Just as the swallows have returned to San Juan Capistrano, qualified charitable distributions (QCDs) from IRAs may return to the tax code as Congress considers a package that would extend a number of expired tax credits.
A QCD is a distribution of Traditional or Roth IRA taxable assets paid directly to a qualified charity. An IRA distribution qualifies if it is made after the IRA owner reaches age 70½ and the IRA owner could have deducted the contribution if it were made directly to the charity.
QCDs are very popular and enjoy strong bipartisan support in Congress, but that hasn’t made it any easier to extend the legislation or make it permanent. Instead, QCDs have been lumped together with nearly 50 other tax provisions that expire on a regular basis, and then Congress passes legislation to extend them, usually on a temporary basis.
QCDs were created by the Pension Protection Act of 2006 and were effective for tax years 2006 and 2007. This temporary provision was extended through 2009 by the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. The provision then expired at the end of 2009 when the Senate failed to act on a House bill to extend the provision. There were several attempts in 2010 to extend QCDs, but it was not until nearly a year later that President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which provided for a two-year extension of QCDs, from December 31, 2009, through December 31, 2011.
The provision then expired again at the end of 2011 when the House and Senate failed to act on legislation to extend the provision. As in 2010, there were several attempts in 2012 to extend QCDs, but it was not until January 2, 2013, when President Obama signed into law the American Taxpayer Relief Act of 2012—to avert tumbling off the “fiscal cliff”—that QCDs were extended for an additional two years, from December 31, 2011, through December 31, 2013. QCDs sunset on December 31, 2013, after Congress failed to pass legislation to extend the provision.
Many of the expired tax provisions are narrow in scope and benefit specific industries. But a number of tax provisions—such as the research credit—are important to the business community and there is strong bipartisan support for extending these provisions. With chances for comprehensive tax reform all but dead this year, Congress is now considering legislation to renew these tax provisions, known as “tax extenders,” in anticipation of comprehensive tax reform occurring at some point in the future.
With an eye toward future tax reform, the House and Senate are taking very different approaches to extending these tax provisions, and passage of legislation to extend QCDs is far from certain.
The Senate Finance Committee has taken an approach that would extend most of the tax provisions for two years, in anticipation that many of these provisions would be addressed as part of comprehensive tax reform. Newly-minted Senate Finance Committee Chairman Ron Wyden (D-OR) indicated that it makes no sense to let these tax incentives disappear without a comprehensive reform proposal to replace them.
By bipartisan voice vote, the Finance Committee passed the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act that extends most of the expired or expiring tax provision for two years. The EXPIRE Act includes a provision that would extend QCDs for two years, from December 31, 2013, through December 31, 2015. In announcing passage of the bill, Chairman Wyden stated that this will be the last time that “tax extenders” legislation is taken up as long as he remains chairman of the committee. Wyden noted that the bill is called the EXPIRE Act because it is meant to expire.
Unlike the Senate Finance Committee’s approach, House Ways and Means Committee Chairman Dave Camp (R-MI) announced that his committee would hold hearings with the goal of either making the tax provisions permanent, or allowing them to expire. The Committee subsequently reduced the list of “tax extenders” from more than fifty to just six, and approved legislation that would make these six provisions permanent. The provisions made permanent all had bipartisan support among committee members, and include the research credit, and other tax breaks that benefit small businesses. None of the other provisions—including QCDs—would be extended under the House Ways and Means Committee’s bill.
These two different approaches to the “tax extenders” will make it more difficult to reach a compromise. The Senate’s approach of extending most of the tax provisions for another two years is in sharp contrast to the House’s approach of making six of the provisions permanent and not extending any of the other provisions. Neither of the bills has come to the floor of either chamber for a vote and it remains to be seen how quickly that will occur. Even if they come to the floor for a vote, there is concern that some members will object to making only a few provisions permanent and allowing the others to expire.
Despite their popularity and strong bipartisan support, it remains to be seen whether Congress will extend QCDs or make them permanent. With mid-term elections on the horizon, Congress may try to pass a “tax extenders” bill before the election, or as in 2012, they could wait until after the election. And even then, there is no assurance that QCDs would be included in the package. In a mid-tem election year, where the stakes for both parties are high, the only certainty is uncertainty.
