1099-R and Charity

[Edsel]

As fewer people are itemizing, those who are old enough for RMDs are increasingly directing retirement distributions to be sent to charities.  The effect is to reduce taxable income, and to correspondingly invalidate charitable deductions (which most of them can't use anyway).

I have a few of these clients.  I have seen 1099-Rs showing gross distributions with zero as taxable amounts.  This year one of them is showing the amount contributed as gross distribution and taxable as well.  And the "taxable amount not determined" is checked.

My client went back to his stockbroker to question this.  He was told the 1099-R was correct as issued, and he would not correct it.  He was also told that the "very finest tax people" are insisting this was the proper issuance of a 1099-R under the circumstances, which are known.

I believe this will result in my client ultimately being taxed on the higher amount, and will find relief upon meticulous presentation of records.  Before entertaining the presentation of records, the IRS will first send him back to the issuer to get the 1099-R corrected.

What say ye?

 

[Lion EA]

The broker is not verifying that the charities are qualified per the IRS. "Taxable amount not determined" is correct. The tax preparer with the client determine and report as your software allows for QCD to print. (In my software, I have a tab where I put the amount of the Qualified charitable distribution.) On 2018's 1040, line 4a was $100,000; b was QCD; 4b was $95,000, for example. I keep the acknowledgements from my church and charities with my tax return; plus Morgan Stanley did provide a detailed list.

I've been doing this and talking to my clients about doing it.

[Randall]

Yes Lion, that's the way I understand it.  1099R will show full distribution so as to become part of client's RMD.  Then on the return, back it out of taxable with the QCD code.  Keep receipts from charity.  Client should also have monthly statement from broker showing distribution directly to charity.  Distributions must be sent directly to charity, not passing thru the hands of client.

[Gail in Virginia]

24 minutes ago, Randall said:

Yes Lion, that's the way I understand it.  1099R will show full distribution so as to become part of client's RMD.  Then on the return, back it out of taxable with the QCD code.  Keep receipts from charity.  Client should also have monthly statement from broker showing distribution directly to charity.  Distributions must be sent directly to charity, not passing thru the hands of client.

My understanding from reading the IRS instructions is that as long as the check is payable to the charity, it can be sent to the client for delivery to the charity.  But I agree with what has been said.

[Edsel]

Thanks to all of you for your response.  Client has a stack of transmittals directly to the charity.  I will communicate the results of our discussion with the client.

[schirallicpa]

I have had a few of these - the program actually works well and they avoid trying to make the itemized deduction level.  It's a great idea.

 

[Jim Oh Bkkr]

20 hours ago, Gail in Virginia said:

...as long as the check is payable to the charity, it can be sent to the client...

I recently read a discussion about this in another (Drake?) forum.   Most said this was the way to go AFTER a copy of the check was retained for the client's file.

[ILLMAS]

At least in this case the TP can prove they followed the rules vs cashing the check, then issuing a check to the charity.

[Sara EA]

Vanguard actually warns people that their 1099R will show the full distribution and that they should make a copy of the check (which is sent to the taxpayer but made out to the charity).

[BulldogTom]

Thanks all for the help.   I just did my first one of these and the software made it very easy.  I was worried because there was the QCD portion and another portion that was taxable.   All the documentation is perfect (letter from the Broker, acceptance letter from charity) so I am feeling good.

Tom
Modesto, CA

[Lee B]

I have been doing this on my own tax return since the first year it was allowed, just as Lion described. Very easy.

Also have most of my clients who qualify doing this also.