A recent case illustrates the importance of strictly complying with the substantiation requirements (including the contemporaneous written acknowledgement requirement) for a charitable contribution deduction under § 170.
In the case, the taxpayer donated to a museum items from a collection of Native American jewelry and artifacts. As part of that donation, the taxpayer and the museum executed a “Deed of Gift,” which consisted of five pages. On the second page of the deed, it provided that the “donation is unconditional and irrevocable” and that “all rights, titles and interests held by the donor in the property are included in the donation, unless otherwise stated in the Gift Agreement.” Despite a reference to a “Gift Agreement,” no such agreement was provided with the deed and the museum did not provide additional written documentation about the gift.
The taxpayer electronically filed her Form 1040 for the year and reported the donation; she provided a copy of the deed with her return. The Service, however, issued a deficiency, disallowing the donation, asserting that the § 170 requirements were not satisfied.
For charitable contributions of $250 or more to be deductible, § 170(f)(8)(A) requires that the taxpayer substantiate the contribution by a “contemporaneous written acknowledgement” of the contribution that is provided by the donee organization. The subsection continues, in subparagraph (B), by providing that the acknowledgement must contain: (1) the amount of cash and a description of any non-cash property contributed; (2) whether the donee provided any goods or services for the contributed property; and (3) if the donee did provide goods or services, a good faith estimate of their value (or a statement if it consisted solely of intangible religious benefits).
Here, the Service argued that, although the taxpayer received the deed from the museum, that deed did not meet the content requirements for the acknowledgement. In particular, the Service argued that the deed did not specify whether the museum provided any goods or services in return for the donation (or that it represented the entire agreement between the parties). In support of its position, the Service argued that the reference in the deed to the “Gift Agreement” created ambiguity as to whether additional terms—such as relating to the provision of goods or services—were part of the donation.
The Tax Court noted that when a deed does not contain the explicit statement that the donee provided no goods or services, the court could examine the deed to see if such goods or services were provided. Illuminating that examination, the court explained, is whether “the deed (i) effectively states whether any goods or services were provided in the exchange; (ii) states the donation is an unconditional gift; (iii) recites no consideration received in the exchange; and (iv) contains a provision stating that the deed is the entire agreement of the parties.”
The tension, the court explained, was the language in the deed that provided “all rights, titles and interests held by the donor in the property are included in the donation, unless otherwise stated in the Gift Agreement.” (Emphasis added by court.) As such, the court continued, the reference to another document—which could supersede the deed—provided the opportunity for a presence of a quid pro quo arrangement (under which the donor could retain an interest in the donated property). In other words, the Tax Court noted a potential for a side agreement that included additional and possibly superseding terms.
Interestingly, in a footnote, the Tax Court noted that the parties now agreed that the museum did not provide any consideration as part of the donation. However, the court explained that was “of no consequence” because the § 170(f)(8) requirements are examined by “what the taxpayer obtained from the donee organization at the earlier of the time the return was filed or the filing due date . . . .”
The Tax Court concluded by noting that substantial compliance is not good enough to satisfy the “strict requirements” of § 170(f)(8)(B). Consequently, the Tax Court held that the taxpayer was not entitled to the charitable contribution deduction.
The case is Albrecht v. Comm’r, T. C. Memo. 2022-53 (May 25, 2022).
This is only a summary of the case and some portions—including facts, issues, citations, or analysis—may have been omitted or edited; if you need advice in this area, please review the case in its entirety and consult an attorney.