Key point. Charitable contribution deductions for contributions of noncash property are subject to various substantiation requirements. Failure to comply with these requirements can result in a loss of any deduction, even if there is no doubt that a contribution was made.
The United States Tax Court upheld the IRS's denial of a $65 million charitable contribution deduction because the written acknowledgment issued by the donee charity was not "contemporaneous" as required by the tax code. On its 2007 tax return, a partnership claimed a charitable contribution deduction of $65 million. In order to substantiate a charitable contribution deduction of $250 or more, a taxpayer must secure and maintain in its files a "contemporaneous written acknowledgment" (CWA) from the donee organization. IRC 170(f)(8)(A). The CWA must state (among other things) whether the donee provided the donor with any goods or services in exchange for the gift. IRC 170(f)(8)(B)(ii).
The IRS audited the partnership's tax return and disallowed the charitable contribution deduction in its entirety. The donee organization thereafter submitted an amended return that included the information specified in subparagraph (B), including whether the donee provided the donor with any goods or services in exchange for the gift. The partnership appealed to the United States Tax Court. The partnership asked the court to dismiss the case on the ground that the substantiation requirements had been met. The court declined to do so.
The court began its opinion by stressing that "the requirement that a CWA be obtained for charitable contributions of $250 or more is a strict one. In the absence of a CWA meeting the statute's demands, no deduction shall be allowed." If a taxpayer fails to meet the strict substantiation requirements of section 170(f)(8), "the entire deduction is disallowed."
Further, the doctrine of "substantial compliance" does not apply to the failure to obtain a CWA meeting the statutory requirements. In other words, a taxpayer's substantial compliance with the tax code's substantiation requirements is no defense to noncompliance. The court explained:
Section 170(f)(8)(B) [of the tax code] provides that a CWA must include the following information:
(i) The amount of cash and a description (but not value) of any property other than cash contributed.
(ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i).
(iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii)… .