When it comes to charitable contributions, most taxpayers focus on the value of the donation, obtaining an appraisal, and making sure the charity is qualified.
But as two recent Tax Court cases remind us, the IRS can disallow an entire charitable deduction because of a missing sentence in the paperwork.
In these cases, taxpayers donated land worth hundreds of thousands of dollars, completed appraisals, transferred ownership to a city, and filed the required tax forms. Yet the IRS still denied the deduction.
Why?
Because the required documentation wasn’t properly completed.
The Donation That Triggered the Dispute
The case involved two cousins who owned approximately 13 acres of land in Utah.
Originally purchased in 2014 for just $22,000, the property was later appraised at approximately $665,000 when they decided to donate it to Highland City as preserved open space.
The taxpayers appeared to do many things correctly:
- Offered the property to the city in writing
- Obtained city approval
- Executed a deed transferring ownership
- Obtained a professional appraisal
- Completed Form 8283
- Claimed charitable deductions on their tax returns
On the surface, it looked like a properly documented charitable contribution.
Unfortunately, one critical requirement was missing.
The Contemporaneous Written Acknowledgment Requirement
For charitable contributions of $250 or more, the IRS requires a Contemporaneous Written Acknowledgment (CWA) from the charity.
The acknowledgment must include:
- A description of the donated property
- The date of the contribution
- Whether the charity provided any goods or services in exchange
- If goods or services were provided, a description and good-faith estimate of their value
This requirement is not optional.
And that’s where the taxpayers ran into trouble.
The Missing Statement
Everyone involved agreed that Highland City did not provide any goods or services in exchange for the donated land.
However, none of the documents explicitly stated:
“No goods or services were provided in exchange for this contribution.”
The taxpayers argued that the city clearly received the land as a donation and that no reasonable person would believe they received anything in return.
The Tax Court disagreed.
The court ruled that the law requires the acknowledgment to specifically address whether goods or services were provided.
Because the documentation failed to contain that statement, the deduction was denied.
Why “Close Enough” Doesn’t Work
One of the most important lessons from this case is that the IRS and Tax Court often apply charitable contribution rules very strictly.
The court reiterated a principle tax professionals see repeatedly:
Substantial compliance is not enough.
In other words:
- Having most of the required information isn’t enough.
- Having documents that imply compliance isn’t enough.
- Having a reasonable explanation isn’t enough.
If the law requires specific language, that language needs to be there.
Why the IRS May Have Looked Closely
The case also illustrates another reality of tax compliance:
Large deductions attract scrutiny.
The property was purchased for $22,000 and later appraised at approximately $665,000.
That represents a dramatic increase in value over a relatively short period.
Whether the appraisal ultimately withstands IRS scrutiny remains to be seen, but significant deductions often receive additional examination.
When a transaction is likely to attract attention, flawless documentation becomes even more important.
Lessons for Taxpayers
If you’re making a significant charitable contribution, particularly involving:
- Real estate
- Vehicles
- Closely held business interests
- Artwork
- Cryptocurrency
- Other non-cash assets
make sure every documentation requirement is satisfied.
Do not assume that:
- The charity knows what paperwork is required.
- An appraisal alone is sufficient.
- IRS agents will overlook technical defects.
- A court will excuse a missing statement because the intent was obvious.
Intent rarely overcomes a documentation failure.
Best Practices for Charitable Contributions
Before claiming a charitable deduction, consider the following checklist:
Obtain Written Acknowledgment
Make sure the charity provides a written acknowledgment that includes all required IRS language.
Verify the Goods and Services Statement
The acknowledgment should clearly state either:
“No goods or services were provided in exchange for this contribution.”
or provide details about any benefits received.
Secure Qualified Appraisals
Large non-cash donations often require a qualified appraisal and additional reporting.
Complete Form 8283 Properly
Many larger donations require Form 8283 and supporting documentation.
Keep Records Before Filing
The acknowledgment generally must be obtained before filing the tax return claiming the deduction.
The Bigger Tax Planning Lesson
One of my favorite tax planning principles is:
Execution isn’t everything, but it’s a lot.
The taxpayers in this case successfully transferred the property, obtained an appraisal, completed tax forms, and documented the transaction.
Yet a missing sentence may ultimately cost them hundreds of thousands of dollars in deductions.
Tax law is full of situations where a technical requirement can outweigh what everyone knows actually happened.
That’s why proactive tax planning is about more than finding deductions—it’s about properly documenting them.
Final Thoughts
Charitable giving remains one of the most powerful tax planning opportunities available to taxpayers. However, the rules surrounding non-cash contributions are increasingly complex and heavily scrutinized.
Before making a significant charitable gift, especially one involving appreciated assets, consult with your tax advisor to ensure every required document is completed correctly.
Because when it comes to charitable deductions, the difference between a valid deduction and a denied deduction can sometimes be a single sentence.
Considering donating real estate, business interests, cryptocurrency, or other appreciated assets? Let’s discuss the tax implications before you make the gift. Proper planning today can help ensure your generosity produces the tax benefits you expect.
Saving Taxes One Strategy at a Time.
