Substantiating a Charitable Contribution

The IRS requires that donors provide specific documentation in order to claim a deduction.

Church Law & Tax Report

Substantiating a Charitable Contribution

The IRS requires that donors provide specific documentation in order to claim a deduction.

Charitable Contributions

Key point. Charitable contributions are subject to a number of substantiation requirements. A failure to comply with these requirements may lead to a denial of a charitable contribution deduction.

The United States Tax Court ruled that a married couple could not claim a $217,500 charitable contribution deduction on their tax return due to their failure to comply with the substantiation requirements. A married couple (the “donors”) claimed noncash charitable contribution deductions of $217,500 on their tax return. To substantiate the donations the donors attached to their return three Forms 8283 (qualified appraisal summary).

Two of these forms were prepared by appraisers who appraised various items of donated property, and the third form summarized the other two. The IRS audited the donors’ return and denied a charitable contribution deduction due to a lack of substantiation. The donors appealed.

The Tax Court affirmed the disallowance of any charitable contribution deduction for the donated property. It noted that for any noncash contribution exceeding $5,000 the income tax regulations require the donor to: (1) obtain a qualified appraisal for the contributed property, (2) attach a fully completed appraisal summary (Form 8283) to the tax return on which the deduction is claimed, and (3) maintain records pertaining to the claimed deduction.

A qualified appraisal must include, among other things, a description of the property in sufficient detail for a person who is not generally familiar with the type of property to ascertain that the property appraised is the property that was contributed, a description of the property’s physical condition, the valuation method used to determine the fair market value, and the specific basis for the valuation. A qualified appraisal must be made no earlier than 60 days before the date of the contribution and no later than the due date of the return, including extensions.

The appraisal summary must include, among other things, a description of the property in sufficient detail for a person who is not generally familiar with the type of property to ascertain that the property appraised is the property that was contributed, a brief summary of the property’s physical condition, the manner of acquisition, and the cost or other basis of the property.

In addition to the substantiation requirements a taxpayer must obtain a contemporaneous written acknowledgment from the donee organization for any contribution of $250 or more. The contemporaneous written acknowledgment must include a description of any property contributed, a statement as to whether the donee provided any goods or services in exchange, and a description and good faith estimate of the value of such goods or services.

The donors conceded that they had not strictly complied with the appraisal and appraisal summary requirements, and had not received receipts indicating whether they had received any goods or services in exchange for their contributions. But, they insisted that they were nonetheless entitled to deduct their contributions since they had “substantially complied” with the substantiation requirements. The Tax Court concluded that even if the contributions were allowable based on substantial compliance with the law, the donors had not satisfied this test since their compliance with the law was far from substantial:

The donors’ documents fail to provide an adequate description of or the condition of the donated items. The Forms 8283 and the appraisal reports provide very generic descriptions, stating the items were in “good working condition” or “operational, clean and in good saleable condition.” An adequate description is necessary because “without a more detailed description the appraiser’s approach and methodology cannot be evaluated.” In fact, their documents fail to even indicate the valuation method used or the basis for the appraised values. We have previously held such information to be essential because “without any reasoned analysis, … [the appraiser’s] report is useless.”

The court also concluded that in addition to their failure to substantially comply with the regulations, the donors failed to demonstrate that they obtained adequate written acknowledgments for their contributions as required by the tax code.

The donors argue that the Forms 8283 can also serve as written acknowledgments because they were signed by the donee. However, neither the Forms 8283 nor the receipts from [the donee charity] contain a statement that no goods or services were provided by the donee in exchange, as required by [the tax code]. We have previously held that statement necessary for a charitable contribution deduction under section 170(f)(8) (B)(ii) of the tax code. The donors argue that section 170(f)(8)(B)(ii) can be read to require the statement only when the donee actually furnishes goods or services to the donor. We disagree. “[C]ourts must presume that a legislature says in a statute what it means and means in a statute what it says there.” In the absence of a clearly expressed legislative intent to the contrary, unambiguous statutory language ordinarily must be regarded as conclusive.

Section 170(f)(8)(B)(ii) plainly states that the written acknowledgment is sufficient if it includes information as to “whether the donee organization provided any goods or services in consideration, in whole or in part, for any property” donated by the taxpayer. The language used is clear and unconditional. There is no reason to read into section 170(f)(8)(B)(ii) the limitation suggested by petitioners. Friedman v. Commissioner, 99 T.C.M. 1175 (2010).

This Recent Development first appeared in Church Law & Tax Report, January/February 2011.

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