Teitell Urges More Favorable IRA Charitable Gift Rules

Removing the $100,000 cap on IRA charitable rollovers

Allow similar transfers to charitable gift annuities and charitable remainder trusts

Make the law permanent

Click “Further Reading” for the full text of the letter and the proposed bill.  The same letter was sent to House leaders.

BTW, Teitell is a former professor of mine, and a very entertaining speaker.  I’ll never forget how he incorporated a rubber chicken into a talk on income and estate rules relating to charitable giving!

December 29, 2008

The Honorable Harry Reid

Majority Leader

United States Senate

Washington, DC 20510

The Honorable Mitch McConnell

Minority Leader

United States Senate

Washington, DC 20510

The Honorable Max Baucus

Chairman

Finance Committee

United States Senate

Washington, DC 20510

The Honorable Charles Grassley

Ranking Member

Finance Committee

United States Senate

Washington, DC 20510

Dear Senators Reid, McConnell, Baucus and Grassley:

The American Council on Gift Annuities and the National Committee on Planned Giving petition the Congress to promptly enact legislation that would, during these troubled economic times, encourage and enable individuals to make charitable contributions from their Individual Retirement Accounts to charities that serve the American people.

American Council on Gift Annuities.

ACGA, formerly the Committee on Gift Annuities, formed in 1927, is an IRC §501(c)(3) organization described in IRC §170(b)(1)(A)(vi). ACGA’s board of directors are all unpaid volunteers. ACGA is sponsored by over 1,200 social welfare charities, health organizations, environmental organizations, colleges, universities, religious organizations and other charities. The Mission of ACGA is to “actively promote responsible philanthropy through actuarially sound charitable gift annuity rate recommendations, quality training opportunities and the advocacy of appropriate consumer protection.” American Council on Gift Annuities, 233 McCrea Street, Suite 400, Indianapolis, IN 46225. Phone: (317) 269-6271; Fax: (317) 269-6276; E-mail:<mailto:acga@acga-web.org></mailto:acga@acga-web.org>

acga@acga-web.org

.

National Committee on Planned Giving.

NCPG is a nonprofit organization that conducts research, provides education, and creates standards and best practice models in order to help charities and donors create the most productive charitable giving experiences. NCPG represents over 10,000 planned and major gifts officers for charities, fundraising consultants, attorneys, accountants, and financial planners. NCPG has a network of more than 130 local planned giving councils that provide community-based education. National Committee on Planned Giving, 233 McCrea Street, Suite 400, Indianapolis, IN 46225. Phone: (317) 269-6274; Fax: (317) 269-6276; E-mail: ncpg@ncpg.org<mailto:ncpg@ncpg.org>.</mailto:ncpg@ncpg.org>

Problem.

The economic crisis has resulted in significant decreases in charitable contributions to many charities. This is causing hardship to the individuals served and reduction in community services provided by those charities. At a time of high unemployment, the displacement of families and medical and educational needs for the children, families and seniors, the nation depends upon the leverage of volunteer organizations to meet those needs in cost effective and efficient ways. No segment of our society is in a better position to bring about major immediate positives change in the lives of citizens while being funded by private contributions.

Requested action.

We ask that the current law that encourages individuals to contribute to charities from their Individual Retirement Accounts for 2009 be expanded and be made permanent.

Current law.

For years 2006 through 2009, individuals age 70½ or older can make direct gifts from an IRA, including Required Minimum Distributions, of up to $100,000 for the year to public charities (other than donor advised funds and supporting organizations) and to private operating and pass-through foundations and they don’t have to report the IRA distributions as taxable income on their federal income tax returns.

A recent beneficial law has the unintended consequence of adversely affecting the people served by our nation’s charities.

The Worker, Retiree and Employer Recovery Act of 2008 (Public Law 110-458) waives the Required Minimum Distribution (RMD) rules for 2009. This is welcome relief. However, to encourage charitable gifts (as described below), many individuals can make tax-free distributions from their IRAs to qualified charities. That tax incentive has in 2006 through 2008 generated myriad charitable gifts. But that tax incentive is weakened and will, in many cases, be lost entirely for 2009 by the Worker, Retiree and Employer Recovery Act of 2008. We favor that law but ask that the charitable/IRA rollover rules be expanded as detailed below.

To further encourage charitable gifts in this time of economic crisis and to correct the unintended elimination, or reduction, of tax-encouraged charitable gifts from IRAs by the suspension of the RMD requirements for 2009, we ask the Congress to expand the current law:

• Remove the $100,000 ceiling on direct IRA contributions to charity; at the very least, increase the ceiling.

• Authorize tax-free IRA rollovers for life-income charitable gifts which would provide retirement income for the donors. The provisions of this proposed expansion of current law are detailed below. This expansion would not cost the Treasury anything and can, in fact, have a positive revenue effect. The charities benefit and its donors can retain retirement income. This would be all-win legislation. The Senate budget resolution for FY ’09 specifically dealt with extending the then expired IRA/charitable rollover law: “reinstatement of expired tax relief, such as enhanced charitable giving from individual retirement accounts, including life-income gifts” (emphasis supplied).]

• Make the tax-free IRA/charitable rollover permanent.

The expanded IRA rollover for life-income charitable gifts would allow an IRA rollover to three types of life-income plans.

A tax-free IRA rollover would be allowed for individuals age 59½ or older to benefit the same qualified donees as allowed for the direct rollover. The ability to roll over an IRA for a life-income gift enables charitable individuals to benefit charities in these troubled economic times and retain retirement income.

Types of life-income gifts that would qualify for the IRA/charitable rollover include the charitable remainder annuity trust, the charitable gift annuity with immediate payments and the standard-payout charitable remainder unitrust. Donors would not be allowed to assign their retained life interests.

Under these life-income plans, the IRA owner will be taxable on income received at ordinary income tax rates. Because the payouts are 5% or more, there will be more income paid with the charitable plans than under the normal payouts of the required minimum distribution rules. The higher payout amounts will produce greater tax revenue for the Treasury.

Why will IRA owners roll over gifts to life-income plans?

First, they wish to make charitable gifts to help those in need, while also receiving life income. Second, many donors are concerned about the extreme volatility of the markets and will be assured of a fixed payout from a gift annuity or annuity trust. Third, IRA donors who choose unitrusts will have a variable income for life.

Why would IRA owners not just give outright to charity (a direct gift) from an IRA as provided under current law?

Many IRA owners want to make charitable gifts, but also need retirement income. The life-income IRA rollover is an excellent way for donors of average resources to combine a charitable gift with retirement income. Many charities have donors who “are standing by” and wish to make life-income-charitable gifts from their IRAs.

Why should the life-Income IRA charitable rollover be included in an economic stimulus bill?

This provision is unique. There are many ideas to stimulate the economy, but they come with substantial cost to the Treasury. This proposal requires no Treasury funds because the cash flow needed comes from private funds that already exist in the hands of private citizens under the control of fund trustees.

The life-income IRA/charitable rollover will generate additional tax revenue for the Treasury — but because income payouts from the life-income plans are higher than the required minimum distributions it will also stimulate the economy. This provision combines helping the Americans served by our nation’s charities and provides positive revenue for housing assistance, feeding the hungry, jobs retraining, education, medical services and thousands of services that the American citizens, and your constituents, need today.

We ask for the opportunity to meet with Congressional staff to amplify this letter and to work with the staff in developing the requested legislation. A draft bill that provides for the requested legislation is enclosed.

The current IRA/charitable rollover law has stimulated myriad charitable gifts that would not otherwise have been made. We appreciate your consideration of this request for the law’s expansion.

Sincerely,

Lindsay L. Lapole, III

Chair of the Board

American Council on Gift Annuities

Tanya Howe Johnson

President and CEO

National Committee on Planned Giving

Enclosed: Draft bill

DRAFT BILL

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. 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

For purposes of this paragraph, so much of the aggregate amount of qualified charitable distributions with respect to a taxpayer made during any taxable year –

(i) which is made directly by the trustee to an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)) shall not be includible in gross income of such taxpayer for such taxable year, or

(ii) which is made directly by the trustee to a qualified split-interest entity for the benefit of an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)) shall not be includible in gross income of such taxpayer for such taxable year.

(B) QUALIFIED CHARITABLE DISTRIBUTION

For purposes of this paragraph, the term “qualified charitable distribution” means any distribution from an individual retirement plan (other than a plan described in subsection (k) or (p)) –

(i) which is made directly by the trustee to an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)), and which is made on or after the date that the individual for whose benefit the plan is maintained has attained age 70½, or

(ii) which is made directly by the trustee to a qualified split-interest entity for the benefit of one or more organizations described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)), and which is made on or after the date that the individual for whose benefit the plan is maintained has attained age 59½.

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).

(C) CONTRIBUTIONS MUST BE OTHERWISE DEDUCTIBLE

For purposes of this paragraph –

(i) a distribution to an organization described in subparagraph (B)(i) 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), or

(ii) a distribution to a split-interest entity described in subparagraph (B)(ii) shall be treated as a qualified charitable distribution only if a deduction for the entire value of the interest in the distribution for the benefit of an organization described in subparagraph (B)(ii) 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 have been so includible if all amounts in all individual retirement plans of the individual were distributed during such taxable year and all such plans were treated as 1 contract for purposes of determining under section 72 the aggregate amount which would have been so includible. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.

(E) SPLIT-INTEREST ENTITY DEFINED

For purposes of this paragraph, the term “split-interest entity” shall include –

(i) a charitable remainder annuity trust as defined in section 664(d)(1) which must be funded exclusively by a qualified charitable distribution, or

(ii) a charitable remainder unitrust as defined in section 664(d)(2)) which must be funded exclusively by one or more qualified charitable distributions, or

(iii) a charitable gift annuity as defined in section 501(m)(5) which must be funded exclusively by a qualified charitable distribution, and shall commence fixed payments of 5% or greater not later than one year from date of funding.

No person may hold an income interest in a charitable remainder annuity trust, a charitable remainder unitrust or a charitable gift annuity funded by a qualified charitable distribution other than one or both of the following: the individual for whose benefit the individual retirement plan is maintained and the spouse of such individual. Income interests in split-interest entities funded by qualified charitable distributions shall not be assignable.

(F) SPLIT-INTEREST ENTITY DISTRIBUTIONS

For purposes of this paragraph –

(i) notwithstanding section 664(b), distributions made from a trust described in subparagraph (E)(i) or subparagraph (E)(ii) 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), and

(ii) qualified charitable distributions made for the purpose of funding a charitable gift annuity shall not be treated as an investment in the contract under section 72(c).

(G) DETERMINING DEDUCTION UNDER SECTION 170

Qualified charitable distributions shall not be taken into account in determining the deduction under section 170.

(H) TERMINATION

This paragraph shall not apply to distributions made in taxable years beginning after December 31, 2009.

Conrad Teitell

Chairman, Charitable Planning Group

Cummings & Lockwood LLC

Six Landmark Square

Stamford, CT  06901

Phone: 203-351-4164

Right Fax: 203-708-3840

cteitell@cl-law.com<mailto:cteitell@cl-law.com></mailto:cteitell@cl-law.com>

Admitted in NY and DC