Stacie's Tax Stuff

WASHINGTON — Certain owners of individual retirement arrangements (IRAs) have a limited time to make tax-free transfers to eligible charities and have them count for tax-year 2014, the Internal Revenue Service said today.

IRA owners age 70½ or older have until Wednesday, Dec. 31 to make a direct transfer of part or all of their IRA distributions to an eligible charity.

The Tax Increase Prevention Act, enacted Dec. 19, extended for 2014 the provision authorizing these qualified charitable distributions (QCDs). The provision had expired at the end of 2013. With this retroactive renewal, any eligible IRA distribution during 2014 properly transferred to a qualified charity counts as a QCD.

As a result, older IRA owners once again have a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer, tax-free, up to $100,000 per year to an eligible charity. This option, first available in 2006, can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRA plans and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA owner’s income – resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A, may be taken for the distributed amount.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution (RMD).

Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.

QCDs are reported on Form 1040 Line 15. The full amount of the QCD is shown on Line 15a. Do not enter any of these amounts on Line 15b but write “QCD” next to that line.

Every taxpayer has a set of fundamental rights. You should be aware of these rights when you interact with the Internal Revenue Service.

The “Taxpayer Bill of Rights” takes the many existing rights in the tax code and groups them into 10 broad categories. That makes them easier to find and to understand.

You can find a list of your rights and the IRS’s obligations to protect them in Publication 1, Your Rights as a Taxpayer. It includes the following:

1. The Right to Be Informed.
   Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.
2. The Right to Quality Service.
   Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS and to speak to a supervisor about inadequate service.
3. The Right to Pay No More than the Correct Amount of Tax.
   Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.
4. The Right to Challenge the IRS’s Position and Be Heard.
   Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.
5. The Right to Appeal an IRS Decision in an Independent Forum.
   Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.
6. The Right to Finality.
   Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.
7. The Right to Privacy.
   Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections, and will provide, where applicable, a collection due process hearing.
8. The Right to Confidentiality.
   Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.
9. The Right to Retain Representation.
   Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.
10. The Right to a Fair and Just Tax System.
    Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

The IRS is trying to increase the number of Americans who know and understand their rights under the tax law. To expand awareness, the IRS is making Publication 1 available in multiple languages on IRS.gov. This important publication is available in English, Chinese, Korean, Russian, Spanish and Vietnamese.

The IRS will include Publication 1 when sending notices to taxpayers on a range of issues, such as an audit or collection matter. All IRS facilities will publicly display the rights for taxpayers and employees to see.

The IRS released the Taxpayer Bill of Rights following extensive discussions with the Taxpayer Advocate Service. TAS is an independent office inside the IRS that represents the interests of U.S. taxpayers.

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Additional IRS Resources:

• Taxpayer Bill of Rights
• What the Taxpayer Bill of Rights Means for You
• IR-2014-72, IRS Adopts “Taxpayer Bill of Rights;” 10 Provisions to be Highlighted on IRS.gov, in Publication 1
• IR-2014-80, IRS “Taxpayer Bill of Rights” Now Available in 6 Languages; 10 Key Rights Outlined in Updated Publication 1
• Taxpayer Advocate Service