Should Form showing QCD's accompany 1040 return??

[MichaelDC]

Probably not. When you enter the 1099-R, you have to carefully answer the questions that follow your main 1099-R form entry...those questions ask about that transfer of part (or all) of that 1099-R distribution to charity.

Check your form 1040 carefully to make sure it is not being taxed (lines 15a,b or 16a,b on a form 1040) and that "QCD" is printed next to that line.

If you are e-filing your return, you don't have to send or mail anything additional. However, if you have a Form 1099-R or W-2 that has federal tax withholding reported on it AND you're mailing your return, you would attach those forms to your return.

In general, the IRS knows what to expect on your return. If you directed any part of your RMD to a charity (must have been done by the Account Administrator), the IRS will know that.

Please feel free to post any additional details or questions in the comment section.

[tomandjerry1]

I recently received a CP2000 Notice from the IRS for my 2016 1040 return.  Since I turned 70 1/2 that year I was required to take a minimum distribution (RMD) from my IRAs.  For that year I elected to take the full RMD as a Qualified Charitable Distribution (QCD)  and supplied my IRA trustees with the required instructions to send checks directly to a set of eligible charities.  I waited until after I turned 70 1/2 in that year to make these distributions (which were well under the $100K cap).  I used TurboTax Deluxe to file in 2016 and believe I entered all the 1099-R information into TTAX correctly.  Form 1040 line 15a shows the total distribution, line 15b; Taxable Amount has "QCD" in it and the amount '0'  in the column.  My return also includes the Form 1099-R Summary showing the distribution as non-taxable QCD (line 1e).  

The CP2000 from the IRS indicates that I failed to report that year's IRA distributions as taxable, and would like me to pay them a fairly hefty sum for the 2016 tax plus interest and penalty.  What has me somewhat confused is that the CP2000 makes no mention of the fact that my 2016 return claimed this distribution as a QCD?  This leads me to believe that the procedures TTAX has adopted regarding reporting QCD type IRA distributions are insufficient to fully inform the IRS (or IRS computer systems?) regarding the nature of this type of IRA distribution.   Since I used the QCD option again for my 2017 RMD, and again used TTAX to file, I am understandably concerned that I will be receiving another CP2000 in the future for my 2017 return.  Perhaps in years that I make QCD from my IRA I should file by mail instead of eFile and include an extra statement with QCD details (copies of cancelled checks; letters of acknowledgement; etc).  Perhaps IRA trustees could be equipped with a means to include an indication that the IRA distribution was taken as a QCD?

I have copies of the checks that were issued from my IRAs as well as acknowledgement from the charitable organizations which I copied and returned to the IRS with the "I don't agree with ..." box checked together with a statement of explanation.  The deadline for responding is the end of this month (a week from today) and the USPS tracking for the response I sent them indicates the IRS office in Andover, MA,  received this a couple of weeks ago.  So far I have heard nothing (no letter or phone call -- the response form had a box to include my phone numbers and "best time to call" field).  

In summary:
   ?(1)  Why was the TTAX procedure for designating my IRA as a QCD insufficient for the IRS to detect this?
   (2)  If there is anyone else on this site who has experienced this QCD problem could you indicate how long you needed to wait to hear back from the IRS and what the outcome was?

[tomandjerry1]

Regarding the statement " If you directed any part of your RMD to a charity ... by the Account Administrator, the IRS will know that", this appears to be incorrect based on the outcome of QCDs issued from my IRAs at Fidelity and UBS in 2016.  In neither case does it appear my IRA trustees were able to let the "IRS know that".  Since both these institutions (Fidelity; UBS) are pretty substantial and IRS-reporting-rules knowledgeable,  and were clearly informed by me that my IRA distributions were to be issued as QCDs, I question whether this statement is accurate.  There are 26  Distribution Codes for Form 1099-R and none of them apply to a QCD?  The only reference to QCD in the 1099-R instructions says  "There is no special reporting for qualified charitable distributions".  Could TurbotaxMichaelDC explain how QCD reporting works?

[tomandjerry1]

And lastly, the question mentions "Form showing QCD's".  What form is the questioner referencing here, or perhaps he just means a supplemental ad hoc statement to be included with the return (which would preclude eFile'ing ?)

[SweetieJean]

Only the IRS can tell you why they chose not to include QCD as a code on Form 1099-R.  And even if they did, some plan administrators would have to issue more than one 1099-R if the retiree did (for example) a QCD distribution and a non-QCD distribution in the same year.

[macuser_22]

@tomandjerry - "?(1)  Why was the TTAX procedure for designating my IRA as a QCD insufficient for the IRS to detect this?"

TurboTax follows the IRS instructions for the correct way to report a QCD.   If the IRS missed it then that is an IRS problem and TurboTax can not do anything about it.

And #2 - yes, many others have received the same letters.  

Hopefully you mailed your proof to the address on the letter ans referenced the case number on the letter so they can be matched.   The IRS is very short handed and busy at this time of year and these cases are handled by hand and anything that required manually processing takes time.  Your proof of mailing and delivery are proof that you responded in the time limits.

This seems to be an IRS issue.     Either the "QCD" on line 15 is missed when data entry clerks process mailed returns or the IRS processing computers have some sort of glitch.  The most TurboTax can do is fill out a proper tax return in accordance with the rules specified by the IRS 1040 instructions for reporting a QCD.  There is no additional or other way to report it to the IRS other than that.

IRS 1040 instructions page 15
"Enter “QCD” next to line 15b"
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i1040gi.pdf">https://www.irs.gov/pub/irs-pdf/i1040gi.pdf</a>

[dmertz]

The amount contributed to charity as a QCD must also meet the charitable contribution requirements that would be necessary for it to be deductible on Schedule A were it not made as a QCD.  Documentation that would support this as a QCD would be anything from the charity acknowledging receipt of the contribution and any documentation from your IRA custodian that would show that the distribution was made after you actually reached age 70½ and was paid directly to the charities.

If you paper-filed your tax return or a person at the IRS examined your tax return for some other reason, they could have simply missed the "QCD" notation which is all that is necessary to appear on your tax return.

On Form 1099-R the payer reports QCDs the same as any normal distribution, code 7.  There is no special coding for a QCD because the payer cannot know for certain that the contribution qualifies as a QCD; only you can know that.

[SweetieJean]

Thje IRS has been sending letters re 2016 IRA's lately.  It seems that their computers may have missed the word "QCD" (or even "Rollover") on some tax forms that were submitted.

Since you have now provided the required documentation, all you can do is wait.

[JGM1933]

I had a similar problem.  All I had to do to clear myself with the IRS was send them a copy of the Explanation Statement listing each of the QCD charities I contributed to and the amounts given to each.  That form will pop up  on TurboTax if you click "Explain" next to QCD on Form 1040.  The Explanation Statement has no form number but is listed in the list of forms on TurboTax at the very bottom.   Also, when you e-file and choose all forms that are required, the Explanation Statement will be sent (or should be) to the IRS. 

The IRS could obviate the necessity of sending this form if it changed the 1099-R to include a check box showing that a part of the RMD is QCD payments and then the total amount of those payments.  That way the IRA custodian will be giving the IRS all the info it needs  when it sends a copy of the 1099-R to the IRS.    

[dmertz]

The custodian can only know that the distribution was paid directly to an entity other than the individual for whom the account is maintained.  The custodian cannot know that this actually qualifies as a QCD because the custodian has no way to know (or at least is not required to know) if the entity to which the payment was sent is a qualified charity, has no way to know the actual amount that would otherwise be taxable and has no way to know if when combined with such distributions from other custodians that the total does not exceed the annual $100k limit for QCDs.  Since the custodian cannot know how much, if any, of the distribution qualifies as a QCD, it's impractical to indicate a QCD on Form 1099-R.

[macuser_22]

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@dmertz wrote:

The custodian can only know that the distribution was paid directly to an entity other than the individual for whom the account is maintained.  The custodian cannot know that this actually qualifies as a QCD because the custodian has no way to know (or at least is not required to know) if the entity to which the payment was sent is a qualified charity, has no way to know the actual amount that would otherwise be taxable and has no way to know if when combined with such distributions from other custodians that the total does not exceed the annual $100k limit for QCDs.  Since the custodian cannot know how much, if any, of the distribution qualifies as a QCD, it's impractical to indicate a QCD on Form 1099-R.

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I will add to that - that the custodian cannot know if you received the required acknowledgment of your contribution that the IRS requires to claim a QCD.