Eaton Peabody

An Overview of the Charitable Benefit Provisions of the Pension Protection Act of 2006 – August 2006

This Client Alert is being sent to you to inform you of several key charitable provisions of the Pension Protection Act of 2006, which was recently signed by the President.
·  Tax-Free Distributions from IRA’s for Charitable Purposes

For 2006 and 2007, there is an exclusion from gross income for otherwise taxable distributions from traditional or Roth IRA’s so long as the distribution is a “qualified charitable distribution”. A “qualified charitable distribution” is one that is made directly by the IRA trustee to eligible charitable organizations and is made on or after the date the IRA owner attains age 70 ½. Special rules apply in the event the owner has an IRA with nondeductible contributions.<BR?
Distributions that are excluded under this provision are not taken into account in determining the individual’s deduction for charitable contributions.
·  Basis Adjustment to Stock of S Corporation Contributing Property

Under prior law, in the event an S Corporation contributed money or property to a charity, each shareholder would take into account his/her pro rata share of the contribution in determining his/her own income tax liability and would reduce his/her basis in the S Corporation stock by the amount of the charitable contribution that flowed through to him/her. Under the Act, for contributions made in 2006 and 2007, the amount by which a shareholder reduces his/her basis in the S Corporation stock will be equal to his/her pro rata share of the adjusted basis of the contributed property. For many shareholders, this will mean that the shareholder will be left with a higher basis in his/her S Corporation stock and thus may receive more tax-free distributions and may deduct more S Corporation losses.
·  Basis Conservation Contributions

For 2006 and 2007, the 30% contribution base limitation on contributions of capital gain property by individuals does not apply to qualified conservation contributions. Rather, individuals will be able to deduct the fair market value of qualified conservation contributions to qualified charitable organizations to the extent of the excess of 50% of the contribution base over the amount of all other allowable charitable contributions. Any excess amounts may be carried forward for up to 15 years.
·  Excise Tax Reform

For tax years beginning after the enactment date of the Act, the amount of excise taxes attributable to certain activities of exempt organizations is doubled.
·  Recordkeeping Changes

For contributions made during tax years beginning after the enactment date, the Act requires that for contributions of money any amount, the donor must keep a copy of a cancelled check, bank record, or receipt from the donee showing the name of the organization, and the date and amount of the contribution.

·  Changes in Information Reporting

For periods beginning after 2006, those organizations who need not file annual information returns due to the fact that their gross receipts are less than $25,000 must file an annual notice with the IRS showing certain basic contact and financial information. Further, organizations required to file Form 990-T must make the form available for public inspection for returns filed after the enactment date of the Act.

If you would like further information please contact Christine Worthen or Nat Putnam, both shareholders in Eaton Peabody's Tax Practice Group.

This alert is provided as general information, and is not a substitute for legal or other professional advice.