Jorgenson v. Commissioner, 79 T.C.M. 1444 (2000).
Background. In 1993 a married couple (the “taxpayers”) donated property having a fair market value of $10,000 to their local Boys and Girls Club. In 1994, they donated a truck having a fair market value of $14,850 to their church. The taxpayers failed to obtain qualified appraisals for both charitable contributions prior to the due date of their 1993 and 1994 tax returns. They were audited by the IRS, and only then did they produce letters from two appraisers (dated after the taxpayers filed their tax returns). The IRS disallowed any deduction for either of these contributions, and the taxpayers appealed.
The Tax Court ruling. The Tax Court noted that the tax code specifies that a taxpayer must obtain a “qualified appraisal” for donated property (except money and certain publicly traded securities) in excess of $5,000. In addition, the income tax regulations require that the taxpayer attach an “appraisal summary” to the tax return, and the IRS has prescribed Form 8283 to be used as the appraisal summary.
The Tax Court concluded: “Although we have not demanded that the taxpayer strictly comply with the reporting requirements of [the regulations] we have required that the taxpayer substantially comply with the regulations in order to take the deduction for a charitable contribution. Based on the record, we find that [the taxpayers] did not timely obtain qualified appraisals and failed to include complete appraisal summaries with their 1993 and 1994 tax returns. Because [they] failed to comply substantially with [the regulations] we hold that [they] are not entitled to deduct the noncash charitable contributions.”
The Tax Court further ruled that the IRS could assess an “accuracy-related penalty” against the taxpayers. Section 6662 of the tax code permits the IRS to assess a penalty of 20 percent on the amount of underpayment of tax attributable to a “substantial understatement” of tax. A substantial understatement of tax is defined as an understatement of tax that exceeds the greater of 10 percent of the tax required to be shown on the tax return or $5,000. The understatement is reduced to the extent that the taxpayer has (1) adequately disclosed his or her position or (2) has substantial authority for the tax treatment of the item. The court concluded that neither the taxpayers nor their accountant “provided an explanation why timely qualified appraisals were not conducted for the noncash charitable contributions and why the appraisal summaries on Form 8283 were not fully completed. We, therefore, sustain [the] imposition of the accuracy-related penalty with regard to the underpayment associated with the … the noncash charitable contributions.”
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 (other than publicly traded securities) 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.
