The American Taxpayer Relief Act reinstated a provision permitting individuals to distribute funds from an individual retirement account directly to a charity, known as a qualified charitable distribution. The provision for qualified charitable distributions (QCD) had expired at the end of 2011. The American Taxpayer Relief Act (ATRA) reinstated the qualified charitable distribution provision retroactively for 2012 and was extended through the end of 2013.
A qualified charitable distribution is a distribution of funds from an individual retirement account (IRA) directly to a 501(c)(3) charitable organization. Individuals age 70.5 years old or older are permitted to make such distributions. Normally, the distribution occurs by being directly transferred to the charity from the IRA trustee. Qualified charitable distributions from an IRA are not included in the taxpayer's taxable income, and the taxpayer does not take a deduction for the charitable donation. Up to $100,000 per year may be treated as a tax-free qualified charitable distribution. Further, qualified charitable distributions satisfy the required minimum distribution rules.
Since the qualified charitable distribution provision had been expired for the entire year of 2012 before being retroactively reinstated by ATRA, some individuals might not have made any qualified charitable distributions. ATRA provides two transition rules so that taxpayers wanting to make a qualified charitable distribution and have that apply retroactively for the year 2012.
Option 1. Individuals can make a qualified charitable distribution between January 1, 2013, and before February 1, 2013 by directing their IRA trustee to transfer funds from an IRA directly to a qualified charity. If done by January 31, the distribution will count as a qualified charitable distribution for 2012.
The IRS states, "An IRA owner can treat a contribution made to a qualified charity in January 2013 as a 2012 QCD .... [if] the contribution is paid directly from the IRA to the charity, provided that the contribution would have been a 2012 QCD if it had been paid in 2012."
Option 2. Individuals can contribute funds to charity between January 1, 2013, and before February 1, 2013, in an amount not in excess of any IRA distribution taken after November 30, 2012, and before January 1, 2013. That donation would then qualify the individual to exclude from income that portion of the IRA distribution as a qualified charitable distribution. In other words, an individual can donate cash to charity in January 2013 in an amount up to IRA distributions from December 2012, thereby turning the December distribution into a qualified charitable distribution.
The IRS states, "An IRA owner can treat a contribution made to a qualified charity in January 2013 as a 2012 QCD .... [if] the contribution is a cash contribution to the charity of all or a portion of an IRA distribution made to the IRA owner in December 2012, provided that the contribution would have been a 2012 QCD if it had been paid directly from the IRA to the charity in 2012."
The IRS also recommends, "IRA owners should keep records to substantiate the timing of contributions and distributions regarding any 2012 QCD made in January 2013." The IRS has also advised IRA trustees on how to report qualified charitable distributions on Form 1099-R for the years 2012 and 2013.
Reference material about qualified charitable distributions:
ATRA section 208, which reinstates the QCD provision for 2012 and 2013, reads as follows:
SEC. 208. EXTENSION OF TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL
RETIREMENT PLANS FOR CHARITABLE PURPOSES.
(a) IN GENERAL.--Subparagraph (F) of section 408(d)(8) is
amended by striking ''December 31, 2011'' and inserting ''December
(b) EFFECTIVE DATE; SPECIAL RULE.--
(1) EFFECTIVE DATE.--The amendment made by this section
shall apply to distributions made in taxable years beginning
after December 31, 2011.
(2) SPECIAL RULES.--For purposes of subsections (a)(6),
(b)(3), and (d)(8) of section 408 of the Internal Revenue Code
of 1986, at the election of the taxpayer (at such time and
in such manner as prescribed by the Secretary of the
(A) any qualified charitable distribution made after
December 31, 2012, and before February 1, 2013, shall
be deemed to have been made on December 31, 2012,
(B) any portion of a distribution from an individual
retirement account to the taxpayer after November 30,
2012, and before January 1, 2013, may be treated as a
qualified charitable distribution to the extent that--
(i) such portion is transferred in cash after the
distribution to an organization described in section
408(d)(8)(B)(i) before February 1, 2013, and
(ii) such portion is part of a distribution that would
meet the requirements of section 408(d)(8) but for the
fact that the distribution was not transferred directly
to an organization described in section 408(d)(8)(B)(i).
- IRS.gov, Charitable Donations from IRAs for 2012 and 2013
- IRS.gov, IR-2013-6, Tax-Free Transfers to Charity Renewed For IRA Owners 70½ or Older; Rollovers This Month Can Still Count For 2012
- Michael Kitces, Special 2012 Lookback Rules To Make A Qualified Charitable Distribution (QCD) From An IRA In 2013
- The Slott Report, New IRS Guidance on Qualified Charitable Distributions
- AccountingWeb, Last Shot at IRA Gifts to Charity for '12