Monday, January 10, 2011
Punishing Good Deeds: 2010 RMD's Cannot Be Re-Directed Towards Charitable Contributions, IRS Spokesman Says
The Service recently missed an easy opportunity to correct a Congressional mistake by not allowing taxpayers who had previously received a required minimum distribution from their IRA an opportunity to re-do the distribution to the benefit of taxpayers and charities. The Wall Street Journal explained the problem in a January 7, 2011 article:
The questions arose after lawmakers tucked a provision into the giant December tax package that retroactively extended the IRA charitable donation. This highly popular rule, which had expired at the beginning of 2010, allows taxpayers who are 70½ or older to donate up to $100,000 a year of IRA assets directly to a charity. There isn't a deduction for the gift, but it doesn't count as income and it can satisfy the Required Minimum Distribution, or RMD. (See Tax Report, Dec. 18, 2010.) Lawmakers, recognizing that their own delays had caused problems, gave taxpayers until Jan. 31 of this year to make 2010 donations. But the law didn't address the predicament of those who wanted to make IRA donations last year but took required payouts instead, often at the last minute, because they were afraid Congress wouldn't extend the law.
Surely, the Service would allow a do-over for those taxpayers who took an RMD to avoid any penalties but who otherwise would have avoided taxation by making a charitable contribution instead. Yes, Congress should have said so, but this would not be the first time Congress left the details to the Service, thinking the Service would take the reasonable route. Alas, according to IRS spokesperson Eric Smith, (whose statement was issued on January 5, 2011):
"Required minimum distributions (RMD) from an IRA received by a taxpayer cannot be rolled over to an IRA. As noted on page 24 of the 2009 IRS Publication 590, Individual Retirement Arrangements, "Amounts that must be distributed during a particular year under the required distribution rules are not eligible for rollover treatment." Moreover, there's no provision in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act Of 2010, nor any hint in the Committee report for such RMD recontribution."
Of course, nobody is talking about a rollover. The issue is whether the extension to January 31, 2011 will do any good for what has got to be the majority of taxpayers who decided not to wait until the last minute to get their tax house in order, only to find that being prudent and timely will cost them (and charities) money). Here, a case of no good deed goes unpunished!