Q: A retired couple in our church makes contributions to the church out of their IRA accounts. These contributions are made directly by their IRA trustee to the church. Is there any reporting or receipt that we need to issue to them to help substantiate their contribution?
What Is a Qualified Charitable Distribution?
A qualified charitable distribution (QCD) is a distribution made directly from an IRA trustee to a charitable organization, including a church. For the distribution to qualify, the IRA owner must meet the following criteria:
- The distribution is made on or after reaching the age of 70½.
- The amount distributed would otherwise be taxable income if not for this provision.
- The full amount of the distribution qualifies as a charitable deduction under current tax law without reductions or exclusions.
Key Limits for QCDs
- The maximum annual exclusion for QCDs is $100,000.
- Married couples filing jointly can each exclude up to $100,000 from their respective IRAs.
- Any QCD exceeding this limit will be included in taxable income as with regular distributions.
What Does the Church Need to Provide?
For any QCD, including those of $250 or more, churches must follow IRS substantiation rules for charitable contributions. The IRS states in Publication 590 that donors must have “the same type of acknowledgment” required for other charitable contributions.
Required Acknowledgment Elements:
- Written Format
The acknowledgment must be a written statement issued by the church. - Detailed Information
The receipt must:- State the amount of cash contributed.
- Indicate if the church provided goods or services in exchange (e.g., token items).
- Include a good faith estimate of the value of any goods or services provided.
- State that the only benefit received was an intangible religious benefit, if applicable.
- Timing Requirements
The acknowledgment must be issued by the earlier of:- The date the donor files a tax return for the year the contribution was made.
- The due date (including extensions) for filing that return.
Examples of Proper Receipts
The IRS provides examples in Publication 526 of acceptable written acknowledgments. For instance:
- “Thank you for your contribution of $300 from your IRA. No goods or services were provided in exchange, other than intangible religious benefits.”
Ensuring Compliance
Churches must issue proper receipts for QCDs of $250 or more, even if the funds come directly from an IRA trustee. Ensuring compliance with these requirements not only protects the deductibility of the donor’s contribution but also strengthens the church’s financial practices.
FAQs on Qualified Charitable Distributions for Churches
1. What is the age requirement for a QCD?
The IRA owner must be at least 70½ years old at the time of the distribution.
2. Are there limits on how much can be contributed through a QCD?
Yes, the annual limit is $100,000 per individual. Married couples filing jointly may each exclude up to $100,000.
3. Do churches need to issue receipts for QCDs?
Yes, for QCDs of $250 or more, churches must issue written receipts that meet IRS substantiation requirements.
4. Can a QCD be made to any organization?
No, QCDs can only be made to eligible charitable organizations, including churches.
