Kevin Fromer, Treasury assistant secretary for legislative affairs, in response to an inquiry from a constituent of Sen. George Allen, R-Va., has clarified the tax treatment and reporting obligations of IRA trustees when charitable contributions are made directly from an IRA. Treasury has advised that although the plan administator will properly report charitable distributions on Form 1099-R, there will be a procedure on the 2006 Form 1040 for taxpayers who are eligible under the new PPA provision to exclude such amounts from their income.
Full Text:Dear Senator Allen:
Enclosed is a copy of my letter of September 9, 2006 to * * * who are the Trustee for my IRA. I requested a Tax-Free Distribution be made to * * *. The terms of the recently enacted Pension Protection Act of 2006 provide for my doing this. However, when I talked on the telephone to * * * of * * * on September 9th, he indicated the amount withdrawn would, in fact, appear on my 1099-R report for the year 2006, because they are required to do so by the IRS. Thus, it would not be tax-free, but would be counted as income on my tax return. Due to the intransigence of * * *, I have been working, to no avail, to make a charitable contribution to * * *.
I have been quite frustrated in my attempts with * * * to apply the principles expressed in the Pension Protection Act, to take proper action as my IRA Trustee, that would have the effect of validating the will of the Congress expressed in the Pension Protection Act, for which you voted approval on August 3rd.
I am requesting you to take quick action -- particularly given the short time frame within which this transaction can be done -- to have the Treasury Department report on the exercise of its regulatory authority over IRA trustees who are improperly applying the new provision, and for Congress to quickly enact any technical corrections to the Pension Protection Act that might be necessary in order to impose on IRA trustees the obligation to recognize the new law.
I shall greatly appreciate any help you can offer me and I look forward to your reply. Thank you.
Dear Mr. Trustee:
In accord with the Pension Protection Act, Title XII -- Provisions Relating to Exempt Organizations, Subtitle A -- Charitable Giving Incentives, Section 1201 Tax-Free Distribution From Individual Retirement Plans for Charitable Purposes, recently enacted by the United States Congress, I would like to make a Distribution of One Thousand Dollars ($1,000.00) from my * * * IRA account (#nnnn / nnnnnnnnnnnn) to the Educational Foundation of * * *
Their Non-Profit Status Tax ID is: nn- nnnnnnn.
Their address: * * *
Please send me the appropriate documents that require my signature, so this charitable distribution can be made.
Specifications of the Charitable Giving Incentives section indicate this Act has a period that is limited and quite narrow in time span. I would, therefore appreciate your prompt attention to my request, so this Distribution can be successfully completed, without my incurring added Taxable Income on my * * * 2006 1099-R statement.
Yours truly,Enclosed is correspondence from my constituent in reference to a matter involving your agency.
Your immediate attention and expeditious assistance with the requests and concerns expressed in this case would be greatly appreciated.
Please reply in duplicate to my office at 507 East Franklin Street, Richmond, Virginia 23219 and return the enclosure. Should you need to reach my office, please call (804)771-2221. In your reply, please reference * * *
Thank you so much for your assistance to my constituent.
With warm regards, I remain
November 2, 2006
The Honorable George Allen
507 East Franklin Street
Richmond, VA 23219
Dear Senator Allen:
Thank you for forwarding the letter from your constituent * * * requesting assistance for making a distribution from her IRA directly to a charitable organization. After consulting with the Office of Tax Policy, I want to provide you with the following response to your letter.
* * * is understandably concerned that, if her IRA custodian reports the distribution at the end of the year on a form 1099-R, it will be taxable to her, contrary to the new provision in the Pension Protection Act of 2006 (PPA) allowing tax-free distributions from IRAs directly to charities for individuals who have attained age 70 1/2.
However, * * * custodian is correct that the distribution should be reported as a regular distribution on Form 1099-R. The 2006 Form 1099-R and procedures for completing and filing that form for 2006 were finalized long before the enactment of PPA. However, not all amounts reported as regular distributions on Form 1099-R are subject to income taxation. Thus, there will be a procedure on the 2006 Form 1040 for taxpayers who are eligible under the new PPA provision to exclude direct distributions to charities from their IRA. [emphasis added]
I hope this information addresses your constituent's concern. However, if there are further questions, please contact Tom Reeder (202,622-1341), Benefits Tax Counsel at the Department of the Treasury.