The U.S. Tax Court denied a charitable contribution deduction to a taxpayer for non-cash charitable contributions because the taxpayer did not comply with the reporting requirements.
Background on the Deduction
The Internal Revenue Code allows as a deduction any contribution made within the tax year to a charitable organization. A taxpayer must satisfy certain statutory and regulatory substantiation requirements in order to deduct charitable contributions.
Under the rules, a taxpayer must maintain for each non-cash charitable contribution, with a fair market value of $5,000 or less, a receipt from the donee organization, unless doing so is impractical. The donee receipt must show:
- The name of the donee;
- The date and location of the contribution; and
- A description of the property in detail reasonably sufficient under the circumstances.
A taxpayer who lacks a donee receipt is required to keep reliable written records including, among other things:
- The name and address of the donee organization to which the contribution was made;
- The date and location of the contribution;
- A description of the property in detail reasonable under the circumstances (including the value of the property); and
- The fair market value of the property at the time the contribution was made, the method used to determine the fair market value, and if the fair market value was determined by appraisal, a copy of the signed report of the appraiser.
Under tax law, contributions that exceed $250 must be substantiated by a “contemporaneous written acknowledgment” from the donee. In the absence of a “contemporaneous written acknowledgment,” no deduction is allowed.
For claimed deductions over $500, a taxpayer must:
- Meet the information requirements for non-cash contributions of $250 or more;
- Maintain written records with a more detailed description of the property, including the manner and approximate date of acquisition and the cost or other basis in the property; and
- State such information in an income tax return if required by the return form or its instructions.
For contributions of property in excess of $5,000, in addition to complying with the substantiation requirements for property in excess of $250 and $500, a taxpayer must obtain a “qualified appraisal” of each donated item, and attach to each tax return a fully completed appraisal summary on Form 8283.
Facts of the Case
Upon the death of his mother, the taxpayer was advised to donate a large portion of the property he inherited to charity. He made donations in 2012, 2013, and 2015, and prepared and timely filed tax returns for the 2012, 2013, and 2015 tax years. The taxpayer claimed non-cash charitable contribution deductions of $89,110, $93,087, and $77,300, respectively, on his Schedules A, Itemized Deductions.
The taxpayer also attached Form 8283, Noncash Charitable Contributions, to each of these returns. However, he did not complete Section A of the forms, which asked for detailed information regarding the donated property valued at less than $5,000. He did complete some details on Section B of the Forms 8283, which asked for detailed information about donated property valued in excess of $5,000, including a description of the item, a brief summary of its physical condition at the time of the donation, its appraised fair market value, the date it was acquired, the manner of its acquisition, and the cost or adjusted basis therein. The taxpayer provided some, but not all, of the required information.
After the IRS examined the taxpayer’s returns, he submitted additional information, including letters from an appraiser, regarding some of the donated property.
The taxpayer argued that he strictly complied, or at least substantially complied, with the applicable substantiation requirements for the donations made. But the IRS contended that he did not properly substantiate his non-cash charitable contributions.
Tax Court Decision
Since the Forms 8283 that the taxpayer submitted with his returns were almost entirely incomplete and lacked signatures from the donor, the donee, and the appraiser, the court found that the taxpayer did not comply, either strictly or substantially, with the reporting requirements for non-cash charitable contributions.
Specifically, the court found that for non-cash charitable contributions worth $5,000 or less, the taxpayer did not retain receipts with sufficient detail to identify the individual properties contributed, as required.
Further, for the non-cash contributions valued at $250 or more, the taxpayer failed to obtain contemporaneous written acknowledgements from the donee. For the non-cash contributions valued at more than $500, he failed to maintain written records including detailed descriptions of the properties contributed.
For the non-cash contributions valued at more than $5,000, the taxpayer did not obtain a qualified appraisal and did not attach to each tax return a completed appraisal summary. His appraisals were not qualified because they did not include the physical condition and age of individual items, the qualifications of the appraiser, a statement that each appraisal was prepared for income tax purposes, and the appraised fair market values of individual items donated, as required.
Therefore, the court denied the taxpayer’s income tax deductions. (Chiarelli, TC Memo 2021-27)
As this case illustrates, accurate recordkeeping is important when making charitable donations. Make sure you comply with the strict letter of the law so you can withstand any potential IRS challenge to your deductions. Contact our tax team with any questions.
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