If you make qualified charitable distributions (QCDs) from your individual retirement accounts (IRAs), you could notice something different when it comes to filing your taxes this year. While the rule I will discuss here was in place last year, it is being addressed in IRS Publication 590-B for the first time.

The "What's New" section of the draft 2021 publication (tinyurl.com/47ntk53j) warns that "Qualified charitable distributions (QCDs) may be reduced. Beginning tax years after December 31, 2019, your maximum annual exclusion for QCD may require an additional adjustment."

The potential reduction affects those who made QCDs AND contributed to their IRAs (deductible contributions to tax-deferred IRAs for 2021 or for 2020).

QCDs: QCDs allow you to make tax-free withdrawals from your IRA to donate to charity, but only if you fall within the narrow confines of QCD rules.

You must be at least 70 1/2 years old (not 72) to make a QCD. The withdrawal must go to a qualified charity, one that is "eligible for tax-deductible charitable contributions." (Use the IRS Tax Exempt Organization Search tool at tinyurl.com/yp4ewwv7). The withdrawal must be a direct transfer from your IRA trustee to the charity. The most you can donate to a charity as a QCD is $100,000 per year.

Taxpayers can use QCDs to offset required minimum distributions (RMDs) for IRAs, which begin at age 72. For example, if an RMD is $30,000, a taxpayer can do a QCD of $30,000 to offset the taxable income on the $30,000 RMD. (That means you will avoid a tax bill on the $30,000, but the money goes to charity, not to you.)

Deductible IRA contributions: If you make deductible contributions to your tax-deferred IRA after age 70 1/2, you will need to adjust the QCD downward.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act (tinyurl.com/3xju8rvs) ended an age limitation (formerly 70 1/2) for contributing to a traditional IRA.

The SECURE Act also provided that taxpayers who make a deductible IRA contribution after turning age 70 1/2 needed to adjust their QCD limit to account for the contribution. Alexander Kotwal, a CPA and tax manager for national accounting and advisory firm Marcum LLP, offers this explanation: "The maximum QCD exclusion is reduced by the excess of deductible IRA contributions in years in which the taxpayer was age 70 1/2 or older, over the total QCDs reported in all tax years preceding the current tax year. For example, if they made a total of $10,000 in deductible IRA contributions for years after 12/31/2019 in which they were 70 1/2 or older and a total of $2,000 in QCDs in prior tax years, their QCD limit would be $92,000 for the applicable tax year."

That calculus is explained in Appendix D of the new 2021 (still in draft form) Publication 590-B. However, let me share a word of caution. The formula seems to contain a typo. If you use the instructions in the draft of Appendix D, then subtracting $-8,000 from $100,000 would result in $108,000. The correct result, as mentioned above, is $92,000.

An IRS spokesperson confirmed that the QCD worksheet will be corrected for Appendix D when the final version of Publication 590-B is released for the 2021 tax year.

Be sure to consult your tax adviser if you have made QCDs and deductible IRA contributions in the past, or if you are thinking of doing either in the future, as there is now an additional factor for your decision-making.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

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If you are among 6 million taxpayers still waiting for your prior year's tax return to be processed, you may be nervous about interest and penalties accruing during the wait.

Reader C.K. described the following problem:

"My husband and I ... [filed] an amended return ... as the IRS decided we had underpaid and owed thousands. ... We sporadically receive written communications from the IRS advising us that they are continuing to add interest to the amount that they say we owe while acknowledging that indeed they have received our amended return and have not yet looked at it."

The question is, should people in C.K.'s situation pay the amount the IRS says in their letters is owed, including interest? Will that stop interest continuing to accrue? What if the amended return proves there is no further tax owed?

For some general insights, I asked attorney Leonard Calbo, a partner with Connecticut-based Smolin, Calbo, Davidson, and Associates LLC, to share his perspective.

While this is not clear from C.K.'s email, Calbo explained that if a taxpayer files a tax return without paying the taxes owed in full, they should take action. "I would recommend they calculate the interest owed on the balance due and send in a check for that amount plus the balance due," explained Calbo. "Otherwise, the interest will keep running and they are at the mercy of when the IRS gets to it." (More details on the IRS and interest can be found at tinyurl.com/ye23y5v8.)

If an amended return is filed, a taxpayer may continue to get letters from the IRS about taxes due. "The problem is the underreported unit doesn't necessarily know whether an amended tax return was filed and will continue to send out notice of the balance due," explained Calbo.

For that reason, the tax adviser for someone in C.K.'s situation might contact the agent listed on the notice to explain that an amended return was filed and received by the IRS.

An IRS spokesperson explained why notices can be sent out even if an amended return is filed: "Technically, the billing notice is valid until we process the amended return. Until the amended return is processed, the original return is all we have."

Is there anything else that can be done? A taxpayer can file Form 9243, Collection Appeal Request, according to Alexander Kotwal, a CPA and tax manager for Marcum LLP, a national accounting and advisory firm headquartered in New York City. Kotwal said it allows a taxpayer "to provide a proposed solution to settle their balance due via the amended return. Filing Form 9243 generally stops the collection process until the issue is settled between the IRS and the taxpayer."

If a taxpayer does owe money based on an amended return, Calbo pointed out that IRS Form 1040-X does not have a line for penalties or interest to be added to the balance that is due: "The IRS says not to include it and they will send you a bill later for any additional penalties or interest the taxpayer may owe."

Calbo's firm calculates "what we think [is] the interest owed and any applicable penalties with the additional tax owed to stop the running of them," and includes that amount with the return. With the IRS estimating that it is taking more than 20 weeks to process amended tax returns, "If you follow their instructions of not including the interest and penalties, you could wind up paying interest for 20 weeks or more. We don't recommend that," Calbo said.

What if you overpay? Calbo said that the taxpayer "will eventually be issued a refund." As the IRS spokesperson noted in last week's column about amended returns, "If a refund is approved, any existing balance due, plus any accumulated penalties and interest, will be wiped out."

It's often said that it pays to be patient, but with the IRS backlog being what it is, consider, together with your tax adviser, the pros and cons of sending in a check. Follow the guidance of your tax adviser; only he or she will be able to direct you, as taxes are unique to each taxpayer's situation.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

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If you are among the more than 2 million people who have been waiting since last year for your amended IRS tax return to be processed, you are likely frustrated -- and with good reason.

A reader lamented that she filed an amended return for her 2019 taxes and received an acknowledgment from the IRS of receipt, but is still waiting for a response.

The reader’s letter does not come as a surprise.

National Taxpayer Advocate Erin M. Collins has made note of unprocessed amended tax returns. The role of the national taxpayer advocate is to advocate on behalf of taxpayers and help them resolve issues with the IRS.

In November of 2021, in a blog (tinyurl.com/y5zc8f3h) on the website of the Taxpayer Advocate Service (TAS), Collins wrote: “I have made the difficult decision to suspend accepting cases where the sole issue involves the processing of amended returns until the IRS is able to work through its backlog. ... Under our current procedures, TAS does not accept cases in which we cannot meaningfully expedite or improve case resolution for taxpayers. Amended returns fall into this category.”

According to a post on the IRS website, “As of January 8, 2022, we had 2.3 million unprocessed Forms 1040-X. We are processing these returns in the order received and working hard to get through the inventory. The current timeframe can be more than 20 weeks instead of up to 16.” See the IRS website (tinyurl.com/yckwuuhd) for more information on amended returns.

Why the extended delay? Collins, in her annual report to Congress in January, pointed out some of the challenges for the IRS. While the number of individual taxpayers the IRS serves has increased approximately 19% since 2010, its workforce has shrunk by about 17%. The COVID-19 pandemic also adversely affected IRS operations. However, Collins said that the IRS “performed well under the circumstances.”

Meanwhile, what is the outlook for people awaiting the completed processing of their amended return?

I reached out to an IRS spokesperson, who said, “Our folks are working hard to process returns, both original and amended. If [a taxpayer is] already aware that we’ve received their amended return, our folks will process it, though ... it could be a while.”

The spokesperson said you can monitor the progress of an amended return by checking the “Where’s My Amended Return?” tool at IRS.gov (tinyurl.com/4kdvdzb8). The available information includes when the amended return has been received by the IRS, when an adjustment has been made to a taxpayer’s account (refund, balance due or no tax change), and when the processing has been completed.

In case you’re thinking of calling the IRS, an online FAQ discourages calls -- calling the IRS will not get an amended return processed any faster (tinyurl.com/4xns3pey). The IRS will contact you if more information is needed to process an amended return, according to the FAQ.

If your amended return calls for a refund, “any existing balance due, plus any accumulated penalties and interest, will be wiped out,” according to the IRS spokesperson. Plus, you may earn some interest. “When it takes longer than 45 days to process a refund claim, interest is paid on the refund,” the spokesperson said.

That’s good news -- once an amended return is processed. In the meantime, the waiting continues.

To follow progress, set up an online account on IRS.gov (tinyurl.com/43be4p3h). There you can view the status of filings, make tax payments and access tax records.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

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