Katrina Donations Raise Concern About IRA Gifts

A law that prompted an estimated $11-billion in charitable giving

in the months following Hurricane Katrina cost the U.S. Treasury more than $3-billion in tax revenue — far more than originally predicted. That drain on government coffers has some nonprofit officials worried that Congress might be unwilling to back a generous plan to expand another giving incentive — one that allows older people to give charities money from their individual retirement accounts tax-free.

A retirement-account break now in effect until December allows people aged 70 1/2 or older to transfer up to $100,000 annually from their IRA’s to charity.

The House and Senate have both introduced the Public Good IRA Rollover Act to make the break for IRA gifts permanent and allow people to donate as much as they want each year with no limits.

The legislation would expand the types of groups that could receive support — donors could transfer IRA gifts to foundations, donor-advised funds, and other entities that are now not eligible to receive the retirement-account money.

The legislation would also allow donors as young as 59 1/2 to put their IRA funds into charitable remainder trusts and other types of gifts that produce income for the donor for several years, with everything left eventually going to charity.

Lost Revenues

Last week, however, many lawmakers and fund raisers were surprised when a Treasury Department economist released figures showing that the Katrina Emergency Tax Relief Act of 2005 had cost the government at least $3-billion in taxes, more than three times the initial projection of some $800-million in lost tax revenues when the bill was passed.

Under the Katrina measure, donors could write off up to 100 percent of their income for charitable gifts made from August 28 to the end of the 2005 tax year. Congress passed the provision because it feared people who gave generously to hurricane-relief efforts could be forced to cut back on giving to other causes.

The estimates of how much the Katrina provision produced in tax write-offs could cause lawmakers to question estimates of how much the new IRA legislation would cost, some Congressional aides and fund raisers said.

And because lawmakers have pledged to offset tax losses with new taxes or by cutting spending, some Congressional aides have said that the IRA legislation could be jeopardized by its cost, or that lawmakers might pass a version that limited the types of gifts that could be made. They said they have requested but are still awaiting an analysis of how much the legislation would cost.

“My sense is that this will make it difficult to get a year’s extension [of the current law] and more difficult still to get a permanent IRA rollover,” said an aide to the Senate Finance Committee, which is now considering what to do with the legislation, which was introduced last month by Sen. Byron L. Dorgan of North Dakota, a Democrat, and Sen. Olympia Snowe, a Maine Republican.

The fact that the Katrina law worked to promote so much giving was good, said Robert F. Sharpe, a Memphis planned-giving consultant. “But as with any charitable tax measure, how much Congress can afford to give up is an open question. It may have to be dealt with with compromise and limits.”

$67-Million Given

The National Committee on Planned Giving, which is tracking IRA gifts by asking nonprofit groups to report them online, by last week had recorded 3,617 IRA charitable transfers totaling $67-million. Officials said that, because the gifts are being reported voluntarily, that figure represents only a “small sampling” of all IRA gifts made so far.

The Nature Conservancy has received 196 IRA gifts totaling more than $2.2-million.

“We are supporting the extension of the provisions and will be disappointed if they are not extended,” said Bridget Lowell, a spokeswoman for the charity. “The number of gifts in the short period of time clearly shows that individuals are motivated to make transfers to charity from their IRA’s.”

Other fund raisers urged Congress to look beyond cost in considering the IRA legislation.

“Don’t just look at revenues lost, but what the new giving opportunities accomplish in the way of services that the government would have to provide or would otherwise go unprovided,” said Jim Harris, director of planned giving at the University of Arkansas at Fayetteville, which got about $750,000 in IRA donations last year.

“Certainly there is a cost to the legislation,” he added, “but there is a huge benefit also.”