House Ways and Means Committee Chairman Charles Rangel’s (D-N.Y.) tax reform bill (H.R. 3970), unveiled last month, would extend a number of charitable incentives that were set to expire in 2007, including one that would allow direct contributions from IRAs to charitable organizations. The bill would extend for one year tax-free distributions from IRAs of up to $100,000 per taxpayer per taxable year.
Various charitable incentives were included in the Pension Protection Act of 2006 (Pub. L. No. 109-280), including one to allow tax-free donations to charities from IRAs by taxpayers aged 70 1/2 or older. The law covered donations to churches and public charities, but excluded donations to foundations, donor-advised funds, supporting organizations and split interest vehicles such as remainder trusts.
The extension would not be expanded to permit rollovers to donor-advised funds and private foundations. Moreover, the bill is not as generous as the “Public Good IRA Rollover Act of 2007.” That bill, which was introduced in both the House (H.R. 1419) and Senate (S. 819), would have expanded the provisions to gifts made to other types of charitable organizations. It also would have applied to gifts of more than $100,000 and would have allowed donors to begin making gifts starting at age 59 1/2 rather then 70 1/2.
However, Rangel’s bill at least would be a temporary fix. The bill would allow modification of unrelated business income tax (UBIT) rules for certain investment partnerships so that pension funds, universities and other tax-exempt entities could directly invest in hedge funds and other investment funds without incurring UBIT. Recent congressional hearings highlighted criticisms of hedge funds, and there has been some interest in changing the rules to prevent universities from using the entities to reduce what otherwise would be taxable income on endowments. The bill would solve the problem by allowing investments in these hedge funds without generating taxable income and having to use tax-planning blocker entities. The bill also would extend for one year the current law on special rules for interest, rents, royalties and annuities received by a tax-exempt entity from a controlled entity.
If a subsidiary pays rent, royalties or interest to its parent, any amount that is in excess of fair market value generally will be treated as unrelated business income to the parent. Absent the provision in the bill, the entire payment could be treated as unrelated business income.
Finally, the bill would extend for one year the current law increasing contribution limits and carryforward periods for donations of appreciated real property (including partial interests in real property) for conservation purposes.