Strict Compliance Required In Order To Secure Charitable Deduction

When a taxpayer contributes $250 or more to a charitable organization, in order for the taxpayer to claim an income tax charitable deduction the organization must provide the taxpayer with a contemporaneous written acknowledgment of the gift.  I.R.C. § 170(f)(8)(A).  The acknowledgment must include (i) the amount of cash and a description (but not the value) of any property other than cash contributed, (ii) an explicit statement of whether the donee organization provided any goods or services in consideration for part or all of the gift, and (iii) a description and good faith estimate of the value of the goods or services referred to in clause (ii), or if such goods and services consist solely of intangible religious benefits, a statement to that effect.  I.R.C. § 170(f)(8)(B).

The following recent cases have confirmed the need for strict compliance with the Internal Revenue Code (the “Code”) in connection with securing the charitable deduction.

Izen v. Commissioner, 38 F.4th 459 (5th Cir. 2022).  Taxpayer contributed a 50% interest in a private jet to the Houston Aeronautical Heritage Society and claimed a deduction of $338,080, which was disallowed.  Taxpayer’s income tax return did not include a contemporaneous written acknowledgment of the gift.  Taxpayer subsequently obtained and filed an acknowledgment of the gift, but the Fifth Circuit found it was not contemporaneous and lacked a statement about whether donee provided goods or services in consideration for the gift.  The taxpayer argued substantial compliance.  The court said that while substantial compliance may suffice to meet the requirements imposed by the Treasury, it does not satisfy requirements imposed by the Code.

Albrecht v. Commissioner, T.C.M. (RIA) 2022-53.  In this case, the  taxpayer claimed an income tax deduction of $463,676 for 120 items of jewelry she donated to the Wheelwright Museum of the American Indian in Santa Fe, New Mexico.  Unfortunately, while the taxpayer did obtain contemporaneous written acknowledgment of the gift, the acknowledgment did not make clear whether the museum provided any goods or services in exchange for the donation.  Hence the court found that while taxpayer had substantially complied with Code, substantial compliance, “unfortunately for petitioner, does not satisfy the strict requirements of section 170(f)(8)(B).”

Keefer v. United States, 2022 WL 2473369 (N.D. Tex. July 6, 2022)(slip op.).  This case is a reminder that when a contribution is made to a donor advised fund (“DAF”), there are additional requirements in that the acknowledgment must include a statement by the DAF’s sponsoring organization that the organization has “exclusive legal control” over the assets contributed to the DAF.  I.R.C. § 170(f)(18)(B).  In Keefer, the court held that substantial compliance did not support the charitable deduction.

For charities and their donors, the message of these cases is clear:  Substantial compliance is not sufficient!  Charitable organizations should be scrupulous in issuing contemporaneous written acknowledgments of gifts and should ensure the acknowledgments comply with the applicable Code sections.  And taxpayers making large donations should be rigorous in obtaining an appropriate written acknowledgment from the charity at the time of making the gift.

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