Earlier this week, the U.S. Senate passed the Pension Protection Act of 2006. This Act was previously passed by the House of Representatives, and is on its way to President Bush for signature. The Act is quite voluminous, and contains many technical pension provisions. The Act also contains many provisions of wider interest, relating to IRA's and retirement plans, charitable contributions, and charitable exempt organizations. Some of these provisions include:
-increased contribution limits to IRAs and other qualified plans, that were due to expire, are now made permanant.
-direct rollovers from qualified plans to Roth IRAs are now allowed.
-non-spouse beneficiaries of a deceased participant's IRA or qualified plan can now make a trustee to trustee transfer to an IRA which will be treated as an inherited IRA. This important provision extends to non-spouse beneficiaries a valuable option that previously was only available to surviving spouses. Prior to this change, a non-spouse beneficiary was generally either required to distribute the inherited IRA either within 5 years, or elect to start taking distributions over the beneficiary's life expectancy.
-an annual IRA distribution of up to $100,000 made directlly to a qualified charitable organization (which does not include supporting organizations described in Code Section 509(a)(3)) can be made without the IRA owner being taxed on the distribution. The effort to enact such a provision has been ongoing for many years. By treating such distributions as not being taxable, numerous pitfalls of taking a distribution (and the income) and then seeking a charitable contribution by a subsequent contribution to charity are avoided. The provision applies, however, only if the IRA owner is over age 70 1/2. The contribution must still meet contribution rules (other than charitable contribution percentage limitation rules), such as obtaining proper substantiation and not receiving a benefit from the charity in the exchange. If the IRA has nondeductible contributions in it, special computation rules will apply.
-increased penalties for split-interest trusts failing to properly file returns.
-enhanced charitable deductions for contributions of food that is held in inventory of a business making the contribution.
-enhanced deductibility of charitable conservation easements.
-increased penalties for self-dealing, excess benefit transactions, failures to distribute income, excess business holdings, jeopardy investments and taxable expenditure excise taxes applicable to charitable organization transactions.
-recapture of tax benefits to donors of tangible personal property who took a fair market value deduction for the contribution to a charitable organization and the organization disposed of the property within 3 years of the contribution (for contributions over $5,000).
-limitation on charitable deduction for clothing and household items that are not in good used condition (or better condition).
-new limits on contributions of fractional interests in property (including recapture of tax benefits relating to a contribution if the entire property is not contributed within 10 years of the initial fractional contribution).
-expansion of definition of gross investment income for purposes of tax on such income imposed on private foundations.
-exempt organizations that are exempt from filing Form 990's must now electronically provide a notice to the IRS of such status. Failure to provide this notice for 3 years will result in revocation of exempt status.
-limitations on charitable contributions for some donor advised funds, and numerous regulatory provisions relating to donor advised funds.
-enhanced regulatory provisions for charitable supporting organizations.
While many of the new charitable provisions are aimed at specific abuses, the volume of changes and enhanced regulation will add more complexity to the charitable area and will add to the regulatory burdens of charitable organizations and their advisors.
-increased contribution limits to IRAs and other qualified plans, that were due to expire, are now made permanant.
-direct rollovers from qualified plans to Roth IRAs are now allowed.
-non-spouse beneficiaries of a deceased participant's IRA or qualified plan can now make a trustee to trustee transfer to an IRA which will be treated as an inherited IRA. This important provision extends to non-spouse beneficiaries a valuable option that previously was only available to surviving spouses. Prior to this change, a non-spouse beneficiary was generally either required to distribute the inherited IRA either within 5 years, or elect to start taking distributions over the beneficiary's life expectancy.
-an annual IRA distribution of up to $100,000 made directlly to a qualified charitable organization (which does not include supporting organizations described in Code Section 509(a)(3)) can be made without the IRA owner being taxed on the distribution. The effort to enact such a provision has been ongoing for many years. By treating such distributions as not being taxable, numerous pitfalls of taking a distribution (and the income) and then seeking a charitable contribution by a subsequent contribution to charity are avoided. The provision applies, however, only if the IRA owner is over age 70 1/2. The contribution must still meet contribution rules (other than charitable contribution percentage limitation rules), such as obtaining proper substantiation and not receiving a benefit from the charity in the exchange. If the IRA has nondeductible contributions in it, special computation rules will apply.
-increased penalties for split-interest trusts failing to properly file returns.
-enhanced charitable deductions for contributions of food that is held in inventory of a business making the contribution.
-enhanced deductibility of charitable conservation easements.
-increased penalties for self-dealing, excess benefit transactions, failures to distribute income, excess business holdings, jeopardy investments and taxable expenditure excise taxes applicable to charitable organization transactions.
-recapture of tax benefits to donors of tangible personal property who took a fair market value deduction for the contribution to a charitable organization and the organization disposed of the property within 3 years of the contribution (for contributions over $5,000).
-limitation on charitable deduction for clothing and household items that are not in good used condition (or better condition).
-new limits on contributions of fractional interests in property (including recapture of tax benefits relating to a contribution if the entire property is not contributed within 10 years of the initial fractional contribution).
-expansion of definition of gross investment income for purposes of tax on such income imposed on private foundations.
-exempt organizations that are exempt from filing Form 990's must now electronically provide a notice to the IRS of such status. Failure to provide this notice for 3 years will result in revocation of exempt status.
-limitations on charitable contributions for some donor advised funds, and numerous regulatory provisions relating to donor advised funds.
-enhanced regulatory provisions for charitable supporting organizations.
While many of the new charitable provisions are aimed at specific abuses, the volume of changes and enhanced regulation will add more complexity to the charitable area and will add to the regulatory burdens of charitable organizations and their advisors.
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