Background. A taxpayer accumulated a “garage full” of obsolete computer equipment over several years. In order to eliminate this clutter, he donated all the equipment to a church. He claimed a charitable contribution deduction on his tax return in the amount of $15,320 for this transaction. The IRS audited his tax return, and requested substantiation of the contribution. The taxpayer provided a copy of a receipt, purportedly from the church, for $15,320. The IRS disallowed the entire contribution, and the taxpayer appealed to the Tax Court. The court concluded that the church’s “receipt” was inadequate substantiation for three reasons:
- The taxpayer failed to prove that the church was a qualified public charity to which deductible contributions could be made. In particular, the court noted that the church had never applied for recognition of exempt status with the IRS.
- Even if the church was a qualified charity, its receipt did not contain the necessary information to adequately substantiate the contribution. The receipt “purported to substantiate a contribution and did not indicate that any noncash contribution had been made. If the taxpayer had made a noncash contribution as he testified, the receipt should have described the location of the contributions and the property contributed. The receipt also should have stated whether the donee provided goods or services as a quid pro quo. The receipt did not provide any of the information necessary to substantiate the contribution that the taxpayer testified he made.”
- Since the taxpayer claimed a contribution deduction in excess of $5,000 for the donated equipment, he was required to obtain a qualified appraisal and attach an appraisal summary (Form 8283, Section B) to his tax return. Since he failed to file an appraisal summary with his tax return, no deduction was permissible.
Application to church treasurers. This case provides church treasurers with a useful review of the substantiation requirements that apply to gifts of noncash property. Note the following points in particular.
First, be sure that any receipt issued by the church complies with the requirements listed in the tax code. A failure to do so can deprive a donor of a charitable contribution deduction.
Second, note that contributions of noncash property for which a donor claims a charitable contribution deduction of more than $5,000 must comply with special substantiation requirements. The donor must obtain a qualified appraisal of the donated property from a qualified appraiser, and attach an appraisal summary to the tax return on which the deduction is claimed (this is done on IRS Form 8283, Section B). As the donor in this case learned, a failure to comply with this requirement may lead to the loss of a charitable contribution deduction.
Third, the qualified appraisal requirement applies to a donation of any single item of noncash property for which a charitable contribution deduction in excess of $5,000 is claimed, or to a donation of similar items of property with a combined value in excess of $5,000. Castleton v. Commissioner, T.C. Memo. 2005-58 (2005).
Key point. Stock is a special case. No qualified appraisal is required for donations of publicly-traded stock, and a qualified appraisal is required for privately-held stock only if the claimed value exceeds $10,000.
Resource. For a full explanation of the substantiation requirements that apply to all forms of charitable contributions, see chapter 8 in Richard Hammar’s 2005 Church & Clergy Tax Guide, which can be ordered by calling 1-800-222-1840 (ask for item L105).
This article first appeared in Church Treasurer Alert, August 2005.