How to acknowledge a qualified charitable distribution (QCD)

Older Americans with individual retirement accounts (IRAs) can meet their required minimum distribution by making qualified charitable distributions (QCDs) to eligible nonprofit organizations. This method offers a nice option for donors to support organizations they care about, and brings much-needed financial support to the organizations they choose. But, in order for the donor to satisfy the required minimum distribution from their IRA, nonprofits need to properly record and acknowledge qualified charitable distributions.

Key things to understand about qualified charitable distributions

• QCDs are a gift from the donor, not from the company that holds their IRA. For this reason, when you enter this into your donor management system, you should enter it as a gift on the donor’s record.
• Though a QCD satisfies the donor’s obligation to take a required minimum distribution from their IRA, it is not income and it is not tax-deductible for the donor. When entered in your donor management system, QCDs should be entered with a tax-deductible amount of $0. (Note: This also means that if your organization sends annual statements to donors listing their tax-deductible contributions for the calendar year, these gifts will not be included.)
• Donors cannot receive a benefit from the nonprofit organization for making a qualified charitable distribution. For example, QCDs cannot be used to purchase auction items or to sponsor a table at a gala. The nonprofit must make it clear in their acknowledgment to the donor that no goods or services were received in exchange for the QCD.

How to acknowledge QCDs

Donors need to report qualified charitable distributions on Form 1040 for the IRS, and they must have a receipt with specific information from the nonprofit organization. Otherwise, a QCD will not count toward the donor’s annual minimum required distribution. This is why it’s so important that nonprofits acknowledge QCDs properly.

To ensure that your organization properly acknowledges QCDs, create an acknowledgment template used specifically for gifts of this nature. For your own sake, give this acknowledgment a clear name like “QCD Acknowledgment Template” so its purpose is obvious to anyone at your organization who may be acknowledging gifts.

Your acknowledgment template should:

• Be addressed to the donor.
• List the date and amount of the gift. Remember that QCDs are not tax-deductible, so if you receive a QCD of $1000, you can thank the donor for their contribution of $1000 and state that $0 of that gift is tax-deductible.
• Clearly state that no goods or services were received by the donor in exchange for the gift.

It’s also a good idea to include:

• Contact information for a point person at your organization in case the donor needs to be in touch for clarification.
• A copy of the check sent by the company holding the IRA, so the donor has it for their records.

Conclusion
Qualified charitable distributions are a useful mechanism for older donors to support nonprofit organizations, but those donors will need proper documentation from the nonprofit in order for the QCD to count toward their required minimum distribution. You can make this process convenient for donors by providing them with an accurate acknowledgment of their QCD. For more information about QCDs, refer to IRS Publication 590-B.