Tax advantages of charitable foundation as IRA beneficiary.In Letter Ruling 9341008, an individual proposed to establish a Sec. 509(a) private foundation that would qualify for exempt status as a charitable organization under Sec. 501(c)(3). She also proposed to make the foundation the beneficiary of her individual retirement accounts (IRAs). The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. National Office ruled that, if she took these steps, her estate would be entitled to a charitable contribution deduction charitable contribution deduction An itemized income-tax deduction for donations of assets to Internal Revenue Service-designated organizations. Certain qualifications on this deduction apply, such as a contribution limit of 50% of a taxpayer's adjusted for the fair market value (FMV FMV - full-motion video ) of the IRA Ira, in the Bible Ira (ī`rə), in the Bible. 1 Chief officer of David. 2, 3 Two of David's guard. IRA, abbreviation IRA. distributed to the charitable foundation, and that neither the estate nor its beneficiaries would be taxable on the IRA's proceeds. This means that her estate will be able to deduct an amount that has never been included in any taxpayer's income. In some respects, the ruling follows the longstanding rule that taxpayers generally receive the benefit of a charitable deduction equal to the FMV of the contributed property even though a portion of that value may represent appreciation that has gone untaxed Adj. 1. untaxed - (of goods or funds) not taxed; "tax-exempt bonds"; "an untaxed expense account" tax-exempt, tax-free nontaxable, exempt - (of goods or funds) not subject to taxation; "the funds of nonprofit organizations are nontaxable"; "income exempt . Until this letter ruling, however, it was not certain whether the IRS would follow this general principle if the contributed property was an IRA. IRAs generally attain their value through pretax contributions and untaxed earnings. The Service concluded that, when the IRAs are distributed to the foundation, the amounts that would have been taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. to the taxpayer if distributed to her will be income in respect of a decedent to the foundation (which of course is not taxable), but not to the decedent's estate or its beneficiaries. With respect to the tax consequences to the private foundation, the ruling concluded that the foundation will not be subject to the Federal excise tax on investment income when it receives the taxpayer's IRA. The ruling also mentioned Rev. Rul. 80-118, which held that a bequest of Series E bonds to a private foundation resulted in investment income when the bonds were redeemed by the foundation. As a planning matter, note that individuals must begin withdrawing from their IRAs when they reach the age of 70 1/2. This means that the amount of the charitable gift will decrease as the individual exceeds that age and makes the required withdrawals. From Eugene Nadel, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , J.D., New York, N.Y. |
|
||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion