@dmertz
Apart from the likely TurboTax problems, do you have any idea how the code Y reporting might work when people write checks from their IRAs? As you know, some custodians provide check writing for IRAs, allowing IRA owners to make distributions from their IRA by writing a check. Some people use this feature to make QCDs, but a check written from an IRA account is not necessarily a QCD.
If you send a request to the custodian asking them to make a QCD, it's easy enough for them to categorize it correctly (though it will require some new software programming). But if you just write a check, how will the custodian know if it's a QCD?
How will the custodians report distributions made by check-writing? If they report all check-writing distributions as normal code 7 distributions the IRS would presumably not allow them to be claimed as QCDs. Even if the custodian looks at the payee on each check (which is unlikely) they would not necessarily know whether the payee is a qualified charity. But reporting all check-writing distributions with code Y would lead to widespread cheating.
The description of code Y in the draft 1099-R instructions says it's for a QCD "claimed by taxpayer." Will IRA custodians have to provide a mechanism for the account holder to indicate which checks are QCDs, either on the check or separately? The draft instructions are for this year, 2025, which is already 1/3 over, so it's already a catch-up situation. if the code Y reporting is incomplete, will the IRS allow a taxpayer to claim QCDs greater than the code Y total?
The explanation of code Y says "Use Code Y for distributions made to a qualified charitable organization." That's not the same as "claimed by taxpayer." The custodian cannot be expected to determine whether a payee is a qualified charity.
This is a can of worms. Right now it's only a draft. Maybe some large financial institutions will tell the IRS that they need more time to implement code Y, and get it postponed to next year.
