Protecting Charitable Contribution Deductions

| 1/19/2017


A recent Tax Court case, 15 West 17th Street LLC v. Commissioner, disallowed a $64.5 million charitable contribution deduction because the contemporaneous written acknowledgment provided to the donor by the charity failed to contain all of the required elements.

Section 170(f)(8) of the IRC requires a taxpayer to secure and maintain a contemporaneous written acknowledgment from the donee organization that states, among other things, whether the donee provided the donor with any goods or services in exchange for the gift. However, under the statute, the substantiation requirements do not apply to a contribution if the donee files a return that is in accordance with the guidelines in effect and that includes the required information. Nevertheless, to date, the U.S. Department of Treasury has not issued regulations to implement this donee-reporting regime.

The Tax Court case stemmed from the taxpayer’s 2007 execution of a historic preservation deed of easement in favor of the Trust for Architectural Easements, a qualified Section 501(c)(3) organization. The charitable trust sent the taxpayer a letter acknowledging receipt of the easement, but the letter did not include the statement required under Section 170(f)(8) certifying that the donee organization did not provide the donor with any goods, services, or other value in exchange for the gift. However, after the case was docketed in the Tax Court, the charitable trust did include a statement on an amended Form 990, “Return of Organization Exempt From Income Tax,” filed with the IRS indicating that the charitable trust did not provide goods or services to the taxpayer in exchange for its donation of the historic preservation deed of easement.

The Tax Court rejected the taxpayer’s argument that the trust’s amended Form 990, which included the information required by Section 170(f)(8), satisfied the requirements of the donee-reporting regime and, thereby, eliminated the need for a contemporaneous written acknowledgment. In denying the taxpayer’s motion for summary judgment, the Tax Court held that the charitable trust's submission of its own description of the gift was not acceptable because the IRS has not issued regulations under Section 170(f)(8) to implement the donee-reporting regime described in that section. Accordingly, the Tax Court concluded that the taxpayer failed to obtain contemporaneous written acknowledgment to substantiate the charitable contribution.

The Tax Court’s decision highlights for taxpayers and their tax advisers how important it is to carefully review contemporaneous written acknowledgments received from charitable donees in order to ensure strict compliance with the substantiation requirements of Section 170(f)(8). Failure to do so could result in the disallowance of the charitable contribution.

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Howard Wagner
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Brianne DeSellier