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IRA Rollover Signed Into Law

(Aug. 18, 2006) On Thursday, Aug. 17, President Bush signed into law a pension reform bill that includes several giving incentives, including the IRA rollover provision.

The IRA rollover provision included in the pension reform bill provides an exclusion from gross income for certain distributions of up to $100,000 from a traditional individual retirement account (IRA) or a Roth IRA, which would otherwise be included in income. The provision is effective for two years through 2007, and only applies to donors age 70½ and older.

For nearly a decade, AFP has been one of the leading organizations pushing for passage of the IRA rollover.

Fundraising strategies and plans will need to be immediately adjusted to account for the new IRA rollover provision, which applies only to tax years 2006 and 2007 under the new provision.

“The version of the IRA rollover in the pension bill is not a perfect one, but it is definitely a foot in the door,” said Paulette V. Maehara, CFRE, CAE, president and CEO of AFP. “AFP will immediately begin working with Congress to see the provision made permanent. We’ll also encourage lawmakers to extend the provision to younger donors and to allow for planned gifts.”

According to Maehara, it is estimated that there are more than a trillion dollars in IRAs, and the rollover provision is expected to increase giving by billions of dollars annually. “It will have a huge impact,” she continued, “so I think we’ll have ample evidence at the end of 2007 that the provision is a huge incentive for giving and should be made permanent.”

Other Giving Proposals

The pension reform bill contains other charitable giving provisions, including:

  • Enhanced charitable deduction for donations of food
  • Extension of the charitable deduction for donations of books to include public schools
  • Basis adjustment to stock of S corporations contributing property
  • Increased deduction for certain contributions of land for conservation purposes

At the same time, the legislation includes a number of charitable reforms, including:

  • Doubling the excise tax on certain prohibited “insider” activities by charities, social welfare organizations, private foundations and exempt organization managers
  • Requiring that donated clothing and household items be in at least “good, used” condition
  • Modifying recordkeeping requirements for certain charitable contributions
  • Allowing the Internal Revenue Service (IRS) to share information with state charity officials

A complete list and explanation of the charitable giving items in the pension reform bill is available here.

Impact of Reforms

“While we’re not pleased with some of the reforms, most of them are minor relative to the increased contributions that the IRA rollover and other provisions will bring in,” Maehara added. “But I want to stress that consideration of these issues is not yet finished.”

According to Maehara, Congress is likely to take up a technical corrections bill in the fall that will make alterations to provisions in the pension reform legislation. If that occurs, AFP will speak with lawmakers about changing some of the reforms so that they don’t unduly impact well-meaning donors and charities.

Maehara noted that empirical data indicate that there is not widespread abuse in the charitable sector and that the new proposals are unnecessary. Information collected by the FBI, the Federal Trade Commission, state attorneys general and even watchdog groups such as the Better Business Bureau shows that reports of charity fraud are less than 1 percent of all complaints of fraud. In addition, a recent study found that, of the 94 abuses cited by the Senate Finance Committee during its June 2004 hearing on charity oversight, 92 of those abuses could have been addressed by current laws, regulations and reporting requirements.

“Clearly, there are effective laws and regulations already in place to regulate charities,” Maehara said. “In most cases, we don’t need new laws. What we need is effective enforcement of current laws.”

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