In Schweizer v. Comm’r TC Memo 2022-102, the Tax Court held that the denial of a $600,000 charitable deduction for the donation of a work of art was reasonable because the tax return included an incomplete Form 8283 as well as the taxpayer’s reliance, and lack of care and ordinary prudence, on a professionally prepared tax return. This, along with the earlier case I reported on, Martha L. Albrecht v. Commissioner T.C. Memo 2022-53, reinforces the fact that when a charitable donation is made of non-cash assets, the taxpayer needs to take care that the return is prepared correctly; and, if they are relying on a professional preparer for the preparation of the tax return, to get their assurance in writing, that the return is properly prepared. I have included a summary of what a Form 8283 should include when you review your return.
Heinrich Schweizer was born and educated in Germany and, from an early age, had a keen interest in African Art. He worked for Sotheby’s in New York City before he returned to Germany to work on his PhD in Law. In 2006 he accepted a position at Sotheby’s in New York as their Director of African and Oceanic Art. As part of his employment, he worked with the appraisal staff at Sotheby’s to give clients of the auction house valuation estimates of artwork consigned to Sotheby’s for sale. When he moved to New York, Mr. Schweizer engaged the firm Wasserman & Wise as his legal counsel which included the preparation of his income tax returns.
Mr. Schweizer has a history of donating art to charity, donating $60,000 worth in 2007; $100,000 worth in 2009 and $10,000 in 2010. On December 6, 2011 Mr. Schweizer donated a Dogon Sculpture he acquired in 2003 for $100,000 to the Minneapolis Art Institute; and, he claimed the donation of the piece as a charitable deduction on his 2011 federal income tax return.
As with any donation of artwork valued at over $20,000, Mr. Schweizer obtained a signed appraisal of the work from Michael Oliver, an African Art dealer (who was not a certified appraiser nor has he done such a Fair Market Appraisal before or since) Mr. Schweizer, through Wasserman & Wise, filed a request for a Statement of Value from the IRS’ Art Advisory Panel on June 7, 2011, which any taxpayer may request, if the Fair Market Value is over $50,000. This request was filed with the complete paperwork including a signed appraisal. There was no response from the Panel before Mr. Schweizer had to file his 2011 return, which was due by October 15, 2011.
The 2011 tax return prepared by Wasserman & Wise was signed by Mr. Schweizer. Mr. Schweizer claimed that he met with the preparer and inquired about the incomplete Form 8283. He was assured that, since the Request was filed, the IRS already had the missing documents. The preparer claimed that he would not have told Mr. Schweizer that, nor did he approve filing the return in an incomplete state.
The IRS first claimed that the actual value of the Sculpture was not $600,000 but $250,000, then amended their denial of the charitable deduction for the donation due to the incomplete nature of the Form 8283 as filed. The Tax Court agreed and also held that, though the deduction would have been allowed if the incomplete Form 8283 was due to a reasonable cause, Mr. Schweizer had not exercised ordinary business care and prudence in the review and signing of the tax return. Though actual reliance on expressed professional advice might imply such a level of care and prudence, merely signing a return prepared by a professional is not.
Consideration whether or not Mr. Schweizer did or did not reasonably rely on the professional advice of Wasserman & Wise and their tax preparer, is a fact-based decision and not something that is a good lesson to take from this case. The important takeaway from this decision, is that when claiming a deduction for a non-cash contribution of property, you must review the Form 8283 yourself to ensure that it is correctly prepared and complete. If there are any issues, bring these to the attention of the preparer, preferably in writing and get a response. With that in mind, here is a short checklist of what to look for on Form 8283.
First, what type of property is it? Form 8283 has two sections: Section A and Section B. Section A is for property worth less than $5,000 per item (or group of items like a coin collection) or for publicly traded stocks, vehicles, inventory or intellectual property of any value.
For the items on Section A you will need to list:
- The charity that received the property,
- If a vehicle, the VIN number,
- A description of the property and its condition including the year, make and model for vehicles;
- for publicly traded stocks, the name, number of shares, date and cost of acquisition, your cost basis, the Fair Market Value and the determination of the Fair Market Value.
Section B is for donations of greater than $5,000 per item, or group of items. For Section B, for each item, you will need to identify what type of property it is, and include:
- A description of the property,
- The condition of tangible or real property,
- The date acquired by you,
- How you acquired it and your cost basis,
- Any cash you may have received When is there is a bargain sale, and
- The date and charity that receives the donation.
It is likely that, for each item over $20,000, you will need to have a separate attachment for all of the information required for Section B for each item. You should also be familiar with the Standards for Appraisals of art and other tangible property, which is the same as the standard required for deductions from Gift and Estate Taxes.
It may seem unfair to deny a deduction just because a form was not filled out correctly, and perhaps it is, but it is not unfair to require that when you do sign a tax return, you have exercised at least ordinary care and prudence in what you are claiming in that return.