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JCT Explains IRA to Life Income QCD
Joint Committee on Taxation- Bluebook for the 117th Congress. JCS-1-23
GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN THE 117TH CONGRESS
TITLE III—SIMPLIFICATION AND CLARIFICATION OF RETIREMENT PLAN RULES
7. One-time election for qualified charitable distribution to split-interest entity; increase in qualified charitable distribution limitation (sec. 307 of the Act and sec. 408(d)(8) of the Code)
Page 417, Explanation of Provision
First, the provision indexes the annual $100,000 exclusion limit for inflation for taxable years beginning after 2023.
Second, the provision allows a taxpayer to elect for a taxable year to treat certain distributions from an IRA to a split-interest entity as if the contributions were made directly to a qualifying charity for purposes of the exclusion from gross income for qualified charitable distributions. Such an election may not have been in effect for a preceding taxable year; thus, the election may be made for only one taxable year during the taxpayer’s lifetime. The aggregate amount of distributions of the taxpayer with respect to the election may not exceed $50,000 (indexed for inflation for taxable years beginning after 2023).
A split-interest entity means: (1) a charitable remainder annuity trust (as defined in section 664(d)(1)); (2) a charitable remainder unitrust (as defined in section 664(d)(2)); or (3) a charitable gift annuity (as defined in section 501(m)). In each case, the trust or arrangement must be funded exclusively by qualified charitable distributions. In the case of a charitable gift annuity, fixed payments of five percent or greater must commence not later than one year from the date of funding.
In the case of a distribution from an IRA to a charitable remainder annuity trust or charitable remainder unitrust, the distribution qualifies for the one-time election only if a charitable deduction for the entire value of the charitable remainder interest would be allowable under section 170 (determined without regard to this provision or the charitable deduction percentage limits under section 170(b)). In the case of a distribution to a charitable gift annuity, the distribution qualifies for the one-time election only if a charitable deduction in an amount equal to the amount of the distribution reduced by the value of the annuity would be allowable under section 170 (determined without regard to this provision or the charitable deduction percentage limits under section 170(b)).
In addition, a distribution from an IRA to a split-interest entity qualifies for the one-time election only if: (l) no person holds an in come interest in the split-interest entity other than the individual for whose benefit such account is maintained, the spouse of such individual, or both; and (2) the income interest in the split-interest entity is nonassignable.
In the case of a charitable remainder annuity trust or a charitable remainder unitrust that is funded by qualified charitable distributions, distributions are treated as ordinary income in the hands of a beneficiary to whom an annuity or unitrust payment is made. A qualified charitable distribution made to fund a charitable gift annuity is not treated as an investment in the contract for purposes of section 72(c).
Effective Date
The provision is effective for distributions made in taxable years beginning after the date of enactment (December 29, 2022).
GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN THE 117TH CONGRESS
TITLE III—SIMPLIFICATION AND CLARIFICATION OF RETIREMENT PLAN RULES
7. One-time election for qualified charitable distribution to split-interest entity; increase in qualified charitable distribution limitation (sec. 307 of the Act and sec. 408(d)(8) of the Code)
Page 417, Explanation of Provision
First, the provision indexes the annual $100,000 exclusion limit for inflation for taxable years beginning after 2023.
Second, the provision allows a taxpayer to elect for a taxable year to treat certain distributions from an IRA to a split-interest entity as if the contributions were made directly to a qualifying charity for purposes of the exclusion from gross income for qualified charitable distributions. Such an election may not have been in effect for a preceding taxable year; thus, the election may be made for only one taxable year during the taxpayer’s lifetime. The aggregate amount of distributions of the taxpayer with respect to the election may not exceed $50,000 (indexed for inflation for taxable years beginning after 2023).
A split-interest entity means: (1) a charitable remainder annuity trust (as defined in section 664(d)(1)); (2) a charitable remainder unitrust (as defined in section 664(d)(2)); or (3) a charitable gift annuity (as defined in section 501(m)). In each case, the trust or arrangement must be funded exclusively by qualified charitable distributions. In the case of a charitable gift annuity, fixed payments of five percent or greater must commence not later than one year from the date of funding.
In the case of a distribution from an IRA to a charitable remainder annuity trust or charitable remainder unitrust, the distribution qualifies for the one-time election only if a charitable deduction for the entire value of the charitable remainder interest would be allowable under section 170 (determined without regard to this provision or the charitable deduction percentage limits under section 170(b)). In the case of a distribution to a charitable gift annuity, the distribution qualifies for the one-time election only if a charitable deduction in an amount equal to the amount of the distribution reduced by the value of the annuity would be allowable under section 170 (determined without regard to this provision or the charitable deduction percentage limits under section 170(b)).
In addition, a distribution from an IRA to a split-interest entity qualifies for the one-time election only if: (l) no person holds an in come interest in the split-interest entity other than the individual for whose benefit such account is maintained, the spouse of such individual, or both; and (2) the income interest in the split-interest entity is nonassignable.
In the case of a charitable remainder annuity trust or a charitable remainder unitrust that is funded by qualified charitable distributions, distributions are treated as ordinary income in the hands of a beneficiary to whom an annuity or unitrust payment is made. A qualified charitable distribution made to fund a charitable gift annuity is not treated as an investment in the contract for purposes of section 72(c).
Effective Date
The provision is effective for distributions made in taxable years beginning after the date of enactment (December 29, 2022).
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