How should nonprofits document and track incoming QCDs from IRA custodians to ensure contemporaneous acknowledgments are timely?
Executive summary
Nonprofits that want reliable proof and timely acknowledgments of Qualified Charitable Distributions (QCDs) must build a donor-facing intake process, a custodian-confirmation workflow and an auditable tracking ledger tied to IRS reporting timelines; QCDs must be direct transfers from IRA custodians to charities and generally be processed by December 31 to count for a tax year [1] [2]. Recent IRS guidance introducing Code Y on Form 1099‑R for QCDs makes custodian-supplied reporting more explicit (and optional for early 2025 reporting), so charities should prepare to consume custodian confirmations and reconcile them against bank deposits and donor statements [3] [4].
1. Intake and donor verification: capture intent and constraints up front
Require donors (or their advisors) to notify the nonprofit before initiating a QCD and collect written donor instructions that state the IRA account owner, approximate amount, intended tax year and whether the custodian will send a check or electronic transfer; QCDs must be trustee‑to‑trustee/direct transfers (not paid first to the donor) to qualify, so the nonprofit must verify the payment method with the donor and the custodian [1] [5].
2. Custodian coordination and immediate confirmations
Ask the donor to instruct the IRA custodian to send the distribution payable directly to the charity and request that the custodian provide a contemporaneous confirmation—amount, date sent, payment method and whether they will report Code Y on Form 1099‑R—because custodians are now required to include Code Y for qualifying QCDs (effective 2025 reporting) and may be able to rely on donor “reasonable representations” about qualification [3] [4] [6].
3. Internal tracking system: one source of truth tied to dates
Log every planned QCD in a single tracking tool (CRM or spreadsheet) with donor name, IRA custodian, instruction date, promised amount, expected delivery date, actual deposit date, custodian confirmation document, and any 1099‑R Code Y indicator; because the QCD must be processed by December 31 to count for that tax year, tracking should emphasize cut‑off windows and include alerts to follow up with custodians for late shipments [2] [1].
4. Contemporaneous acknowledgments — timing and content (best practice given reporting gaps)
While the provided reporting does not detail IRS contemporaneous‑acknowledgment language requirements for QCDs, prudent practice is to issue a written acknowledgment promptly on delivery that states the amount received, date of receipt, confirms the gift was a direct transfer from an IRA custodian, and declares whether the donor received any goods or services in return; this protects donors and supports their tax reporting if custodial 1099‑R reporting is delayed or incomplete (reporting sources emphasize direct transfer and custodian reporting but do not prescribe charity acknowledgment text) [1] [3].
5. Reconciliation and year‑end reporting: match deposits, confirmations and 1099‑R
Reconcile bank deposits and custodian confirmations as they arrive, and flag any amounts that appear on a donor’s Form 1099‑R without Code Y (or with distribution codes that don’t reflect a QCD); custodians historically folded QCDs into ordinary distributions on 1099‑R, but Code Y simplifies identification—charities should still retain custodian confirmations and donor communications to resolve discrepancies during year‑end tax season [6] [4].
6. Risks, caveats and alternative viewpoints
Custodians may rely on donor representations and the 1099‑R Code Y only became available in 2025 (optional in early filings), so charities cannot assume uniform custodian practices and must plan for uneven reporting; some advisors caution that not all transfers or account types qualify and that state tax treatment varies, underscoring the need for documented custody-to-charity proof and clear donor advisories [3] [7] [8].