By Laura Saunders
It’s official: Many taxpayers who were hoping to make charitable IRA donations for 2010 will not be able to do so.
The Internal Revenue Service has issued a statement saying that the law doesn’t allow taxpayers to return payouts taken last year in order to make direct charitable Individual Retirement Account donations for 2010.
The questions arose after lawmakers tucked a provision into the giant December tax package that retroactively extended the IRA charitable donation. This highly popular rule, which had expired at the beginning of 2010, allows taxpayers who are 70 l/2 or older to donate up to $100,000 per year of IRA assets directly to a charity. There’s no deduction for the gift, but it doesn’t count as income and it can satisfy the Required Minimum Distribution, or RMD, as I reported last month.
Lawmakers, recognizing that their own delays had caused problems, gave taxpayers until Jan. 31 of this year to make 2010 donations.
But the law did not address the predicament of those who wanted to make IRA donations last year but took required payouts instead, often at the last minute, because they were afraid Congress wouldn’t extend the law.
Taxpayers like Earl Kirk of Houston are still angry, however. Mr. Kirk says he “waited all year” to see if Congress would extend the provision. “I gave up on Dec. 12, five days before they acted, and made my contribution from taxable sources,” he wrote in an email. “The practice of extending tax rules two years at a time makes long-range planning impossible, and adds measurably to my fury with Congress.”
On Jan. 5, the IRS released a statement through a spokesman citing the law, which prohibits required payouts from being rolled back into an IRA for any reason. It added, “There’s no provision in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, nor any hint in the Committee Report for such RMD recontribution.” (See the full statement below.)
Translation: The IRS has no authority to allow taxpayers to roll their payouts back into their IRA and then make the allowed donation.
Experts expected this answer. “This won’t help the many who already took their 2010 RMDs,” says Blanche Lark Christerson, a managing director at Deutsche Bank Private Wealth Management. “But it does allow those who really want to help charities to double up in 2011, provided one of the gifts is made in January and they make the appropriate election.”
Readers, were you hoping to return payouts to make a charitable contribution? Or did you make a contribution from taxable income sources, like Mr. Kirk, just before the tax deal passed?
From IRS spokesman Eric Smith, Jan. 5, 2011.
“Required minimum distributions (RMD) from an IRA received by a taxpayer cannot be rolled over to an IRA. As noted on page 24 of the 2009 IRS Publication 590, Individual Retirement Arrangements, “Amounts that must be distributed during a particular year under the required distribution rules are not eligible for rollover treatment.” Moreover, there’s no provision in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act Of 2010, nor any hint in the Committee report for such RMD recontribution.”