Category Archives: Taxation

Charitable IRA Rollover Revived

Happy New Year!

Courtesy of
Courtesy of
Passed on January 1, 2013, the American Taxpayer Relief Act of 2012 renewed charitable giving from individual retirement accounts (IRAs) for those 70-and-a-half or older.

If you were practicing Planned Giving a few years ago, this is deja vu. All the requirements are the same as in 2010, and there are two add-ons.

This is an IRA distribution, not a rollover. A rollover is a transfer from one retirement account to another retirement account.

What we have here is a distribution to charity. I use the vernacular in my title because that’s what people search for.

From here on I’m calling this a qualified charitable distribution, the exact designation in the Act.

Please recognize that my analysis is based on my reading of the American Taxpayer Relief Act of 2012, without the benefit of IRS rulings, tax court decisions or other official guidance that has yet to come. I am not providing tax, accounting or legal advice. Donors must consult their own advisors to determine whether, and how, to make a charitable gift.

Here are the requirements for a qualified charitable distribution:

  1. Your donor is at least 70 1/2 years old on the date of gift and yours is a 501(c)(3) charity (supporting organizations are not included; nor are donor advised funds)
  2. The IRA is a traditional or Roth
  3. Maximum $100,000 per donor per year in qualified charitable distributions
  4. The distribution is direct from IRA to charity
  5. The full value of the gift would be eligible for an income tax charitable deduction if it were not a qualified charitable distribution
  6. The amount distributed would be included in gross income if it were not a qualified charitable distribution

Numbers 1-4 are straightforward and what I recommend using in promotional materials. Also drop in these two points if you have space:

First, the amount of the gift counts toward an IRA required minimum distribution, or RMD. Lots of people (though not as many as in 2007 and years before) are required to take more from IRAs than they need. This provision helps them reduce that dilemma.

Second, the amount of the distribution to charity is not included in federal gross income, so it’s exempt from federal income tax.

Important Fine Print
Numbers 5 and 6 have nuances that are more appropriate to an article than a blog. They are the primary reasons your materials include a disclaimer that you’re not providing tax or legal advice and donors must consult their own advisors. The first four are secondary reasons for your disclaimer, because there are ins-and-outs in those, too.

I will make an important point on #5. It precludes using this to buy a ticket to your dinner or an auction item; buy anything from your charity; or fund a charitable gift annuity or charitable trust. None of these are 100% deductible for federal income tax purposes. Raffle tickets are precluded because no part of the amount paid is a charitable contribution for federal income tax purposes. (They may be deductible losses if the person has gambling winnings, but we’re not going there.)

New From 2010
The two additions from the 2010 version are (subject to 1-6 above):
— Your donors can can make qualified charitable distributions before February 1 and count them toward 2012
— If donors took IRA distributions in December, they can count any portion of them as 2012 qualified charitable distributions. Their gifts need to get to you before February 1 to grab this opportunity. (You may disregard #4 for this.)

A Download For You
Here’s an easy one-pager I put together for you to share with your board; use in promo materials; excerpt for an email blast; carve up for a newsletter sidebar; and generally use for your charity as you like.

Getting Donors Started

It’s easy. They tell their IRA custodian they want to make a qualified charitable distribution to your charity. Share your tax ID number. Donors will need it to fill out a form.

Take advantage of this immediate-cash planned gift. It’s a valuable way to start the year and gives you a timely, newsy reason to talk to prospects.


Nearly 1000 NYC Charities Lose Tax Exemption

Late last week, The Chronicle of Philanthropy and The New York Post reported that 925 New York City charities lost their property tax exemption because they failed to demonstrate a legitimate charitable purpose to the city’s Department of Finance.

According to The Post, one of the challenged charities, American Youth Hostel, plans to appeal because it has been a recognized charity since 1934, presumably relying on the IRS’s determination that bestows tax-exempt status.

Not long ago, that federal 501(c)(3) charitable designation would have been sufficient to stave off a local or state inquiry into whether tax-exempt status is warranted. No longer.

My hypothesis is that as New York City scrambles for new revenue sources, tax-exempt charities are in Finance’s sights.

That was the case last August when The New York Time’s Stephanie Strom (whose coverage of the national philanthropy beat I sorely miss), reported California charities coming under scrutiny.

Last Friday for Tony Martignetti Nonprofit Radio I interviewed Paul Clolery, editor-in-chief at The Nonprofit Times, at a fundraising conference. He’s concerned about corporations in California, so called “B Corps” that provide a public benefit, eventually appealing to the state for tax exemption proportional to the percentage of revenue (or some other formula) that is devoted to charitable work. (Video of the interview isn’t available yet, but will link it here when it’s ready.)

As charities on both coasts lose exempt status, would that not be a harsh irony?

There are a few wake up calls for charities. You’ve got to stay true to the work that got you the charitable designation from IRS. Relying on a description of your work that’s decades or generations old won’t suffice. Also, stay in compliance with regulations. I can see a failure to adhere to state or local laws being tied to maintaining tax advantages.

Tell me if you’ve seen other instances of states or cities challenging tax-exempt status.

IRS Filing Prompts Charity Registration Compliance

Last week I used Mary J. Blige’s foundation as an example of a noncompliant charity and opened an explanation of why it’s important to register your charity in each state where it solicits donations.

Here’s a motivation I didn’t mention last week: IRS Form 990.

If you’re required to file Form 990 annually, rather than one of the shorter annual forms like 990-EZ or 990-N (the postcard), then you’re answering questions about whether your charity is complying with state registration laws.

The alternate forms for smaller charities (based on gross receipts and/or total assets) don’t inquire about that.

For 990 filers, take a look at Part VI, question 17. (Use the link above to view the form.) It asks you to, “List the states with which a copy of this Form 990 is required to be filed.” Submitting the form is a basic request in every state registration regimen.

If you’re required to register in a state, you are required to submit the 990. (I speculated last week that not having its 990 ready may be why Ms. Blige’s charity hadn’t kept up with its New York registration.)

Charities required to file Schedule G of the 990 (who’s required?) will have their interest piqued by Part I, question 3: “List all states in which the organization is registered or licensed to solicit contributions or has been notified it is exempt from registration or licensing.”

That’s straightforward reporting of your compliance with state laws.

To blatantly nitpick, there is another possibility beyond registration and notification of exemption. Many states allow you to decide for yourself that you’re exempt. You won’t get notified by those states.

This is all quite interesting. A federal agency’s form asking about your compliance with state laws. Might that information be shared with states? I don’t see evidence that it is now, but I have heard rumblings about greater cooperation between IRS and state charities bureaus.

To round out your 990 thrills, the form is signed under penalty of perjury by an officer. It best be filled out honestly.

Our IRS Is Helping You

I feel bad for the Internal Revenue Service. It’s disliked because it collects taxes and feared because it enforces tax collection. Loathed and feared is no way to go through life.

But IRS has programs to help 501(c)(3) charities. Their website, IRS Stay Exempt, has courses, webinars and other resources for new and existing organizations, as well as “in-depth topics.” Here are four that cover areas I know charities struggle with:

Applying for Tax Exemption (Teaches a lot in just under 17 minutes. The Q & A dialogue is hokey, as an enormous bureaucracy tries to be accessible and friendly; kudos for trying.)

Unrelated Business Income (Learn from Coach, a self-assured “knowledgeable and straight-talking IRS agent.” He’s also modest. You can also learn from Gene Takagi and Emily Chan, legal contributors to my radio show. We covered UBI last August.)

403(b) Retirement Plans for Employees (If you work for a charity, you may have one of these plans as part of your employee benefits. I find many people don’t know what they have, even as they’re contributing to it.) (12m)

403(b) Retirement Plans for Employers (How to keep this part of your benefits package in compliance.) (13m)

I’m not an IRS insider. I’m more on the fear-and-loathing end. I learn about IRS offerings by getting their Exempt Organization Update emails. You can subscribe here.

Learn more. Loathe less.

Nonprofit Radio for August 19, 2011: Explaining Earned Income and Leading the Leaders: Motivate Your Board to Fundraise

Big Nonprofit Ideas for the Other 95%

You can subscribe on iTunes and listen anytime, anyplace on the device of your choice.

Tony’s Guests:

Gene Takagi and Emily Chan
Gene Takagi & Emily Chan: Explaining Earned Income

Our legal contributors, Gene Takagi and Emily Chan of the Nonprofit & Exempt Organizations Law Group, break down what earned income is. Why it can be good. Why it can be bad. Why you need to understand it to keep your office out of trouble.



Kerry Kruckel Gibbs
Andy Robinson
Andy Robinson & Kerry Kruckel: Leading the Leaders: Motivate Your Board to Fundraise

From the Fund Raising Day conference in New York City, consultant Andy Robinson and Kerry Kruckel, Vice President for Development and Communications at WNET TV, reveal how to move your board to be the best fundraisers they can be.


Here is the podcast: 055: Explaining Earned Income & Leading the Leaders: Motivate Your Board to Fundraise

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