RMD direct to Charity but still on 1099
Client directed part of his 2011 RMD directly to a charity to take advantage of the IRS option to reduce his taxable income. However, the annuity company sent him a 1099 for the total amount (full) RMD. They are saying it is not their responsibility to know if the charity is in fact a valid charity so they report the full amount and that it is up to the client to claim the reduction.
My understanding was the intent of the IRS allowance of the direct to charity RMD distribution was so that it was NOT included on the 1099. Is that correct? If not, how does the taxpayer “reduce” the 1099 amount to lower their AGI?
Permalink Submitted by Jose Morales on Mon, 2012-03-12 21:42
A qualified charitable distribution would still be reported on a 1099-R with Distribution Code 7. On Line 15a you include the total amount for all distributions from retirement accounts. On line 15b you include only the taxable portion of those distributions. If the difference is due soley to a qualified charitable distribution, you can write “QCD” next to line 15b.
http://www.irs.gov/retirement/article/0,,id=234258,00.html
Permalink Submitted by Stephen Csenge on Tue, 2012-03-13 18:35
As always, much help. Thank you
Permalink Submitted by Alan Spross on Tue, 2012-03-13 18:58
While it would be consistent with most IRS reporting requirements to come up with a 1099R code for a QCD, my guess is that the original temporary nature of the QCD is the reason that there is no such coding. At some point the IRS will have to come up with a policy to address tax provisions that expire annually or every couple years, but begin to look like more permanent provisions.
Permalink Submitted by mk foss on Tue, 2012-03-13 23:48
I have had clients who were audited on the QCD. The indication shows up on the paper returns but must not be apparent on the electronic files. It’s always been easy to clarify that part of the RMD went to charity and is not taxable, but everyone worries when they get a letter from the IRS.