Fundraising Chaos Reigns As Estate Tax, IRA Expire

Charities might have another tool returned to their fundraising toolbox this year, but Congress first has to get through an agenda dominated by other issues. Like the estate tax, the IRA Charitable Rollover expired December 31, 2009 and fundraisers following activity in Congress are hopeful it could be extended in early 2010.

Representatives on The Hill have said they would extend the rollover when they got back from recess in mid-January, although no one expected the estate tax would be left to expire, either.

Independent Sector, a Washington, D.C.-based advocacy coalition for nonprofits, has pushed for Congress to take retroactive action, despite expectations that it would increase confusion for donors and push back possible contributions. If re-instated retroactively, the IRA charitable rollover provision will not be as effective and charities will be forced to incur additional expenses to inform investment advisors and potential donors of the changes.

The IRA Charitable Rollover allows individuals aged 701Ú2 and older to donate as much as $100,000 from their Individual Retirement Accounts (IRAs) and Roth IRAs to charity and not have it count as taxable income. Enacted in August 2006, the rollover was extended in October 2008 through 2009.

According to a survey of rollover contributions by the Partnership for Philanthropic Planning (PPP) in Indianapolis, Ind., there were 8,677 individual distributions, with a total value of more than $140 million, to some 900 charitable organizations during 2007, the most recent statistics available. Almost at one-third of the gifts were $1,000 or less and ranged between $1,000 and $5,000.  Approximately 60 percent of those gifts were to public universities, and almost 10 percent to junior colleges, Johnson said.

A PPP survey of organizations following the 2008 extension found 865 distributions totaling $16.5 million, with the largest percentage, about a third, again ranging between $1,000 and $5,000.

“Any uncertainty in the tax law hurts the public. It causes more expense as people try to find out more about it and charities have to explain it. Just the fact that there’s uncertainty is a negative,” said Richard Sills, a partner with the Washington, D.C., law firm Holland and Knight. “In the long run, the confusion this causes has got to be a negative factor,” he said.

When the IRA Charitable Rollover was first initiated, nonprofits viewed it as a good opportunity to talk to donors, said Tanya Howe Johnson, president and CEO of the PPP. “It was something new and interesting to talk about, another option to put in front of donors. It was something charities and advisors felt was important to educate donors about, and concentrated on doing that,” she said.

Donors had until Dec. 31 to take advantage of the rollover. When there is some advantage about to be taken away, sometimes there’s a flurry of activity by clients to take advantage of it while they still can, Sills said. “It’s a very short-lived benefit, if it’s a benefit at all,” he said.

The U.S. House of Representatives passed the Tax Extenders Act of 2009 (H.R. 4213) on Dec. 9, which would extend the IRA charitable rollover for 2010. Senate Finance Committee Chairman Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa) are expected to introduce legislation that will adopt the House bill, and make the rollover retroactive to Jan. 1.

“Of course, they don’t always do what they say they will do. Most people though expect they will extend that when they get back,” said Conrad Teitell, chairman of the Charitable Planning Group for Stamford, Conn.-based Cummings & Lockwood.

When Congress has extended the IRA Rollover in the past, it’s been done retroactively to the beginning of the year, according to Teitell, who previously has testified before the Senate Finance Committee on the estate tax.

Initially, both parties were hoping to get the extenders dealt with in the first three months of 2010, according to Johnson, but prior to the recess there was disagreement regarding how to deal with the offsetting costs.

Some are cautious of just how quickly Congress can act, given that they’ve been in the throes of healthcare reform debate for months and other terrorism has come back to the forefront after an attempted bombing of a Detroit-bound airplane on Christmas Day.

The PPP supports not just bringing back the IRA Charitable Rollover, but expanding it and making it permanent, rather than going through the extender process every few years.

Among the things they’d like to see:

  • Allow rollovers to be made to split-interest vehicles, such as annuities or charitable trusts;
  • Allow all charitable organizations to receive rollover gifts. Currently, donor-advised funds and supporting organizations can’t receive such gifts;
  • Eliminate, or at least increase, the $100,000 maximum rollover; and,
  • Allow outright gifts at 591Ú2 instead of 701Ú2. Identical legislation has been introduced in both houses, which would avoid the need for a conference committee, something Johnson said slowed down the process in the last Congressional session.  NPT