Instructions for turbo tax: For people doing Qualified Charitable Deductions (QCD) for their RMD, they need to provide some supporting documentation with their return.

[richardk19]

Edited to add: @macuser_22  I have been reading this thread  where you and @dmertz were both contributing and was hoping you both might weigh in - thank you both!

Hello, I am hoping you can help me! I received an unexpected CP2000 letter this week from the IRS stating that they couldn't identify the retirement distribution reported on my 2021 tax return based solely on information that Vanguard reported to them, and asking if the reported income was part of a pension or an annuity. The "taxable income" that they believe I owe taxes on was my QCD for 2021. I reported this correctly on my 2021 taxes, entering the information from my 1099-R correctly from Vanguard and reporting on Turbotax that 100% of my RMD was given to charity as a QCD. 

On my 1099-R from Vanguard, box 1 and box 2 are the same amount (the amount I gave to charity as QCD), 2b is checked, box 7 code is 7, and IRA/SEP/SIMPLE is checked.

On my 1040-SR,  box 4a matches the IRA distribution amount on my 1099-R (the amount of my QCD), and 4b has the QCD notation and is 0.

I did NOT add this amount as a charitable contribution since I was deducting it from my taxable income as a QCD.

In 2020, I also donated my full RMD as a QCD to charity, and completed my Turbotax forms based on my Vanguard 1099-R in 2020, and had no issues, so I was not expecting this letter from the IRS this week from tax year 2021.

I have my brokerage transaction confirmation from Vanguard stating that the check was issued to my charity from my rollover IRA account, and I also have a copy of the check confirmation from Vanguard showing the check given to my charity from my rollover IRA account.

I do not understand why the IRS thinks that the full amount of my RMD was taxable income when it is clear on the 1040-SR that the full amount was given to charity as a QCD, and I followed all of the Turbotax prompts for QCD correctly. I imported the 2021 form 1099-R from Vanguard directly and double-checked all the information before submitting my taxes in April 2022.

I believe that I completed my taxes correctly in 2021 and was hoping you had a suggestion regarding what to send to the IRS. Would you recommend calling the IRS, or simply sending them the documentation that I have, mentioned above (brokerage transaction confirmation and copy of the check confirmation given to the charity for my QCD)? Would these documents be the records you recommended retaining if the IRS questioned a QCD (above, when replying to @Tsing)?

I don't know if the IRS simply missed the "QCD" notation on line 4B, or what else the issue could be. Again, thanks for any suggestions! I am happy to send you the documents I am referring to, if that would help, via private message or support ticket.

Thank you,

Rick

[dmertz]

Did you e-file or mail your tax return?  If mailed, the IRS data transcriber (a person) could have failed to transcribe the QCD notation.  (It's not real apparent on the printed form unless you are looking for it.)  Otherwise, perhaps the tax return was for some reason examined by an inexperienced examiner who failed to recognize that the gross amount was present on Form 1040 line 4a but excluded from line 4b with the QCD notation.  You might download the transcript of your tax return to see if it mentions the QCD notation.

https://www.irs.gov/individuals/get-transcript

Given that the IRS has questioned the reporting, your response needs to indicate that the gross amount of the distribution was included on line 4a and that the QCD notation was included next to line 4b to indicate why the taxable amount was less than the gross amount.  It would be prudent to include your supporting documentation showing that the IRA paid the funds directly to the charity and that the charity acknowledged receiving the funds.

[richardk19]

Hi @dmertz ,

Thanks so much for your quick response. We did efile our taxes in 2021. I downloaded our tax transcript today (thanks for the website) and I do NOT see the QCD notation listed on the transcript, attached below. I did notate the QCD on my efiled 1040 for 2021.

In our response to the IRS, should I send a copy of our 1040 form which includes the QCD notation on line 4b?

Thank you for the information about what my response to the IRS needs to indicate, and what supporting documentation I should include. If you have any other suggestions, please let me know. Thank you!

I'm about to file my 2022 taxes (CA Disaster Extension) and also gave my RMD as a QCD in 2022. Do you have any suggestions or is there anything I can add to my 2022 taxes before filing to avoid this situation with the IRS in the future (to make sure they see the QCD notation on my 1040)? I plan to give my RMD as a QCD in the same way in the future (2023 and beyond). Thanks!

[VolvoGirl]

@richardk19   Can I ask a you a question about Vanguard?  Did they send you the check made out to the charity and you mailed it to the charity?  I just did my first QCD from Vanguard and that's how they did it on mine.   It didn't go directly to the Charity from Vanguard.  Hope I don't have your problem when I file next year.  

[dmertz]

 I was hoping that such a notation might be part of the transcript, but I suspect that the transcript simply does not include the notations and the fact that it is not present in the transcript is meaningless.  This leaves the possibility of either an inexperienced examiner placing more significance on the difference between the total and the taxable amounts than is warranted, or you just got randomly selected to provide additional documentation.  It seems unlikely that the IRS Automated Underreporter System flagged the difference as a discrepancy.

I have not seen any other mention [Edit:  this year] of a CP2000 being generated for a QCD.

[richardk19]

Hi @VolvoGirl , Yes, Vanguard will only mail the check to you, made out to the charity which you send to the charity. Since the check is made out to the charity, I think that it "counts" as the IRA giving the QCD directly to the charity. That is the only way that they will do it, listed here: 

https://investor.vanguard.com/investor-resources-education/faq

s/how-do-i-take-a-qualified-charitable-distribution-qcd

[VolvoGirl]

Being that the IRS asked if it was from a pension or annuity sounds like they expected to see it on line 5 not line 4 for IRA.  Something doesn't add up.  Maybe they don't have a problem with your IRA 1099R.  Or don't suppose there was any withholding taken out in box 4?      

[dmertz]

"I think that it "counts" as the IRA giving the QCD directly to the charity."

That's correct, discussed by the IRS in Notice 2007-7 Q&A-41:

Q–41. Is a check from an IRA made payable to a charitable organization described in § 408(d)(8) and delivered by the IRA owner to the charitable organization a direct payment to such organization?

A–41. Yes. If a check from an IRA is made payable to a charitable organization described in § 408(d)(8) and delivered by the IRA owner to the charitable organization, the payment to the charitable organization will be considered a direct payment by the IRA trustee to the charitable organization for purposes of § 408(d)(8)(B)(i).

[richardk19]

Thanks, @dmertz . I did see this thread where I thought the same thing had happened in June 2019 to some posters: https://ttlc.intuit.com/community/taxes/discussion/should-form-showing-qcd-s-accompany-1040-return/0...

[richardk19]

@VolvoGirl

Thanks for reading. No withholding was taken out in box 4 of 1099-R.  And no withholding in line 5 of pensions and annuities. I don't know why they are asking if the reported income, which they are calling a retirement distribution (from my rollover IRA) was part of a pension or an annuity. But the figure they are asking about is the exact amount of my RMD (donated to charity as a QCD). And they think that it was taxable income when in fact it was given to charity as a QCD.

[Critter-3]

@richardk19 

Richard ... ANY money coming from an IRA, annuity  or 401K is cosidered to be coming from a retirement plan so don't let that distinction hang you up.   If you got a 1099-R then you need to enter it in the program and continue thru the interview to indicate how much was the RMD and how much was the QCD (may be the same amount) to let the program put the correct amounts on the correct lines.  In the summary screens you will ONLY see the total distribution but the taxable portion will ONLY be seen on the form 1040 so don't get hung up on what you see on that summary page. 

Click on Tax Tools on the left side of the online program screen.  Then click on Print Center.  Then click on Print, save or preview this year's return.  

[richardk19]

Hello! Just wanted to update everyone who was so helpful on this thread. We called the IRS on 10/2 and as soon as the IRS worker looked at up our case number, he saw that it was a 100% QCD and made an adjustment to our account, to close the case. He told us we would receive a letter from the IRS as confirmation. We still hadn't received the letter by 10/25 so called again, and they said the letter had been sent on 10/18. We received the letter from the IRS saying they had closed the case and we owed nothing on 11/3. So all's well that ends well, except for the weekend we spent frantically getting all of the documentation together that we assumed the IRS would require us to send to them.

[Critter-3]

@richardk19 

Good to know you got that taken care of ... let me guess ... you mailed in the return and the data input operator missed the QCD notation which prompted the computer to issue an IRS letter.  In the future consider efiling to keep this from happening again.