QCD via Check: Completed or not
There are two ways clients complete QCDs:
1) Have the custodian distribute the check
2) Client writes a check from a checkbook that is tied to their IRA
In the first example, the custodian distributes the funds like a cashier’s check – funds are debited from the IRA once the check goes out. So, our firm tries to get these completed by the first week of December so that we’re not waiting on service by the custodian to finalize the check distribution.
In the second example, the custodian doesn’t know of the written check, so the funds are only distributed once the check is cashed. But the date on the check would be prior to yearend.
In both cases, would the IRS consider the QCD as being met? Or is, it only in the first example?
Permalink Submitted by Alan - IRA critic on Mon, 2022-11-21 16:17
The second case is problematic because I doubt if any IRA custodians look at the check date. There may also be another day or two required for the cashed check to be recorded by the custodian as a distribution reported on the 1099R for the year the check was written. The IRS goes by the 1099R, therefore a check cashed too late will become an RMD/QCD for the following year. The firm should advise age 70.5 clients with IRA check writing to attempt to wrap up their QCD checks by 11/1, then monitor their IRA accounts about a month later to make sure that the charity has cashed the checks. Inefficient charities should probably receive QCDs by the first method if they will remain on client’s QCD list.
Permalink Submitted by Jessica DeBold on Fri, 2023-03-10 19:45
So in the situation described in #1 above, so long as the check was distributed from the IRA in December 2022 and reflected on the 2022 1099-R it will count as valid QCD in 2022 even if the charity doesn’t cash the check in 2022? Our situation is that the charity cashed in 2023 and issued a receipt for 2023 so I am wondering if this would be kicked in an audit?
Permalink Submitted by tomd37 on Fri, 2023-03-10 20:02
I keep a copy of all the QCD checks issued by Vanguard from my TIRA. That way, if the check is not cashed in 2022 I have proof it was issued from my TIRA in 2022. And, in my particular situation, I have all my QCD checks issued within the first four months of the year and take the remaining RMD much later in the year. Been doing it this was for 14 years now!
Permalink Submitted by Alan - IRA critic on Fri, 2023-03-10 22:16
With respect to a 2022 QCD check being cashed in 2023 and the receipt dated in 2023, it is possible but unlikely that the IRS would challenge the 2022 QCD pursuant to an audit. It would be preferable for the charity to issue a receipt when the check is received even if they do not cash the check until later. That would show constructive receipt of the donation in 2022. But far better to issue QCD checks prior to December and follow up in early Dec for the written acknowledgement. If a charity does not appreciate it’s donors by efficient handling of donations, there are certainly other charities that will.