Charitable Private Foundation – Inherited IRA
My clients are the trustees of a Charitable Private Foundation, and file form 990-PF each year. One of the trustees dad passed away, and named the Charitable Private Foundation as the primary beneficiary of his IRA (about $150K). Is my assumption correct that when the Charitable Private Foundation takes a distribution from the IRA, the proceeds are NOT treated as taxable income? If indeed that’s the case, what’s the best way to handle the 990-PF if the distributing institution does indeed issue a 1099-R form for that distribution?
Thank you.
Permalink Submitted by Alan Spross on Mon, 2010-11-15 18:06
I cannot address the total question, but many private foundations that are required to file 990 PF are taxed on their investment income. If this is one of them, you need to determine if these IRA receipts need to be considered as investment income. If the 990 PF instructions do not address this and if you know the 1099R does not apply, just ignore it as the distributions would be tax free.
Permalink Submitted by Steve Feiertag on Mon, 2010-11-15 18:17
Yes, this Charitable Private Foundation does indeed pay 1% tax on its investment income. The instructions for the 990-PF seem to ignore IRA distributions received by the plan. As such, do IRA proceeds received by this Charitable Private Foundation count as income (or not)? Thank you.
Permalink Submitted by mk foss on Mon, 2010-11-15 19:30
On Form 990-PF – the first column is for the income and expenses per the books. The second column is investment income. The IRA distribution would be in the first column – I’d report it on the other income line. I would not report it in the investment income column.
For kiddie tax purposes, an IRA distribution is not investment income and I can’t think of a definition that would make it investment income for the foundation.
Permalink Submitted by Steve Feiertag on Mon, 2010-11-15 19:48
Mary Kay – Thank you VERY much.
Permalink Submitted by Alan Spross on Mon, 2010-11-15 22:28
Mary Kay,
Re kiddie tax – I thought that an inherited IRA distribution was subject to it, at least the 8615 Inst seems to result in that??? Uses gross income less earned income.
But even if it is investment income for kiddie tax, that would not necessarily make it so for the 990 PF.