Washington News

On January 22, 2013, the House of Representatives on a bipartisan vote passed the "No Budget, No Pay Act (H.R. 325)." Eighty-six Democrats and 199 Republicans voted for the three month extension of the federal debt limit. This will allow the nation to continue operating until late May.

The normal budget plan for the federal government is for the House and Senate to each pass a budget by April 15th. Under the act, if there is no budget the members of the House or Senate would not receive paychecks. Because the Senate has been unwilling to pass a budget for the past three years, the House is hopeful that this plan will result in both legislative organizations having completed the budget process by April 15th.

The White House indicated that its preference would be a "long-term increase in the debt limit," but that it would accept this bill since it removes the immediate threat to the finances of the federal government. The White House stated, "For these reasons, the administration would not oppose a short-term solution to the debt limit and looks forward to continuing to work with both the House and the Senate to increase certainty and stability for the economy."

The White House also noted that the 2011 Agreement creates $1.4 trillion in spending reductions. Together with the American Taxpayer Relief Act of 2012, which increases taxes by $600 billion and saves interest, the White House claims that the current deficit solution will save "more than $2.5 trillion over the next decade."

Senate Majority Leader Harry Reid (D-NV) indicated that he will attempt to pass the House bill. Senate Democrats have been discussing plans to produce a budget this year. Sen. Charles Schumer (D-NY) was on a Sunday media program and stated, "We Democrats have always intended to do a budget this year. Because in our budget that we will pass, we will lift tax reform, which many of my Republican colleagues liked, but it's going to include revenues."

Sen. Schumer and Senate Budget Committee Chair Patty Murray (D-WA) join with Sen. Reid and emphasize that the Democratic budget will include tax increases.

IRS Reporting for IRA Rollovers

On the IRS website, the IRS has now clarified the methods for reporting qualified charitable distributions (QCDs) as permitted under the American Taxpayer Relief Act of 2012 (ATRA). The guidance indicates the basic requirements for a QCD, the options for 2012 QCDs made in January of 2013 and the reporting specifics.

1. QCD Basic Requirements

A QCD is permitted for a distribution directly from an IRA custodian to a charity if the IRA owner is over age 70½. The maximum per year is $100,000 and the distribution may fulfill the required minimum distribution (RMD) for the IRA owner. Because the QCD allows the IRA owner to exclude that IRA distribution from taxable income, it is not permitted to also take a charitable deduction.

2. 2012 QCDs made in January 2013

Under ATRA, there are two possible options for converting a January 2013 IRA rollover into a 2012 QCD. The IRA owner may direct the custodian in January of 2013 to make a transfer directly to charity and qualify for a 2012 QCD. Alternatively, if an IRA distribution was received in December of 2012, a cash gift in January of 2013 may convert that distribution into a 2012 QCD.

The IRA owner must "keep records to substantiate the timing of contributions and distributions regarding any 2012 QCD made in January 2013."

3. Reporting on IRS Form 1040

The financial institution will report an IRA distribution on Form 1099-R. Distributions in December of 2012 that are converted into QCDs by a cash gift in January of 2013 will require reporting the 2012 QCD on line 15A of the 2012 IRS Form 1040. On line 15B, the letters "QCD" are entered and there is a zero inclusion amount.

The January 2013 QCD will be reported on IRS Form 1040 both for 2012 and for 2013. The 2013 QCD number could exceed $100,000 if a donor takes advantage of the January QCD option and makes a large subsequent QCD during the remainder of the year.