If you gifted stock with a "like kind" transfer to your grand children then the taxable amount of the "gift" is the value of the stock at the time of the transfer.
As far as the IRS is concerned, it is no different then if you sold the stock within the IRA and then distribute the cash to yourself and gave the cash to the grandchildren. Either way it is taxable income to you and a 1099-R box 7 code of 7 is correct.
Gifts given by you have no special tax treatment and are taxable as ordinary income.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
