August 18, 2006
Aldersgate United Methodist Church,
On August 17, 2006, the President signed
into law the Pension Protection Act of 2006. As its title
suggests, the Act primarily is concerned with employee pension plans.
However, the Act also contains important tax law changes that could
significantly impact your donors and the amounts they contribute to your
organization in 2006 and 2007. The purpose of this letter is to alert
you to 2 of the 24 charitable incentive/reform provisions contained in
the Act. You should consult with your tax and legal advisors regarding
how each of the provisions of the Act could impact your organization.
1. Non-taxable IRA distributions to
Charity. The Act permits up
to $100,000 to be contributed each year directly to charity (as
described in IRC §170(b)(1)(A)) for the 2006 and 2007 tax years without
having to include the distribution in gross income. The distribution to
charity applies toward the donor's required minimum IRA distribution. To
qualify, the following conditions must be met:
a)
the IRA owner must be at least 70~ on the date of the transfer;
b)
the check must be written to the qualifying nonprofit(s) by the
IRA custodian;
c)
the distribution must otherwise have been includible in the
donor's gross income; and
d)
the distribution must qualify under the general charitable
deduction rules of IRC §170.
Donors who meet the above conditions
have until the end of the year to complete a tax-free IRA transfer for
2006. However, since the check must come directly from the IRA
custodian, unless a donor intends to distribute more than the donor's
required minimum distribution, the donor must communicate with his or
her IRA custodian before the donor's required minimum
distribution is processed for this year.
2. Modification of Donor
Recordkeeping Requirements.
This provision requires donors who contribute money in any amount
to maintain a cancelled check, bank record or receipt from the donee
organization showing the name of the organization, the date of the
contribution and the amount contributed. This recordkeeping requirement
applies to donors who itemize deductions beginning in 2007. Current
rules requiring substantiation (a contemporaneous, written
acknowledgement of the contribution by the donee organization) for
charitable contributions of $250 or more will continue to apply.