IRS Clarification Regarding Charitable Donations

The IRS has issued a statement clarifying an otherwise confusing situation for retirees hoping to make charitable donations directly from an Individual Retirement Account (IRA).

The confusion began when Congress extended the timeframe to make a 2010 charitable donation from your IRA. The deadline should have been December 31, 2010 –but recognizing that their own delays had caused problems, Congress extended the deadline to January 31 of this year. The IRA charitable donation is a popular rule, which had expired at the beginning of 2010, allowing taxpayers age 70-1/2 or older to donate up to $100,000 a year of IRA assets directly to a charity. There is no deduction for the gift, but it doesn’t count as income and it can satisfy the Required Minimum distribution (or RMD).
The new law extends the rule, allowing seniors to make these 2010 charitable donations right up until January 31, 2011. However – many seniors had already taken their RMD before Congress acted, assuming the rule had expired. With the extension granted, some thought perhaps they could return their payout and make the charitable donation instead.

The IRS says no. There is no do-over allowed. The statement was released on January 5, citing the law which prohibits required payouts from being rolled back into an IRA for any reason. To quote The Wall Street Journal, “Translation: The IRS has no authority to allow taxpayers to roll their payouts back into their IRA and then make the allowed donation.”

Read more in the Journal online.  Be sure to check out our September 2010 e-newsletter, Charitable Opportunities.