Qualified Charitable Distribution from an IRA

[JoEllen]

How does the IRS get this information for the T/P?
It is not shown on the 1099-R received. Is it the same as a charitable deduction and up to the t/p to keep record?

[JohnH]

I think it's up to the TP to keep good records. I had one who received an AUR notice last year about an unreported 1099-R for a prior year. We sent them a copy of the account statement from the trustee, along with a copy of the "Thank You" letter from the church. We also included a copy of the giving statement from the same church(which did not include the transfer) and a copy of the client's Schedule A to show what was actually deducted. They sent back a "no change" letter and we were done.

[Roberts]

A qualified charitable contribution from an IRA isn't reported on Schedule A.
1040 - Line 15A shows the distribution.
1040 - Line 15B reflects the taxable amount of the distribution.

You may also need to file an 8606 but it does NOT show up on Schedule A in my opinion. Write “QCD" and the amount of the contribution in your notes associated with line 15B.

If it's not on the 1099-R, like JohnH said, it is up to the client to document everything.

[JohnH]

I didn't word that very well, did I?
My purpose in including the Schedule A in reply to the AUR notice was just to tie the total contributions deducted back to the giving statement from the church, which listed other contributions which were deductible, and which did not include the QCD.

In my case the amounts were listed properly on the front of the original 1040 with the "QCD" notation, but IRS still sent an AUR notice. Apparently they ignored everything on the original return.

[JoEllen]

Thanks! My t/p had made the same deduction for several years and never received a notice from the IRS. This was the first year I did his return. To me and the t/p it is very questionable as to how the IRS would know. It seemed to us this information should have been included on the 1099-R since it is not reported to the IRS in any other way. Seems like extra work for the IRS. We replied with a letter along with a copy of his statement for his IRA showing the Charitable Contribution. Didn't think at the time to contact the church for information showing they received it.

[JohnH]

Just to follow up, I think it's a hit-or-miss issue with IRS. One of my clients who has done them every year has never had a problem. Another one who has done them every year received the AUR ( the one whose notice I referred to previously) even though he had done one the previous year with no problem, and the exact same reporting. This was a paper-filed return, so that means the IRS data entry person could have made a mistake in that year - but IRS got it right for all the other clients so they have a pretty good overall track record.

Your reply will probably take care of it, but if not you can always gather the third-party info next time around if needed.

I think the benefit of the QCD is slightly overrated for most people who itemize anyhow. About the only thing it accomplishes is to reduce AGI by a relatively small amount which frees up some medical deduction in some cases. It may reduce taxable SocSec for a few, but most of the ones I've handled are already maxed out on taxable SocSec. Maybe someone will correct me if I'm missing something important.

[Burke]

My software will print "QCD" on the 1040 (line 15b) if the correct box is checked. However, we still got a letter from the IRS and had to correspond to explain. No further problems. Just a pain. I agree, if custodian pays direct to charity, it should code 1099R somehow. This one paid charity (check drawn to them) but mailed check to TP! TP is not really high income and it affects the taxable Soc Sec significantly as well as medical deds.

[DonPriebe]

... I agree, if custodian pays direct to charity, it should code 1099R somehow. ...

IIRC, the rationale for not doing so was that that would burden the custodian with the responsibility to assure that the "charity" was a legitimate 501(c)3, or a religious organization not required to register, etc.

[Burke]

Thanks for the background info. But I don't see where a simple code reflects anything other than that a distribution was paid to another party. It's up to the TP to validate the tax status and deductibility (or qualification of a QCD) of an organization for which a tax benefit of some type is claimed on the return.

[oceanlovin'ea]

Does make a difference for many senior citizens

Many of my senior citizen clients can no longer itemize. If they have an IRA from which they could make contributions to their religious organization or a charity, this allows them in a sense to get a deduction that they normally would never get.

If fact my mom is taking advantage of this now. I didn't know about it until this year when the IRS said they would accept checks written in early months of 2013 as 2012 contributions. So we did that. Now she will do it again in December this year as part of her IRA distribution. The credit union will write one check to the religious organization and transfer the rest to her personal account.

Linda, EA

[JohnH]

Yes, for non-itemizers it's definitely a benefit.