Tax Court Addresses Contributions of Noncash Property

Donations of property valued at more than $5000 require proof of a qualified appraisal for tax purposes.

Background. A married couple claimed charitable contribution deductions for cash, clothing, and other household items they donated to their church on their 1998 and 1999 tax returns. They valued their cash donations for each year at about $5,000, and their property donations at $400. Their tax returns were audited, and the IRS concluded that the actual value of the property donated to the church was about $5,000 in 1998 and $3,800 in 1999, and that their cash contributions were only a few hundred dollars in both years.

The IRS claimed that the couple grossly understated the value of their property donation so that they would not have to comply with the substantiation requirements that apply to donations of property valued at more than $500 (Form 8283, Section A) and more than $5,000 (a qualified appraisal, and a qualified appraisal summary on Form 8283, Section B).

The Tax Court agreed. It concluded that the couple’s tax return preparer deliberately listed their noncash charitable contributions on the returns at less than $500 and inflated the cash contributions to avoid the need for appraisals and written acknowledgments from the church. As a result, the court concluded that the couple was not entitled to any deductions for their noncash contributions for the 2 years at issue. It allowed a $300 deduction for cash contributions in each year.

Relevance to church treasurers. This case is important for two reasons. First, it illustrates that donors may lose a deduction for contributions of noncash property valued at more than $500 if they fail to complete Form 8283, Section A, and include this form with their tax return. Section A is easy to complete, and does not require a formal appraisal. Second, donors will lose a deduction for noncash property valued at more than $5,000 if they fail to obtain a “qualified appraisal” of the donated property and include an appraisal summary (Form 8283, Section B) with their tax return. Satriana v. Commissioner, T.C. Sum. Op. 2002-84.

Tip. Do not assume that donors are familiar with the substantiation rules that apply to gifts of noncash property. Church treasurers should obtain several copies of Form 8283 each January to give to persons who donate noncash property to the church during the year. You can order multiple copies of Form 8283 by calling the IRS forms hotline at 1-800-TAX-FORM.

Tip. Consider contacting donors of noncash property to be sure that they have obtained a qualified appraisal—if you believe they claimed a charitable contribution deduction of more than $5,000.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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