Making Charitable Distributions from IRAs
Charitable distributions from an IRA provide a tax benefit for eligible senior citizens, but the rules can be tricky.
Any individual who it at least 70.5 years of age can make direct charitable gifts from his or her IRA. Gifts are capped at $100,000 and must be made to qualified public charities. It is important to note that the client does not receive a charitable deduction. Rather, the tax benefit is that the client is not paying income tax on the money distributed.
Practitioners should make sure that the distribution is made directly from the IRA’s administrator or trustee to the qualified charity. Remember that even though Donor Advised Funds are public charities, they don’t qualify as recipients for these distributions. And, the donor must receive NO benefit (not even a chicken dinner) or the entire distribution will be taxable.
To learn more, read Conrad Teitell’s September 25, 2017 article, “Tax-Free Direct Charitable/IRA Distributions” here.
Post by: Jillian Mastroianni
Avoiding Private Foundation 507(c) Termination Tax Means Less Pain for the Gain
Becky Farr Seidel of the Leaffer Law Group wrote a great piece recently for Bloomberg BNA’s Estates, Gifts and Trusts Journal addressing issues in terminating private foundations. Here are some salient points, and you can read the entire article here.
Unlike other 501(c)(3) entities, private foundations are subject to additional stringent regulations under Chapter 42 of the Code. For that reason, organizations that begin as private foundations may wish to terminate that status in the future.
Section 507(c) imposes a termination tax equal to the lesser of 100% of (1) the foundation’s net assets, or (2) all income, estate, and gift tax benefits received by the foundation and its substantial contributors when a foundation terminates its private foundation status either (1) involuntarily, where there have been willful, repeated violations of the private foundation rules; or (2) voluntarily, by notifying the IRS of its intent to terminate, setting forth the amount of the tax due.
There are ways to terminate without paying the tax. All of the net assets can be transferred to an institutional charity such as: a hospital, church, or school, which gets public charity status by virtue of the nature of their activities. The net assets can also be transferred to a publicly supported charity, as long as it meets one of two public support tests demonstrating that a substantial amount of support comes from the general public. Such transferee charity must have been in existence for a continuous period of at least 60 calendar months immediately preceding the distribution. A transfer to a donor advised fund held by a sponsoring organization that qualifies under Section 170(b)(1)(A)(vi) is also permissible without a termination tax.
Post by: Jillian Mastroianni
Guidance Issued for Private Foundations with Foreign Grantees
New guidance for private foundations from the IRS addresses treatment of foreign grantees. The groups may wish to treat grants to foreign grantees as qualifying distributions that satisfy the minimum distribution requirements rather than as expenditures requiring expenditure responsibility.
If a private foundation makes a “good faith determination” that a foreign grantee qualifies as a qualifying public charity, as defined in Revenue Procedure 2017-53, the grant will generally be a qualifying distribution that does not require expenditure responsibility in order to not be a taxable expenditure. A major development is that the new procedure supersedes Rev. Proc. 92-94, which allowed a private foundation to avoid expenditure responsibility if it had an equivalency determination, such as a grantee affidavit.
Post by: Jillian Mastroianni