The New QCD Reporting Rule Raises a Big Question for IRA Owners

Qualified charitable distributions have become one of the most effective ways for IRA owners age 70½ and older to support their favorite charities while reducing taxable income. Yet, a new IRS reporting requirement for IRA custodians has raised a question for IRA owners who use IRA checkbooks to make QCDs.

Can checks drawn using an IRA checkbook be used to make QCDs? IRA owners have been using IRA checkbooks to make QCDs for years. What is new is Code Y, which has caused custodians to decide how they will report these transactions.

Custodians are not taking a uniform approach to reporting IRA checkbook checks intended to be QCDs. Some permit distributions made by IRA check to be reported as QCDs under certain circumstances, while others have reportedly taken the position that customer-written IRA checks cannot qualify as QCDs.

So, who is right?

I believe the more important question is whether the custodian’s reporting determines if a distribution qualifies as a QCD. Based on my reading of the statute and the guidance currently available, I do not believe Form 1099-R reporting determines whether a distribution qualifies as a QCD. As such, whether a custodian reports the distribution with Code Y may ultimately be less important than many IRA owners realize.

For background on QCDs, see “How to Make a Tax-Free Donation From Your IRA.”

The History of Code Y

Before the introduction of Code Y, IRA custodians reported QCDs the same way they reported normal IRA distributions. IRA owners then claimed the QCD exclusion on Form 1040.

Beginning with Form 1099-R for 2026, the IRS introduced Code Y to identify distributions that the custodian knows are intended to be treated as QCDs. Because many custodians needed additional time to update their systems, the IRS made Code Y optional for 2026 and mandatory beginning with 2027. See “IRS Adds New Reporting Code for Charitable IRA Gifts.”

At first glance, this appears to simplify reporting, but in reality, it creates a new dilemma.

Some custodians now ask IRA owners to certify that a requested distribution qualifies as a QCD before reporting it with Code Y. However, responsibility for ensuring that all of the statutory QCD requirements have been satisfied still rests with the IRA owner.

In other words, Code Y may change what is entered in Box 7a of Form 1099-R, but it does not change who is ultimately responsible for proving that the distribution qualifies as a QCD.

IRAs Are Reported Differently Than Employer Plans

If you receive a distribution from a 401(k) or another employer-sponsored retirement plan, your Form 1099-R often tells you and the IRS how much of the distribution is taxable and how much is nontaxable.

With only a few exceptions, IRA custodians report the gross distribution and generally report the entire amount as taxable. The IRA owner is then responsible for determining the correct tax treatment on the federal income tax return, and QCDs are no exception.

The Dilemma: IRA Checkbooks

Many IRA custodians offer IRA check-writing once the account owner reaches a specified age, often age 59½ when distributions are considered “normal.” Rather than submitting a distribution request each time, the IRA owner simply writes a check drawn on the IRA.

The challenge is that custodians do not treat these checks consistently when they are used to make QCDs.

Some custodians report every IRA checkbook transaction as a normal distribution using Code 7, leaving it up to the IRA owner to report the amount as a QCD on the tax return if it qualifies.

Some permit the reporting to be updated after the transaction has been reviewed and verified and will report the distribution with Code Y.

Others have reportedly taken the position that customer-written IRA checks cannot qualify as QCDs because the check was not issued by the IRA custodian and, therefore, report the distribution with Code 7.

This creates a quandary for IRA owners.

Imagine a husband and wife who each own traditional IRAs with check-writing capability at different custodians. Both write identical checks to the same qualified charity during the year.

Depending on each custodian’s reporting policy, they could receive Form 1099-R with conflicting information about whether the distributions qualify as QCDs.

For many IRA owners, the question becomes which custodian is right. For me, the more important question is whether the Form 1099-R determines the tax treatment. I do not believe that it does.

Why Code Y Does Not Determine Whether a Distribution Is a QCD

Code Y is an information reporting code, just like every other code entered in Box 7a of Form 1099-R. It tells the IRS what the custodian believes the distribution represents, whether it is a normal distribution, an early distribution, or a QCD.

Even if the custodian reports a distribution with Code Y, that alone does not determine whether the distribution qualifies as a QCD.

For example: Assume Mary instructs her IRA custodian to send a $10,000 distribution directly to an organization that both she and the custodian believe is an eligible charity. Based on the information available, the custodian reports the distribution with Code Y.

Later, it is determined that the organization is not an eligible charitable organization for QCD purposes.

Despite the Code Y reporting, the distribution does not qualify as a QCD because one of the statutory requirements has not been met.

The reverse can also occur. An IRA owner may receive a Form 1099-R without Code Y, yet the distribution nevertheless qualifies as a QCD.

Consider, too, that Code Y also cannot account for circumstances known only to the taxpayer. For example, a Form 1099-R may report a $50,000 distribution with Code Y, yet only $30,000 qualifies as a QCD because the remaining $20,000 represents the taxpayer’s aftertax basis. Likewise, because the annual QCD limit applies across all of an individual’s IRAs, a custodian has no way of knowing whether distributions from other IRAs cause the taxpayer to exceed the annual limit.

In each of these examples, it is the taxpayer, not the custodian, who is responsible for reporting the transaction correctly on the tax return.

In short, while Code Y reflects what the custodian knows, it is the tax return that reflects what the law requires.

Why Some Custodians Are Saying ‘No’ to QCDs Through IRA Checkbooks

There is also a practical reason custodians may take different approaches.

When an IRA owner writes a check using an IRA checkbook, the custodian may not know whether the payee is an eligible charitable organization. Nor can the custodian determine whether all of the other QCD requirements have been satisfied.

Because of those unknowns, some custodians may choose not to report these transactions with Code Y. That is an operational decision. It does not necessarily answer the legal question of whether the distribution qualifies as a QCD.

What Does the Law Say?

The Internal Revenue Code provides that a QCD must be made directly by the trustee to an eligible charitable organization.

When an IRA owner first receives a distribution into a personal checking account and later writes a personal check to a charity, the answer is straightforward. That payment is not a QCD because the distribution was first made to the IRA owner.

A check drawn directly on an IRA presents a different question. The funds remain in the IRA until the check clears, and only then does the IRA custodian report the distribution on Form 1099-R.

The unresolved question is whether a check signed by the IRA owner but drawn directly on the IRA and honored by the IRA custodian satisfies the statutory requirement that the distribution be made directly by the trustee.

To date, I have not found IRS guidance specifically addressing that question.

What This Means for IRA Owners

While the introduction of Code Y is a welcome improvement to Form 1099-R reporting, it has also highlighted an area where custodians’ reporting practices and the tax rules do not always align.

Custodians are taking different approaches to reporting QCDs made by IRA checkbooks, and the IRS has not yet addressed whether a check drawn directly on an IRA satisfies the statutory requirement that a QCD be made directly by the trustee.

Until additional guidance is issued, IRA owners should remember that a custodian’s reporting policy does not necessarily determine the tax treatment of a distribution.

Whether or not Code Y appears on Form 1099-R, the taxpayer determines on the tax return whether the distribution qualifies as a QCD.

If you use an IRA checkbook and intend to make QCDs:

• Ask your IRA custodian how distributions made by IRA checks are reported on Form 1099-R.
• Make sure the check is payable directly to an eligible charitable organization.
• Keep copies of the checks and the charity’s written acknowledgments.

Be sure to follow the IRS instructions for reporting the QCD on your federal income tax return, regardless of whether Code Y appears on Form 1099-R.

Questions I Hope the IRS Will Answer

Until the IRS resolves what appears to be differing interpretations among custodians, I think the following questions deserve clarification:

1. Does a check drawn directly on an IRA satisfy the requirement that a QCD be “made directly by the trustee?”
2. If an IRA check otherwise qualifies as a QCD but is not reported with Code Y, does the IRS expect taxpayers to self-report the transaction on Form 1040?