The American Taxpayer Relief Act of 2012 (the “Act”), signed into law by President Obama on January 2, 2013, extends favorable tax treatment for qualified charitable distributions made from IRAs (”Individual Retirement Accounts”).
The Act extends, for 2012 and 2013, the tax-free treatment of IRA distributions of up to $100,000 where the distributions are donated to a qualified charitable organization and the IRA beneficiary is at least 70 ½ years old at the time of the distribution. For purposes of this tax provision, a qualified charitable organization is a public charity. Distributions to private foundations, donor advised funds, and supporting organizations are specifically excluded.
While qualified charitable distributions typically need to be made directly from an IRA to a qualified charitable organization for the income exclusion to apply, the Act permits individuals to elect to treat cash distributions received in December 2012 by an IRA beneficiary as qualified charitable distributions as long as the funds are donated to a qualified charitable organization before February 1, 2013.
The Act also permits a taxpayer to elect to have qualified charitable distributions made in January 2013 treated as made in 2012, thereby allowing such distributions to satisfy an individual’s 2012 required minimum distribution (up to $100,000). However, in order for the election to be made, the distribution must be made directly from an IRA to a qualified charity. This election can be the saving grace for individuals who neglected to take a required minimum distribution in 2012 and would otherwise be subject to a penalty of 50%.
If you have questions or are interested in making either of the elections, please contact your Farella Braun + Martel attorney, Barbara Murphy or Evan Abrams quickly, as action needs to be taken no later than January 30, 2013.