Tax advantages of charitable foundation as IRA beneficiary.

• Author: Nadel, Eugene
• Position: Individual retirement account - Brief Article

In Letter Ruling 9341008, an individual proposed to establish a Sec. 509(a) private foundation that would qualify for exempt status as a charitable organization under Sec. 501(c)(3). She also proposed to make the foundation the beneficiary of her individual retirement accounts (IRAs).

The IRS National Office ruled that, if she took these steps, her estate would be entitled to a charitable contribution deduction for the fair market value (FMV) of the IRA distributed to the charitable foundation, and that neither the estate nor its beneficiaries would be taxable on the IRA's proceeds. This means that her estate will be able to deduct an amount that has never been included in any taxpayer's income.

In some respects, the ruling follows the longstanding rule that taxpayers generally receive the benefit of a charitable deduction equal to the FMV of the contributed property even though a portion of that value may represent appreciation that has gone untaxed.

Until this letter ruling, however, it was not certain whether the IRS would follow this general principle if the contributed property was an IRA. IRAs generally attain their value through pretax contributions and untaxed earnings. The Service concluded that, when the IRAs are...