Qualified charitable donations set to expire…again

‘Tis the season for giving, but Congress appears to be in a none-too-charitable mood when it comes to extending qualified charitable distributions (QCDs) from IRAs. Unless Congress acts soon to extend the legislation, QCDs will sunset on December 31, 2013, and will no longer be permitted under current tax laws.

Qualified Charitable Distribution

A QCD is a distribution of Traditional or Roth IRA taxable assets paid directly to a qualified charity. An IRA distribution qualifies if it is made after the IRA owner reaches age 70½ and the IRA owner could have deducted the contribution if it were made directly to the charity.

Distributions that are paid to the IRA owner are not eligible for QCD treatment, although the financial organization may provide the IRA owner with the check (made payable to the charity) for mailing or delivery to the charity. The annual limit on QCDs for an IRA owner is $100,000. For married couples filing a joint income tax return, the annual $100,000 QCD limit applies separately to each spouse.

A QCD can be used to satisfy the IRA owner’s required minimum distribution for the year, and an IRA beneficiary who has attained age 70½ also is able to make a QCD of the inherited IRA assets.

Temporarily Extended through December 31, 2013

QCDs 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. There were several attempts in 2010 to extend QCDs, 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 QCDs, from December 31, 2009, through December 31, 2011.

The provision then expired again at the end of 2011 when the House and Senate failed to act on legislation to extend the provision. As in 2010, there were several attempts in 2012 to extend QCDs, but it was not until January 2, 2013, when President Obama signed into law the American Taxpayer Relief Act of 2012—to avert tumbling off the “fiscal cliff”—that QCDs were extended for another two years, from December 31, 2011, through December 31, 2013. Now, less than one year later, the provision is again set to expire.

Legislation Required to Extend Again

QCDs are a very popular tax provision and enjoy strong bipartisan support in Congress, but that hasn’t made it any easier to extend the legislation or make it permanent. Currently, no legislation has been introduced in the House or Senate to extend QCDs. Extending expiring tax provisions does not even appear to be on the congressional radar screen.

Congress instead is focused on reaching a budget agreement that would avoid another government shutdown and the next round of sequester cuts that are scheduled to take effect on January 15, 2014. Given the short window of time for House Budget Committee Chairman Paul Ryan (R-WI) and Senate Budget Committee Chairwoman Patty Murray (D-WA) to reach a deal before Congress adjourns for the holidays, it is unlikely that QCDs will be extended before the provision expires at year-end. This means that come the New Year, credit unions may again be facing the same questions from their members regarding QCDs as they did two years ago.

Dennis Zuehlke is Compliance Manager for Ascensus in Middleton, Wisconsin. Mr. Zuehlke provides clients with technical support on tax-advantaged accounts (including individual retirement accounts, health savings accounts, simplified employee pension plans, and Coverdell education savings accounts), and information reporting and tax withholding issues. Mr. Zuehlke is a frequent national speaker on compliance-related issues and retirement savings trends within the financial services industry.

Mr. Zuehlke attended Marquette University and graduated from the University of Wisconsin. Prior to joining Ascensus, he held a similar position with the Credit Union National Association.

Ascensus delivers a full range of retirement plan services—including plan administration, plan design and maintenance, consulting, web-based tools and content, software solutions, education and training, forms and documents, and technical resources—to more than 9,000 financial organizations nationwide.