Some Recent Court Cases You Should Know About.... | Tax Tip of the Week | No. 187

Due-Diligence Reminders for Charitable Contributions

Several court decisions affirmed IRS denials of taxpayers’ charitable contributions because they failed to satisfy all of the requirements of Sec. 170 and the regulations. These cases serve as reminders for taxpayers to consider their due-diligence standards for charitable contributions. Give us a call any time for advice on how to make contributions that will be safe from IRS challenge. Here is a summary of the cases: •Durden, T.C. Memo. 2012-140: Deduction for cash donations to church denied for lack of Sec. 170(f)(8) substantiation. First letter from church did not indicate whether the donor received anything of value in return for his donation and the second letter was not contemporaneous. •Patel, 138 T.C. No. 23 (2012): A taxpayer gave a fire department the right to conduct training exercises and burn down the house and claimed a deduction of $339,504. No deduction was allowed per Sec. 170(f)(3), which denies deduction for partial interest in land. A license to use is not a donation of property, and the taxpayer did not transfer title to fire department. •Mitchell, 138 T.C. No. 16 (2012): Qualified conservation contribution denied due to failure to comply with Regs. Sec 1.170A-14(g)(2) because the deed of trust on the easement was not subordinated to the easement deed. In a case of first impression, the court held that the taxpayer could not avoid meeting the strict requirement of the subordination regulation for the deed of trust by making a showing that the possibility of foreclosure on that deed of trust was so remote as to be negligible under Regs. Sec. 1.170A-14(g)(3). •Rothman, T.C. Memo. 2012-163: Deduction for a historic façade easement was disallowed because of an improper valuation method. Substantial compliance was also not available because the appraisal failed to meet a number of other requirements. •Dunlap, T.C. Memo. 2012-126: Deduction for façade easement denied because valuation submitted by experts was not credible. •Mohamed, T.C. Memo. 2012-152: Taxpayers donated more than $18 million of real estate to charities in 2003 and 2004, but the deductions were denied because the taxpayers did not obtain qualified appraisals as required by the regulations. •Cohan, T.C. Memo. 2012-8: Deduction was denied because of insufficient verification letter and appraisal. •Kaufman, Nos. 11-2017, 11-2022 (1st Cir. 7/19/12): The court vacated and remanded part of a Tax Court decision because the Tax Court’s interpretation of a regulation under Sec. 170(h) was unduly restrictive. •Whitehouse Hotel L.P., 139 T.C. No. 13 (2012): In a 109-page ruling on valuation of qualified conservation contribution and application of penalties for overstatement, the court found the deduction was overstated and upheld the accuracy-related penalty. •Minnick, T.C. Memo. 2012-345: Deduction for a conservation easement contribution was denied because the mortgage was not subordinated to the easement. 

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