IR 2014-117

An IRS news release reminds eligible taxpayers that, thanks to the recently enacted Tax Increase Prevention Act (TIPA), they have until Wednesday, Dec. 31, 2014, to make qualified charitable distributions (QCDs) from their IRAs. Such distributions, available only to taxpayers age 70- 1/2 or older, aren’t taxable, but don’t yield a charitable deduction. They do count as required minimum distributions (RMDs).

Last minute tax break. TIPA, enacted Dec. 19, 2014, extended for 2014 the provision authorizing QCDs. (Code Sec. 408(d)(8)(F), as amended by Act Sec. 108(a)) Under pre-Act law, the provision had expired at the end of 2013.

QCDs aren’t subject to the general percentage limitations that apply for making charitable contributions since they aren’t included in gross income and can’t be claimed as a deduction on the taxpayer’s return. Since such a distribution isn’t includible in gross income, it doesn’t increase AGI for purposes of the phaseout of any deduction, exclusion, or tax credit that is limited or lost completely when AGI reaches certain specified levels.

As IR 2014-117 stresses, the funds must be transferred directly by the IRA trustee to the eligible charity in order to qualify as a QCD. The transfer must be made no later than Dec. 31, 2014. Distributed amounts may be excluded from the IRA owner’s income – resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A, may be taken for the distributed amount.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the RMD rules.

RIA observation: Taxpayers who haven’t yet taken their RMD for 2014 still have time to make the most of this retroactively extended tax break. If any amount distributed directly from a taxpayer’s IRA to an eligible charity no later than Dec. 31, 2014, at least equals the amount of his RMD for the tax year, the taxpayer will not be required to take any other 2014 distribution from the IRA.

IR 2014-117 also reminds taxpayers that:

  • Not all charities are eligible under the QCD rules. For example, donor-advised funds and supporting organizations are not eligible recipients.
  • Where individuals have made nondeductible contributions to their traditional IRAs, a special rule (at Code Sec. 408(d)(8)(D)) treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.
  • QCDs are reported on Form 1040 Line 15. The full amount of the QCD is shown on Line 15a (“IRA distributions”). Taxpayers are instructed not to enter any of these amounts on Line 15b (“Taxable amount”) but to write “QCD” next to that line.

References: For qualified charitable distributions (QCDs), see FTC 2d/FIN ¶ H-12253.2 ; United States Tax Reporter ¶ 4084.03 ; TaxDesk ¶ 143,003.02 ; TG ¶ 8516 .

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