Provides gross income tax exclusion for distributions from individual retirement accounts to qualified charitable organizations.

A1290

ASSEMBLY, No. 1290

STATE OF NEW JERSEY

222nd LEGISLATURE

�

PRE-FILED FOR INTRODUCTION IN THE 2026 SESSION

Sponsored by:

Assemblyman MICHAEL INGANAMORT

District 24 (Morris, Sussex and Warren)

Co-Sponsored by:

Assemblywoman Fantasia

SYNOPSIS

���� Provides gross income tax exclusion for distributions
from individual retirement accounts to qualified charitable organizations.

CURRENT VERSION OF TEXT

���� Introduced Pending Technical Review by Legislative
Counsel.

��

An Act
providing gross income tax exclusion for distributions
from individual retirement accounts to qualified charitable organizations, and
amending N.J.S.54A:5-1 and P.L.1998, c.57.

����
Be It
Enacted
by the Senate and General Assembly of
the State of New Jersey:

���� 1.��� N.J.S.54A:5-1 is amended
to read as follows:

���� 54A:5-1.� New Jersey Gross
Income Defined.� New Jersey gross income shall consist of the following
categories of income:

���� a.���� Salaries, wages, tips,
fees, commissions, bonuses, and other remuneration received for services
rendered whether in cash or in property, and amounts paid or distributed, or
deemed paid or distributed, out of a medical savings account that are not
excluded from gross income pursuant to section 5 of P.L.1997, c.414
(C.54A:6-27).

���� b.��� Net profits from
business.� The net income from the operation of a business, profession or other
activity after provision for all costs and expenses incurred in the conduct
thereof, determined either on a cash or accrual basis in accordance with the
method of accounting allowed for federal income tax purposes but without
deduction of the amount of:

���� (1)�� taxes based on income;

���� (2)�� a civil, civil
administrative, or criminal penalty or fine, including a penalty or fine under
an administrative consent order, assessed and collected for a violation of a
State or federal environmental law, an administrative consent order, or an
environmental ordinance or resolution of a local governmental entity, and any
interest earned on the penalty or fine, and any economic benefits having
accrued to the violator as a result of a violation, which benefits are assessed
and recovered in a civil, civil administrative, or criminal action, or pursuant
to an administrative consent order.� The provisions of this paragraph shall not
apply to a penalty or fine assessed or collected for a violation of a State or
federal environmental law, or local environmental ordinance or resolution, if
the penalty or fine was for a violation that resulted from fire, riot,
sabotage, flood, storm event, natural cause, or other act of God beyond the
reasonable control of the violator, or caused by an act or omission of a person
who was outside the reasonable control of the violator; and

���� (3)�� treble damages paid to
the Department of Environmental Protection pursuant to subsection a. of section
7 of P.L.1976, c.141 (C.58:10-23.11f) for costs incurred by the department in
removing, or arranging for the removal of, an unauthorized discharge upon the
failure of the discharger to comply with a directive from the department to
remove, or arrange for the removal of, a discharge.

���� c.���� Net gains or income
from disposition of property.� Net gains or net income, less net losses,
derived from the sale, exchange or other disposition of property, including
real or personal, whether tangible or intangible as determined in accordance
with the method of accounting allowed for federal income tax purposes.� For the
purpose of determining gain or loss, the basis of property shall be the
adjusted basis used for federal income tax purposes, except as expressly
provided for under this act, but without a deduction for penalties, fines, or
economic benefits excepted pursuant to paragraph (2), or for treble damages
excepted pursuant to paragraph (3) of subsection b. of this section.

���� A taxpayer's net gain or loss
on the sale, exchange or other disposition of a share of an S corporation shall
be calculated by increasing the adjusted basis of the share by an amount equal
to the shareholder's net losses and deductions in respect of the share allowed
and deducted from income for federal income tax purposes, not including any
personal net operating loss deductions, to the extent that such net losses were
not offset by the taxpayer's pro rata share of S corporation income otherwise
subject to taxation pursuant to subsection p. of this section in respect of
another S corporation, subject to rules of priority and assignment determined
by the director.

���� For the tax year 1976, any
taxpayer with a tax liability under this subsection, or under the "Tax on
Capital Gains and Other Unearned Income Act," P.L.1975, c.172 (C.54:8B-1
et seq.), shall not be subject to payment of an amount greater than the amount
he would have paid if either return had covered all capital transactions during
the full tax year 1976; provided, however, that the rate which shall apply to
any capital gain shall be that in effect on the date of the transaction.� To
the extent that any loss is used to offset any gain under P.L.1975, c.172, it
shall not be used to offset any gain under the "New Jersey Gross Income
Tax Act," N.J.S.54A:1-1 et seq.

���� The term "net gains or
income" shall not include gains or income derived from obligations which
are referred to in clause (1) or (2) of N.J.S.54A:6-14 of this act or from
securities which evidence ownership in a qualified investment fund as defined
in section 2 of P.L.1987, c.310 (C.54A:6-14.1).� The term "net gains or
income" shall not include gains or income derived from the sale or
assignment of a tax credit transfer certificate pursuant to section 7 of
P.L.2011, c.149 (C.34:1B-248) and section 10 of P.L.2014, c.63 (C.34:1B-251)
from any sale or assignment of a tax credit issued pursuant to an award of tax
credits approved by the New Jersey Economic Development Authority prior to July
1, 2018, regardless of when such sale or assignment occurs.� The term "net
gains or net income" shall not include gains or income from transactions
to the extent to which nonrecognition is allowed for federal income tax
purposes.� The term "sale, exchange or other disposition" shall not
include the exchange of stock or securities in a corporation a party to a
reorganization in pursuance of a plan of reorganization, solely for stock or
securities in such corporation or in another corporation a party to the
reorganization and the transfer of property to a corporation by one or more
persons solely in exchange for stock or securities in such corporation if
immediately after the exchange such person or persons are in control of the
corporation.� For purposes of this clause, stock or securities issued for
services shall not be considered as issued in return for property.

���� For purposes of this clause,
the term "reorganization" means--

���� (i)��� A statutory merger or
consolidation;

���� (ii)�� The acquisition by one
corporation, in exchange solely for all or part of its voting stock (or in
exchange solely for all or a part of the voting stock of a corporation which is
in control of the acquiring corporation) of stock of another corporation if,
immediately after the acquisition, the acquiring corporation has control of
such other corporation (whether or not such acquiring corporation had control
immediately before the acquisition);

���� (iii) The acquisition by one
corporation, in exchange solely for all or part of its voting stock (or in
exchange solely for all or a part of the voting stock of a corporation which is
in control of the acquiring corporation), of substantially all of the properties
of another corporation, but in determining whether the exchange is solely for
stock the assumption by the acquiring corporation of a liability of the other,
or the fact that property acquired is subject to a liability, shall be
disregarded;

���� (iv)� A transfer by a
corporation of all or a part of its assets to another corporation if
immediately after the transfer the transferor, or one or more of its
shareholders (including persons who were shareholders immediately before the
transfer), or any combination thereof, is in control of the corporation to
which the assets are transferred;

���� (v)�� A recapitalization;

���� (vi)� A mere change in
identity, form, or place of organization however effected; or

���� (vii) The acquisition by one
corporation, in exchange for stock of a corporation (referred to in this
subclause as "controlling corporation") which is in control of the
acquiring corporation, of substantially all of the properties of another corporation
which in the transaction is merged into the acquiring corporation shall not
disqualify a transaction under subclause (i) if such transaction would have
qualified under subclause (i) if the merger had been into the controlling
corporation, and no stock of the acquiring corporation is used in the
transaction;

���� (viii) A transaction otherwise
qualifying under subclause (i) shall not be disqualified by reason of the fact
that stock of a corporation (referred to in this subclause as the
"controlling corporation") which before the merger was in control of
the merged corporation is used in the transaction, if after the transaction,
the corporation surviving the merger holds substantially all of its properties
and of the properties of the merged corporation (other than stock of the
controlling corporation distributed in the transaction); and in the
transaction, former shareholders of the surviving corporation exchanged, for an
amount of voting stock of the controlling corporation, an amount of stock in
the surviving corporation which constitutes control of such corporation.

���� For purposes of this clause,
the term "control" means the ownership of stock possessing at least
80% of the total combined voting power of all classes of stock entitled to vote
and at least 80% of the total number of shares of all other classes of stock of
the corporation.

���� For purposes of this clause,
the term "a party to a reorganization" includes a corporation
resulting from a reorganization, and both corporations, in the case of a
reorganization resulting from the acquisition by one corporation of stock or
properties of another.� In the case of a reorganization qualifying under
subclause (i) by reason of subclause (vii) the term "a party to a
reorganization" includes the controlling corporation referred to in such
subclause (vii).

���� Notwithstanding any provisions
hereof, upon every such exchange or conversion, the taxpayer's basis for the
stock or securities received shall be the same as the taxpayer's actual or
attributed basis for the stock, securities or property surrendered in exchange
therefor.

���� d.��� Net gains or net income
derived from or in the form of rents, royalties, patents, and copyrights.

���� e.���� Interest, except
interest referred to in clause (1) or (2) of N.J.S.54A:6-14, or distributions
paid by a qualified investment fund as defined in section 2 of P.L.1987, c.310
(C.54A:6-14.1), to the extent provided in that section.

���� f.���� Dividends.�
"Dividends" means any distribution in cash or property made by a
corporation, association or business trust that is not an S corporation, (1)
out of accumulated earnings and profits, or (2) out of earnings and profits of
the year in which such dividend is paid and any distribution in cash or
property made by an S corporation, as specifically determined pursuant to
section 16 of P.L.1993, c.173 (C.54A:5-14).

���� The term "dividends"
shall not include distributions paid by a qualified investment fund as defined
in section 2 of P.L.1987, c.310 (C.54A:6-14.1), to the extent provided in that
section.

���� g.��� Gambling winnings.

���� h.��� Net gains or income
derived through estates or trusts.

���� i.���� Income in respect of a
decedent.

���� j.���� Amounts distributed or
withdrawn from an employee trust attributable to contributions to the trust
which were excluded from gross income under the provisions of chapter 6 of
Title 54A of the New Jersey Statutes, amounts rolled over from
[
an
]

a
traditional
IRA, as defined pursuant to subsection (a) of section 408 of
the federal Internal Revenue Code of 1986, 26 U.S.C. s.408, that is not a Roth
IRA, as defined pursuant to subsection b. of section 2 of P.L.1998,c.57
(C.54A:6-28) to an IRA that is a Roth IRA,
except to the extent of the
exclusions in section 2 of P.L.1998, c.57 (C.54A:6-28,
and pensions and
annuities except to the extent of exclusions in N.J.S.54A:6-10 hereunder,
notwithstanding the provisions of N.J.S.18A:66-51, P.L.1973, c.140, s.41
(C.43:6A-41), P.L.1954, c.84, s.53 (C.43:15A-53), P.L.1944, c.255, s.17
(C.43:16A-17), P.L.1965, c.89, s.45 (C.53:5A-45), R.S.43:10-14, P.L.1943,
c.160, s.22 (C.43:10-18.22), P.L.1948, c.310, s.22 (C.43:10-18.71), P.L.1954,
c.218, s.32 (C.43:13-22.34), P.L.1964, c.275, s.11 (C.43:13-22.60),
R.S.43:10-57, P.L.1938, c.330, s.13 (C.43:10-105), R.S.43:13-44, and P.L.1943,
c.189, s.5 (C.43:13-37.5).

���� k.��� Distributive share of
partnership income, excluding the gain or income derived from the sale or
assignment of a tax credit transfer certificate pursuant to section 7 of
P.L.2011, c.149 (C.34:1B-248) and section 10 of P.L.2014, c.63 (C.34:1B-251)
from any sale or assignment of a tax credit issued pursuant to an award of tax
credits approved by the New Jersey Economic Development Authority prior to July
1, 2018, regardless of when such sale or assignment occurs.

���� l.���� Amounts received as
prizes and awards, except as provided in N.J.S.54A:6-8 and N.J.S.54A:6-11
hereunder.

���� m.�� Rental value of a
residence furnished by an employer or a rental allowance paid by an employer to
provide a home.

���� n.��� Alimony and separate
maintenance payments to the extent that such payments are required to be made
under a decree of divorce or separate maintenance but not including payments
for support of minor children.

���� o.��� Income, gain or profit
derived from acts or omissions defined as crimes or offenses under the laws of
this State or any other jurisdiction.

���� p.��� Net pro rata share of S
corporation income, excluding the gain or income derived from the sale or
assignment of a tax credit transfer certificate pursuant to section 7 of
P.L.2011, c.149 (C.34:1B-248) and section 10 P.L.2014, c.63 (C.34:1B-251) from
any sale or assignment of a tax credit issued pursuant to an award of tax
credits approved by the New Jersey Economic Development Authority prior to July
1, 2018, regardless of when such sale or assignment occurs.

(cf: P.L.2018, c.131, s.8)

���� 2.��� Section 2 of P.L.1998,
c.57 (C.54A:6-28) is amended to read as follows:

���� 2. a. Gross income shall not
include distributions from
:

����
(1)
a Roth IRA that are
qualified distributions or that are rolled over to a Roth IRA
; and

����
(2) a traditional IRA made
to a qualified charitable organization
.

���� b.��� As used in this section:

���� "Roth IRA" means an
individual retirement plan, as defined pursuant to section 7701 of the federal
Internal Revenue Code of 1986, 26 U.S.C. s.7701, that is designated in the
manner prescribed by the federal Secretary of the Treasury pursuant to section
408A of the federal Internal Revenue Code of 1986, 26 U.S.C. s.408A, as a Roth
IRA and is subject to the contribution limits of that section.

����
�Qualified charitable
organization� means an organization determined by the federal Internal Revenue
Service to be a tax exempt organization pursuant to section 501(c)(3) of the
federal Internal Revenue Code of 1986, 26 U.S.C. s.501(c)(3).

���� "Qualified
distribution" means any payment or distribution:

���� (1)�� made on or after the
date on which the individual attains age 59 1/2,

���� (2)�� made to a beneficiary
(or to the estate of the individual) on or after the death of the individual,

���� (3)�� attributable to the
individual's being disabled within the meaning of paragraph (7) of subsection
(m) of section 72 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.72,

[
or
]

���� (4)�� which is a qualified
first time home buyer distribution as defined by, and subject to the
limitations of, paragraph (2) of subsection (t) of section 72 of the federal
Internal Revenue Code of 1986, 26 U.S.C. s.72
[
;
]
, or

����
(5)�� made to a qualified
charitable organization;

provided, however, that a payment
or distribution shall not be treated as a qualified distribution if it is made
within the 5-taxable-year period beginning with the first taxable year for
which the individual made a contribution to a Roth IRA (or such individual's
spouse made a contribution to a Roth IRA) established for such individual, or
in the case of a payment or distribution� allocable to a qualified rollover
contribution from an individual retirement plan other than a Roth IRA (or
income allocable thereto), it is made within the 5-taxable year period
beginning with the taxable year in which the rollover contribution was made.

����
�Traditional IRA� means an
individual retirement account as defined in subsection (a) of section 408 of
the federal Internal Revenue Code of 1986, 26 U.S.C. s.408(a) that is not a
Roth IRA.

(cf: P.L.1998, c.57, s.2)

���� 3.��� This act shall take
effect immediately and shall apply to taxable years beginning on or after
January 1 of the year next following the date of enactment.

STATEMENT

���� This bill provides a
gross income tax exclusion for distributions from a Roth
IRA or a traditional IRA that are made to a qualified charitable organization.

���� A
Roth IRA is a type of tax-advantaged individual retirement account that allows
account holders to contribute after-tax dollars towards retirement.�
Contributions made to the account grow tax-free while qualified withdrawals,
also known as distributions, may be made without incurring income tax
liability, provided certain conditions are met.� Qualified distributions from a
Roth IRA currently include amounts paid or distributed: (1)
on or after
the date the account holder attains 59 1/2 years of age;
(2) t
o a beneficiary, or if a beneficiary has
not be designated, to the estate of an account holder on or after their death;
(3) for reasons attributable to the account holder�s disability; or (4) as a
qualified first time home buyer distribution.� Distributions made for a
non-qualified purpose are subject to taxes and penalties.

���� A
traditional IRA is another type of tax-advantaged individual retirement account
that allows account holders to direct pre-tax income toward investments that
can grow tax-deferred until the funds are withdrawn, at which point the money
is treated as ordinary income and is subject to income tax.� In limited
circumstances, certain interest, dividends and other earnings credited to an
IRA can be withdrawn tax-free, provided those earnings are from investments in
government debt obligations, such as bonds issued by the federal government,
the State, or local governments.

���� For
the purposes of the bill, a �qualified charitable organization� is a charitable
organization that receives tax exempt status pursuant to section 501(c)(3) of
the federal Internal Revenue Code.� Typically, organizations that receive this
exemption are those operating exclusively for charitable, religious,
scientific, literary, educational, testing for public safety, or other
specified purposes.� Accordingly, the bill provides that distributions made
from a Roth IRA or a traditional IRA to these organizations would be exempt
from State income tax.