It was with some relief that I watched President Obama sign the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 into law on Friday. Among the provisions that the Council was pleased to see was the extension of the IRA rollover, which allows individual donors to make distributions from an IRA account directly to charity. It was also a relief for many to see Congress finally (if only temporarily) address the great uncertainty surrounding charitable bequests when it reinstated the estate tax and fixed the rates and levels for the next two years.
But there are some disappointments with the IRA provision as well. For one, Congress continues to exclude donor advised funds from being eligible recipients of rollover gifts. This is in direct disregard not just for the popularity of those giving vehicles but also for their importance to donors and the communities they seek to support. Also, though giving individuals the ability to make a 2010 distribution in January 2011 is helpful, it misses the point for those who were unwilling to take the risk of waiting until the last week of December to take their mandatory minimum distribution and have already withdrawn those funds from their accounts. For them, there is no way to redeposit the money or make a transfer to charity now to avoid being taxed on the income.
As for the estate tax, it is clear from the research on the subject that the existence of an estate tax that includes deductions for charitable giving is an important source of support for the nonprofit community. It also is clear that some level of certainty about what the rates will be is critical for individuals to engage in thoughtful estate planning. Two years is not exactly long-term certainty (the law fixes the rates for estates created in 2010 though 2012). However, the fact that the issue went unresolved until the end of 2010 was a travesty.
There is also some debate about the effect the estate tax provisions will have on giving. Some fear the historically high exemption levels ($5 million for individuals and $10 million for couples) and low rate (35 percent) represent a significant threat to charitable giving. Other research suggests that lower rates actually could result in increased giving to charities. With only a two-year window before these new provisions expire, and with Congress poised to at least consider significant reforms to the tax structure, there likely isn’t enough time to figure out which theory is correct. In the meantime, I am certain that there will be flurry of estate and income tax planning, as donors seek to adapt their plans to take advantage of the new rules.
For a thoughtful analysis of both the IRA and the estate tax provisions and their implications on charitable giving, see http://sharpenet.com/whitepaper.pdf.
Andrew Schulz is vice president, government relations and public policy of the Council on Foundations