Maximize Your Benefits with an IRA Charitable Gift
Published October 17, 2025
October is a great month to consider an IRA charitable gift in 2025. A charitable gift from an IRA could reduce or eliminate income tax on your 2025 tax return.
- IRA Required Minimum Distribution – If you are 73 or older and have a traditional IRA, you must take a required minimum distribution (RMD) and pay income tax on the distribution. As you grow older, your RMD amount and your taxes usually increase. Once traditional IRA owners reach their mid to late 80’s, they sometimes find themselves taking large distributions which then requires them to pay significant income taxes. With larger IRAs, many owners maximize tax-free growth by waiting until the end of the year to take their RMD.
- IRA Charitable Rollover – A good way to avoid paying income tax on distributions from traditional IRAs is to make a gift to charity directly from your IRA. The Internal Revenue Service (IRS) refers to the IRA charitable rollover as a qualified charitable distribution (QCD). An individual over 70½ is permitted to make a QCD from his or her IRA to a qualified charity. The QCD is not included in taxable income. If the IRA owner is over 73, the distribution may also fulfill part or all of their RMD.
- How to Make a QCD Gift – Many custodians require a QCD to be paid from a money market account or similar fund. Because many individuals have invested their IRAs in stocks, bonds or other securities, it may be necessary to exchange the IRA stock or bond accounts for a money market fund prior to the distribution. Because the equity markets are at high levels, some individuals may choose to transfer funds from equities to a money market fund now to prepare for their IRA charitable rollover.
- Rules on the IRA Charitable Rollover – There are some limits to using the IRA rollover as a charitable gift. The IRA owner must be at least 70½ and the maximum transfer amount in 2025 is $108,000. The transfer must be to a qualified exempt charity and may be designated for a specific purpose or field of interest fund. However, QCDs may not be to a donor advised fund or a supporting organization. In addition, QCDs may not be used for a ticket to a charity dinner or other event that involves a partial benefit to the donor because it is required that the entire QCD be for a qualified charitable purpose.
"Mad Comedian" Nonprofit Exemption Denied
In Coaches 101 a NJ Nonprofit v. Commissioner; No. 8630-23X; T.C. Memo. 2025-106, the Tax Court determined that a nonprofit was properly denied exempt status because it failed the operational and private inurement tests.
Coaches 101 (Coaches) was incorporated on March 20, 2007, in New Jersey. Omar Dyer was the registered agent, incorporator and initial member of the board of trustees. The corporation claimed its purpose was to provide "children the right education to play in sports," and that it was "organized exclusively for charitable purposes." The corporation also created the My Plan Challenge Foundation Fund. Members of the board of directors were required to have "direct lineage to Omar Dyer and his immediate family."
Coaches was dormant until July of 2020. During the COVID-19 pandemic, Dyer filed IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3).
The application stated Coaches “was basically organized to act as the license holder of Omar Dyer as a literary agency." The My Plan Challenge Foundation Fund was an entity to promote a fictional character named the “Mad Comedian.”
Dyer changed status "from a volunteer to actual employee getting wages." The organization created a Profit Sharing Program (PSP) that allowed Dyer to use all profits for “profit-sharing.”
On October 30, 2020, the State of New Jersey reinstated Coaches as a business organization. However, on April 5, 2023, the IRS issued a final adverse determination that Coaches did not qualify for Section 501(c)(3) status. The IRS stated that the endeavors of Coaches "involve a substantial amount of commercial activities including the sale of merchandise (sneakers, books, etc [sic]), marketing services (including advertising services with a $9.99 subscription fee), media production, stock investing, and insurance services." Because the entity was clearly providing inurement and private benefit to Dyer, it was not qualified to be tax exempt.
Organizations are exempt under Section 501(c)(3) if they are organized and operated exclusively for charitable purposes. No part of the net earnings of the organization may benefit a private shareholder. These tests are referred to as the "organizational and operational tests." The operational test is based on the primary activities, the distribution of earnings and whether the organization is acting for charitable purposes. A nonprofit will not be qualified if more than an insubstantial part of its activities are not in furtherance of the exempt purpose. Reg. 1.501(c)(3)-1(c)(1).
A single substantial nonexempt purpose precludes exemption. Coaches was involved in multiple nonexempt purposes. These involved selling tickets to live events, selling credits for autographing of merchandise, selling subscriptions to the My Plan Challenge, selling option contracts, selling books and CDs and other for-profit business enterprises.
One commercial endeavor was to sell Mad Comedian shoes for $189 per pair. These shoes were created by Dyer to "celebrate Mad Comedian's life on social media." The My Plan Challenge Foundation set a goal to sell $1,000,000 worth of products. There was also a plan to monetize short films and music videos.
Coaches claimed that it did engage in some nonprofit activities. It helped host an event for children and wrote recommendation letters for high school students. However, the modest level of charitable endeavors did not change the primary focus of the organization, which was commercial activities.
In addition, a nonprofit must not have net earnings that may inure to the benefit of private shareholders. Reg. 1.501(c)(3)-1(c)(2). Coaches was essentially the license holder of Omar Dyer as a literary agent. The funds raised were transferred in substantial amounts back to Dyer. Because earnings flowed to founder Dyer, there was substantial private inurement.
Since the commercial operations failed the operational test and there was private inurement, the Mad Comedian nonprofit did not qualify for exempt status.
DC Shutdown Deadlock Continues
Neither political party has changed their positions during the federal government shutdown which commenced on October 1, 2025. A major issue of contention is the healthcare credits that are scheduled to expire on December 31, 2025.
The Senate recently held its tenth vote to attempt to reach a 60-vote threshold to reopen the government. While there have been Democratic senators who voted with the Republicans, there is a need for five more Democratic senators to vote to open the government. During the ten votes in the past two weeks, there has been no change by any senator from one side to the other.
Senators are at a stalemate regarding a continuing resolution to fund the government. Until an agreement can be reached, the shutdown is expected to continue. While the two parties continue to negotiate the key issues, many commentators are estimating that this may be the longest shutdown in history.
The healthcare credits were increased during the COVID-19 pandemic. The Affordable Care Act (ACA) reduced the cost of health insurance for many individuals. However, the enhanced healthcare credits are set to expire on December 31. The individuals covered by ACA provisions will face significant premium increases.
Senate Majority Leader John Thune (R-SD), and Senate Minority Leader Charles Schumer (D-NY) have not been able to agree on a date to vote on extending the tax credit. House Speaker Mike Johnson (R-LA) noted that there is no "guarantee” on an outcome for that vote in the Senate.
Both the House and the Senate are likely to feel significant political pressure in the near future. ACA enrollees will soon start to be notified of the 2026 premium increases. Fifteen House Republicans have co-sponsored a bill to extend the enhanced premium credit through 2026. Many Democratic senators have not signed on, due to the proposed legislation being only a one-year extension.
There will be additional pressure on Congress because many federal workers are working without pay or have been furloughed. Many air traffic controllers are calling out sick rather than work without pay. This could reduce the ability of the air traffic system to maintain commercial airline flights. The administration was able to find additional funds to pay the military on October 15. However, both the military and federal workers are likely to miss paychecks at the end of October if the government shutdown continues.
Editor's Note: The One Big Beautiful Bill Act (OBBBA) has hundreds of tax changes that take effect on January 1, 2026, and many that are already in effect. The tax changes require significant updating of the IRS systems and the tax filing forms. With about one-half of the IRS furloughed, it is going to be difficult to update the computers, prepare and publish the required new forms in order to have a smooth tax filing season in 2026. Professional advisors should be prepared for potential challenging times ahead.
Applicable Federal Rate of 4.6% for November: Rev. Rul. 2025-21; 2025-45 IRB 1 (15 October 2025)
The IRS has announced the Applicable Federal Rate (AFR) for November of 2025. The AFR under Sec. 7520 for the month of November is 4.6%. The rates for October of 4.6% and September of 4.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2025, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”
