Double-counting QCD on 1099-r. What would you do?
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I suggested to a relative that she make a “Qualified Charitable Distribution” last year from her IRA to her church, which she did in January of 2011. Since she was able to count the deduction against her 2010 RMD, I didn’t think it unusual that the the distribution would show up on her 2010 1099-R as a taxable amount of her gross distribution. But I was surprised to see the same amount show up again as a taxable amount of her 2011 1099-R gross distribution.
According to the following article from the IRS, the January 2011 QCD amount should never have shown up on her 2010 1099-R, even though she was allowed to count the QCD against her RMD for 2010.
“Any distributions from an IRA in 2010, including any 2010 QCDs made on or before December 31, 2010, should be reported on a 2010 Form 1099-R… Any distributions from an IRA in 2011, including any 2010 QCDs made on or before January 31, 2011, should be reported on the 2011 Form 1099-R.”
[url]http://www.irs.gov/retirement/article/0,,id=234258,00.html[/url]
Should she challenge the double-counting [2010 and 2011] of her QCD? If so, is there any less annoying way to correct this situation than reopening the 2010 tax returns and doing them over?
Thanks in advance,
Permalink Submitted by Alan Spross on Mon, 2012-04-02 22:10
Thanks to Congress for this mess.
If the 2010 return was correct, ie the 1/11 QCD distribution for 2010 was reported as a QCD on the 2010 1040, there should be no need to change that return.
With respect to 2011, was there an actual 2011 QCD made as well?
If not, per the Pub 590 reporting instructions, the 2011 return should also report the same QCD as in 2010 even though it duplicates the amount reported then. If there was an additional 2011 QCD such that the total distributed exceeded 100k, then report the total but include an explanatory statement of the breakdown between 2010 and 2011.
Then get ready for Congress to repeat this fiasco again this December, ie retroactive QCDs for 2012.
Permalink Submitted by Geoffrey Foisie on Mon, 2012-04-02 22:54
Alan
Thanks for the reply.
This problem originated from a custodian mistake, in sending the original $25k distribution, the custodian forgot to include the church’s account number with the receiving brokerage firm. Thus the receiving firm never cashed the original check, it had to be voided, and another one sent in January, 2011. Somewhere along the way the custodian apparently got the idea that there were two contributions when in fact there was only one. The only QCD sent was for $25k, so the $100k rule doesn’t come into play.
The idea of reporting the QCD a second time seems odd to me. Regardless, it sounds like I better make sure that all the paperwork is in order so that I have a paper trail when the IRS comes a’ knockin’.
As for 2012, I had so much fun with the mess the first time I’m not sure I could stand it again 😉
Thanks
Permalink Submitted by Alan Spross on Tue, 2012-04-03 00:20
It shouldn’t be reported on the 2010 return, but since it was and did not affect the 2010 return in any manner, I wouldn’t worry about amending it. More importantly, since the custodian should not have issued a 2010 1099R, the reporting was actually necessary to offset the 1099R. I would just put a documentary note on the return that the amount reported as a QCD transfer was actually made in 2011 but incorrectly reported by the custodian in both years. That should be the end of it.
It MUST be reported on the 2011 return, but since there is probably a 2011 RMD as well, the taxable amount would be the 2011 RMD with “QCD” entered next to line 15b to show that the rest was a QCD. If there is any basis in the IRA then the QCD does not affect the basis amount, but the 2011 RMD must be reported on an 8606.
Many taxpayers had a problem in 2010 from giving up on Congress and taking out the 2010 RMD before the December legislation. In that case, they cannot use the January option because the earlier distribution cannot be overridden by the QCD.
All in all, there are several reporting issues that could surface as a result of all the confusion.
Permalink Submitted by Geoffrey Foisie on Tue, 2012-04-03 16:35
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Very sound advice, once again.
Thanks