget deal to avoid another government shutdown, but failed to act on legislation to extend qualified charitable distributions.
Temporary Extension Through 2014
Qualified charitable distributions are popular and enjoy bipartisan and bicameral support in Congress, but that has not made it any easier to make qualified charitable distributions permanent. In the post-election lame-duck session, House Ways and Means Committee Chairman Dave Camp (R-MI) and Senate Majority Leader Harry Reid (D-NV) reached a tentative agreement on a tax-extenders package that would have made permanent a number of expired tax provisions, including qualified charitable distributions. When the Obama administration threatened to veto the package, it became clear that chances to permanently extend any of the expired tax provisions—even with bipartisan support—was unlikely.
The House of Representatives then approved the Tax Increase Prevention Act of 2014 by a vote of 378-46, to provide a one-year extension of most of the expired tax provisions, including qualified charitable distributions. The Senate on December 16 by a vote of 76-16 approved the House-passed version of the Tax Increase Prevention Act that includes the qualified charitable distribution provision, and sent the bill to President Obama for his signature. The President signed the bill into law on December 19, extending qualified charitable distributions through December 31, 2014. As a result, qualified charitable distributions had a short life and are no longer permitted under current tax laws.
Future Extension Uncertain
IRA owners now must wait to see whether the 114th Congress will extend the legislation or make it permanent. But failure to make the provision permanent last year means that the future of qualified charitable distributions may now be tied to comprehensive tax reform.
There is a general agreement in Congress that continually extending these tax provisions on a temporary basis leads to uncertainty and is not good tax policy. At the start of the second session of the 113th Congress, House Ways and Means Committee Chairman Dave Camp (R-MI) and Senate Finance Committee Chairman Ron Wyden (D-OR) pledged to address the tax extenders issue, but they did so in very different ways. Chairman Camp’s approach was to review all of the tax provisions, and either make them permanent or eliminate them. Chairman Wyden’s approach was to extend expiring tax provisions through 2015 and then focus on comprehensive tax reform. Despite intense work in both committees, no action was taken on the tax extenders until the post-election lame-duck session, where the House and Senate agreed to a one year extension of expiring tax provisions.
The 114th Congress is now in session, and both the House Ways and Means Committee and the Senate Finance Committee have new chairmen. In the wake of the November elections, which resulted in an increased Republican majority in the House and the Republicans taking control of the Senate, both the President and congressional leaders have pledged to work together. President Obama and Senate Majority Leader Mitch McConnell (R-KY) both have stated that trade and tax policy are areas of potential bipartisan cooperation. Whether this includes action on qualified charitable distributions remains to be seen.
