The Internal Revenue Service has added a tax reporting code on Form 1099-R for qualified charitable distributions — a welcome change, according to Ed Slott of Ed Slott & Co.

But while clients who take a QCD may now receive a 1099 form, the responsibility remains on the client, not the IRA custodian, to make sure the rules are followed, Slott warned.

"Tax and financial advisors will have to be more vigilant in helping clients make sure they qualify for QCDs, just like before," Slott told ThinkAdvisor Monday. "The fact that there is a QCD code does not mean a blanket QCD qualification."

Investors 70 1/2 or older can use a QCD to transfer money, up to an annual limit, directly from an IRA to a charity without paying income tax. A QCD counts toward the investor's required minimum distribution.

"Historically, the IRA custodian was not required to report a QCD," Slott told ThinkAdvisor Monday via email. "There was never a code on Form 1099-R to identify the QCD, and that confounded some tax preparers who may have missed the QCD on the tax return, so this will be good news for tax preparers now."

Before the change, "it was up to the taxpayer to let the IRS know about the distribution," Slott said. "Oftentimes this resulted in taxable distributions as taxpayers failed to inform their tax preparers about their donations."

In early 2025, the IRS released draft instructions for 2025 1099-R forms, noting the agency had added a "New code Y for box 7" to identify a QCD. The final 1099-R was released on April 15.

The form now instructs custodians reporting a QCD to use code Y with:

  • Code 7 for a QCD from a non-inherited (normal distribution) IRA
  • Code 4 for a QCD from an inherited (death distribution) IRA or
  • Code K for a QCD reporting distributions of traditional IRA assets not having a readily available [fair market value] that are either from non-inherited or inherited IRAs.

IRA custodians "really did not want to police this, that is, be the ones to certify whether the IRA transfer was to a qualified charity under the tax code, including being age 70 ½ or older, check that the documentation requirements were met (for example, whether there was proof of the contribution and that no goods or services were accepted in return for the gift), and to make sure that the IRA owner did not exceed the annual QCD limit," Slott relayed.

Questions Remain

Taxpayers, Slott said, are still responsible for accurate tax reporting, as with everything on a tax return.

Also, how will the custodian know if the charity is valid? "Of course, this is the taxpayer’s responsibility, as it has been even before there was a code," Slott said.

There is also "now a separate coding for a QCD from an inherited IRA (for beneficiaries), but to qualify, IRA beneficiaries (like IRA owners) must also be age 70 ½ or older," Slott said. "Who is checking this?"

Further, "how will the custodian know if the IRA owner hasn’t already reached his annual QCD limit?" Slott said. "The client may have already done the maximum allowed QCD with a different IRA at another custodian.

For example, "the 2025 QCD limit (which is per taxpayer, not per IRA account) is $108,000. A client might unknowingly do a QCD from say their Schwab IRA for $80,000 and another one from their Fidelity IRA for $50,000 and now they are over the 2025 QCD limit of $108,000. That excess is now a taxable IRA distribution, which could result in an underpayment penalty. The excess though could qualify as a deductible charitable contribution if the taxpayer itemizes."

Slott now wonders if custodians will require "proof of these items, before they issue the 1099-R with the QCD code? Probably not."

Bottom line: "It’s nice that there is now a 1099-R code to show that a QCD was done," Slott concluded. "This will help both tax preparers and taxpayers avoid missing this. But it is still important for advisors to check that all the QCD qualification rules have been followed."

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