In late 2024, a 74-year-old client directed a $10,000 qualified charitable distribution (QCD) from his IRA. The custodian issued the check payable to the charity, but the check was never cashed. By mid-2025, the custodian canceled the check and returned the funds to the IRA.
Here’s the problem: because the check was never cashed, no QCD occurred, and no portion of the client’s 2024 required minimum distribution (RMD) was satisfied. The 2024 Form 1099-R will still reflect the distribution as if it had occurred, but without the charity receiving and acknowledging the gift, the taxpayer cannot report it as a QCD on the return.
What the Rules Say
QCD Law: IRC §408(d)(8) requires that the distribution be made directly to a qualified charity. If the charity never receives the funds, it is not a QCD.
RMD Obligation: IRC §4974 imposes a 25% excise tax on any portion of the RMD not taken by year-end (reducible to 10% with timely correction).
Substantiation: Publication 590-B makes it clear that a written acknowledgment from the charity is required; without it, the exclusion cannot be claimed.
The Planner’s Recommendations
Correct immediately. Take a make-up distribution from the IRA equal to the missed 2024 RMD. Do this before filing the 2024 return.
File Form 5329. Report the missed RMD, request waiver of the §4974 excise tax, and note “RC” (reasonable cause). Attach an explanation that the QCD was attempted in good faith but not completed.
Re-issue if desired. If the client still wishes to support the charity, process a new QCD in 2025. It can count toward the 2025 RMD but cannot retroactively fix 2024.
Future years. Ensure QCD checks are issued, received, and cashed by December 31. Secure the charity’s acknowledgment. Starting in 2025, custodians must report QCDs with Code Y in Box 7 of Form 1099-R.
This scenario is a reminder: good intentions are not enough. For QCDs to deliver their tax benefits, execution and documentation must be precise. As planners, we help clients avoid costly missteps by aligning their charitable intent with the letter of the law.
