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CHARITABLE CONTRIBUTION COMPLIANCE ISSUES

Joseph R. Irvine The Ohio State University

Columbus, Ohio

I. Interest in Charitable Contributions A. Joint Committee on Taxation Report.

The Joint Committee on Taxation released a report last October providing an overview of rules relating to the federal tax treatment of charitable contributions and a discussion of economic issues related to federal incentives for charitable giving.

B. The GAO issued a report to the Senate Committee on Finance in May 2009, Tax Gap: Requiring Information Reporting for Charitable Cash Contributions May Not Be an Effective Way to Improve Compliance, available at http://www.gao.gov/new.items/d09555.pdf.

The GAO studied available information for tax years 2001-06 and found the following statistics:

1. Between 2006-09, it is estimated that 28-30% of individual taxpayers claimed cash

contribution deductions 2. Cash contributions are an area of increased examination for the IRS 3. For the tax year 2001, 46% of taxpayers who deducted cash misreported, resulting

in a total of $13.8 billion in overstated deductions 4. An estimated 79% of the misreporting taxpayers overstated their contributions,

with a median overstatement of $504 5. Of the taxpayers who overstated their cash contributions, two-thirds overstated less

than $1,000 6. Approximately 21% of the misreporting taxpayers, however, understated charitable

contributions, with a median understatement of $132 7. An equal percentage of self-preparers and those who used paid preparers

misreported their cash contributions.

C. Notable Deductions. 1. Even Bill Clinton has utilized the charitable contribution deduction: he deducted $2

each for used underwear he donated to charity. http://www.usatoday.com/money/perfi/taxes/2004-01-16-mym_x.htm and

2. Additionally, William Rehnquist utilized the valuation requirements in order to quantify the value of the robe he wore at Clinton’s impeachment trial. He obtained an appraisal from the auction house Sotheby’s. See, e.g., http://www.forbes.com/forbes/2006/1211/218.html.

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II. Overview

A. What is a Charitable Contribution?

1. Section 170 of the Internal Revenue Code (hereinafter all code sections references are to the Internal Revenue Code) provides that an income tax deduction can be taken for any charitable contribution that is made within the taxable year.

2. Subsection (c) defines a charitable contribution as a “gift or contribution made to or

for the use of a qualified charitable organization.”

3. The following quote from Sklar v. Comm’r, 125 T.C. 281 (2005) provides the basic definition of a charitable contribution:

In United States v. Am. Bar Endowment, supra, at 118 the Supreme Court said: The sine qua non of a charitable contribution is a transfer of money or property without adequate consideration. The taxpayer, therefore, must at a minimum demonstrate that he purposely contributed money or property in excess of the value of any benefit he received in return . . . A taxpayer may not deduct a payment as a charitable contribution if the taxpayer receives a substantial benefit for a payment to a charitable organization. Id. at 116-117; Ottawa Silica Co. v. United States, 699 F.2d 1124, 1131 (Fed. Cir. 1983); Singer Co. v. United States, 196 Ct. Cl. 90, 449 F.2d 413, 420, 422 (1971); S. Rept. 1622, 83d Cong., 2d Sess. 196 (1954). If the size of a taxpayer's payment to a charity is clearly out of proportion to the benefit received, the taxpayer may claim a charitable contribution equal to the difference between a payment to the charitable organization and the market value of the benefit received in return on the theory that the payment has the "dual character" of a purchase and a contribution. United States v. Am. Bar Endowment, at 117. To be deductible, a charitable contribution must be a gift; i.e., a transfer of property without adequate consideration. Sec. 170(c); United States v. Am. Bar Endowment, supra at 118; Sklar v. Commissioner, supra at 612.

4. In Kaplan v. Comm’r, T.C. Memo. 2006-16 (2006), the Tax Court stated that the

following essential elements of a valid inter vivos gift must be present to qualify for a charitable contribution:

(1) a donor competent to make the gift; (2) a donee capable of taking the gift; (3) a clear and unmistakable intention on the part of the donor to absolutely and irrevocably divest himself of the title, dominion, and control of the subject matter of the gift, in praesenti; (4) the irrevocable transfer of the present legal title and of the dominion and control of the entire gift to the donee, so that the donor can exercise no further act of dominion or control over it; (5) a delivery by the donor to the donee of the subject of the

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gift or of the most effectual means of commanding the dominion of it; (6) acceptance of the gift by the donee … Guest v. Comm’r, 77 T.C. 9, 15-16 (1981) (quoting Weil v. Commissioner, 31 B.T.A. 899, 906 (1934), affd. 82 F.2d 561 (5th Cir. 1936)).

B. Quid Pro Quo Transactions.

1. When a donor receives a privilege or benefit in return for a contribution, the presumption is that the payment is not a gift. The donor has the burden of proving that the payment is not the equivalent of the benefit’s purchase price and that part of the payment qualifies as a contribution. See Rev. Rul. 67-246.

2. A payment for admission to an event is not deductible even if the charity uses the entire proceeds or if the taxpayer does not attend the event. However, a donor who properly rejects a charity-offered benefit may claim a deduction for the full amount of the gift. See Rev. Rul. 67-246.

3. A deduction for the cost of raffle tickets purchased from a charitable organization is disallowed on the ground that the chance received is full consideration for the payment. See Rev. Rul. 83-130.

C. Charitable Contribution or Business Expense?

1. No deduction is allowed as a business expense for any contribution or gift which

would be allowable as a deduction under § 170 were it not for the percentage limitations or the requirements as to time of payment. This provision applies both to individuals and corporations. See IRC § 162(b).

2. A business expense deduction is allowable if the payment is made with a reasonable expectation of a financial return commensurate with the amount of the donation. See Reg. § 1.162-15(b); Rev. Rul. 54-3.

a. A payment by a corporation to a charitable organization for the use of its name and its cooperation in connection with the corporation’s advertising campaign is deductible as a business expense. See Rev. Rul. 63-73.

b. Regular payments to charities by a stock brokerage business in order to promote business are not contributions, even though they place the charities under no binding obligation, where they are keyed to the amount, character, and profitability of business derived through the charities. See Rev. Rul. 72-314. The business contributed 6% of its brokerage commissions to a charity.

c. PLR 200236027 also concerned a payment made to a charitable

organization based on sales. An insurance company initiated a promotional program in which it would pay an amount equal to 1% of the face value of the insurance policy to a charitable organization when the

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policy matured. The IRS ruled that the payments by the insurance company to the charitable organizations were business expenses rather than charitable contributions. The program was intended to increase the company’s sales.

d. A product discount may be given for charitable or business purposes. See Singer v U.S., 449 F.2d 413 (Ct. Cl. 1971).

3. Where a charitable deduction is foreclosed because the donee is a foreign organization, the contribution may be deductible as a business expense.

D. Reversionary Interest or Retained Rights.

1. Gifts with reversionary provisions may cause contributions to be non deductible. If the likelihood of reversion is “so remote as to be negligible” the deduction will be allowed. See Reg. §§ 20.2055-2(b)(1) and 1.170A-1(e). The example in the regulations is a transfer of land to a city government for as long as the land is used by the city as a public park. The city plans to use the land as a public park and the possibility that the city will not use the land for a public park is so remote as to be negligible; therefore, the donor is entitled to a deduction.

2. In Briggs v Comm’r 72 T.C. 646 (1979) the court defined so remote as to be negligible as “a chance which persons would generally disregard as so highly improbable that it might be ignored with reasonable safety in undertaking a serious business transaction.”

3. A gift made contingent upon a charity raising a certain amount of funds was considered to be non deductible in Rev. Rul. 79-249. The IRS ruled that the possibility of a return of the donor’s funds was not so remote as to be negligible.

4. In Rev. Rul. 2003-28, a donor was denied a charitable contribution for a transfer of a patent to a university due to the condition that a designated faculty member remain on the faculty during the patent’s life. The chance of the faculty member leaving the faculty was not so remote as to be negligible. The donor was granted a deduction for the gift of a patent that could not be transferred or licensed for three years; however, the fair market value was reduced.

5. TAM 200610017 discusses whether transfers of railroad right-of-ways to charitable organizations under the Rails To Trails program qualify for a charitable deduction. Under the program the taxpayer can initiate an administrative action to reacquire and reactivate the railroad lines that were on the property. The IRS stated that due to the ability to reacquire a substantial interest retained by the donor, a factual determination exists as to whether or not the possibility of the property reverting to the donor is so remote as to be negligible.

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6. In PLRs No. 200445023 and 200445024, a donor retained the right to manage a portfolio of publicly traded securities given to a charity. The IRS ruled that the donor’s retained right did not prevent the donor from claiming a charitable contribution deduction for both income and gift tax purposes. There were limits regarding where the account could be invested and it could not be invested in any company in which the donor held, directly or indirectly, more than 5% of the stock. The charity was permitted to withdraw assets from the account or terminate the management agreement at any time. The management agreement ended in 10 years if not terminated earlier.

7. In Rev. Rul. 88-37, an owner of a working interest in an oil and gas lease donated an overriding royalty interest equal to 10% of the gross production to a charity and also donated a net profits interest equal to 10% of the net profits of a working interest to a charity. In both circumstances, the IRS held that no charitable deduction was allowed. The ruling cited IRC § 170(f)(3) which denies a charitable contribution deduction for certain contributions of a partial interest in property. The donor had not contributed its entire interest in the property.

8. In Field Service Advice 1999-951, the IRS denied a deduction for a donation of an option to purchase real property. The taxpayer held both an option to purchase the property and a leasehold interest in the property and was occupying the property. The IRS found that the option to purchase real estate was a property interest that could be contributed to a charitable organization and that it had a value separate and apart from the underlying property. The IRS stated that a writer, or a creator of an option is not entitled to a deduction until the charity actually exercises the option. In the current situation the taxpayer was not the writer of the option, but rather the owner of the option. The taxpayer was not entitled to a charitable deduction because the taxpayer retained the leasehold interest in the property. Therefore, the donation of the option was a donation of a partial interest and nondeductible.

9. See PLR 200202032 for a discussion of restrictions that may be placed on artwork donated to a museum.

E. Earmarked Gifts.

1. A number of cases and IRS rulings have held that funds earmarked for a particular individual are not deductible as charitable contributions. Most of the cases concern either payments made for tuition for particular individuals or payments made to religious organizations for individuals doing missionary work. The charitable organization must have discretion and control over the contribution for it to be deductible. The donor must intend to benefit the charitable organizations rather than the particular individual.

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2. There are also a number of cases in which contributions specifically directed to certain individuals have been allowed as deductible charitable contributions. In Winn v. Commissioner, 595 F.2d 1060 (5th Cir. 1979), the Fifth Circuit reversed the Tax Court’s denial of a deduction for a contribution specifically for an individual. Winn is quoted, seemingly with approval, in PLR 200530016. The ruling also states “a deduction is allowable where it is established that a gift is intended by the donor for the use of the organization rather than a gift to an individual.” The ruling cites Rev. Rul. 62-113, 1962-2 C.B. 10 in which an individual was permitted a charitable contribution deduction to a church for a gift that was used to fund the missionary work of the donor’s child. The test is “whether the organization has full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes.” The ruling also cites Peace v. Comm’r, 43 T.C. 1, (1964), in which the Court permitted a deduction for funds donated to a church mission society with the stipulation that specific amounts go to four designated missionaries. The funds went into a common pool and the church retained control of the actual distribution of the funds. However, in Tripp v. Comm’r, T.C. Memo 1963-244 (1963), a deduction was denied because the funds went to a particular student.

3. Generally, earmarking a particular contribution for a purpose within the donee’s charitable mission is not a problem. In PLR 200250029 contributions to a charitable organization were not impermissibly earmarked for a particular composer even though the donors expressed interest to the charity in supporting the composition of the particular composer. The charity made no commitment to the donor to use the funds to commission the work of the specific composer and there were no representations that the funds would be used for that purpose. In their letter to the donors thanking them for the contribution the charity indicated that there was no assurance that the funds contributed would be used to support the work of the composer. The contribution was used for the expenses of the composer and to pay the composer a commissioning fee and other expenses related to the composer’s appearance at the premier of the composer’s work.

F. Types of Charitable Contributions.

1. Cash gifts of cash are generally deductible up to 50% of the donor's adjusted gross income ("AGI").

2. Long-term capital gain property such as securities or real estate. A deduction is

generally permitted for the fair market value of such gifts. Deductions are limited to 30% of the donor's AGI. The limit can be increased from 30% to 50%, but only if the donor reduces the contribution by the property's appreciation, and reduces the appreciation on any contribution carryovers.

3. Short-term capital gain property such as securities or real estate. Donors may

deduct only the cost basis of such gifts. The deductible limit is 50% of the donor's AGI.

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4. Ordinary Income Property. Gifts of property that would generate ordinary income

if sold (e.g., inventory or artwork created by the donor) generate a deduction equal to the donor's cost basis in the property. The deductible limit is generally 50% of the donor's AGI.

5. Tangible Personal Property other than Ordinary Income Property.

a. Property held long term.

i. If the use of the property by the donee is related to the donee's

exempt function a deduction for the full fair market value is available.

ii. If the use of the property is unrelated to the donee's exempt function,

the charitable deduction must be reduced by the amount of gain that would have been long term capital gain if the property had been sold.

b. Property held short term.

i. The deduction is limited to the donor's cost basis.

ii. Related use is irrelevant.

6. The limits discussed above apply to section 170(b)(1)(A) organizations (generally known as “public charities”). Lesser limits (30% or 20%, depending upon the type of property contributed) apply to private foundations.

III. Receipts – “Substantiation” by “Written Acknowledgement”

A. Gifts of Cash, Checks, or Other Monetary Gifts.

1. For tax years beginning on or after January 1, 2007 any contribution of cash, check, or other monetary gift must be substantiated by a record consisting of a bank record or a written communication from the donee charity showing the name of the donee organization, the date of the contribution and the amount of the contribution. I.R.C. §170(f)(17).

2. The IRS has stated that a bank record without the name of the charity will be

insufficient to substantiate the deduction.

3. Proposed regulation 1.170A-15 states that a bank record includes a statement from a financial institution, an electronic funds transfer receipt, a canceled check, a scanned image of both sides of a canceled check obtained from a bank website, or a credit card statement.

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4. The regulation also states that written communication includes electronic mail correspondence.

B. Noncash charitable contributions of less than $250.

1. Proposed regulation 1.170A-16 requires a donor to obtain a receipt with the name

and address, date and a description of the property contributed.

2. In situations where it is impractical to obtain a receipt, a donor may maintain reliable written records that include:

a. Name and address of the donee. b. Date of the gift. c. Description of the property given. d. Fair market value of the property. e. Method used to determine the fair market value. f. Condition of the property (if clothing or household items).

3. Proposed regulation 1.170A-18 implements § 170(f)(16) provides that no deduction

for a contribution of clothing or household goods will be permitted unless the item is in good used condition or better.

a. This rule does not apply, however, to a contribution of a single household

or clothing item for which the donor claims a deduction of $500 or more where the donor submits a qualified appraisal and a completed Form 8283 with the return on which the deduction is claimed.

b. If the clothing or household item is in good used condition or better and

the taxpayer claims a deduction of more than $500 but less than or equal to $5,000, the taxpayer must file a completed Form 8283 but need not obtain a qualified appraisal.

c. However, even if the household or clothing item is in good used condition

or better, if the taxpayer claims a deduction of more than $5,000, he or she must include a qualified appraisal.

C. Quid Pro Quo Donations – I.R.C. §6115.

1. The charitable organization is required to inform donors that “quid pro quo contributions” in excess of $75 are deductible only to the extent that the contribution exceeds the value of goods or services provided by the organization. - I.R.C. §6115(a).

2. In addition, the organization must provide the donor with a good faith estimate of

the value of such goods or services. - I.R.C. §170(f)(8(B)(iii) and §6115(b).

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3. Consistent with I.R.C. §170(f)(8)(B), a quid pro quo contribution does not include any payment made to an organization, organized exclusively for religious purposes, in return for which the taxpayer receives solely an intangible religious benefit that generally is not sold in a commercial transaction outside the donative context. - I.R.C. §6115(b).

4. Penalty for failure to disclose is $10 per donation, not to exceed $5,000 per fund

raising event. See I.R.C. §6714.

5. The presence of a celebrity at an event does not have to be valued. See §1.6115-1(a)(3) example 3.

6. See Exhibit A for an example of a receipt.

D. Gifts of $250 or More – I.R.C. §170(f)(8).

1. If a donor contributes $250 or more, then section 170(f)(8) denies an income tax charitable deduction unless the taxpayer “substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization…”

2. Importantly, the burden is on the taxpayer to obtain the acknowledgement from the

charitable organization. Section 170(f)(8) “does not impose an information reporting requirement upon charities; rather it places the responsibility upon taxpayers ... to request ... substantiation from the charity of their contribution (and any good or service received in exchange).” H. Conf. Rep. 103-213, at 563-64 (1993).

3. The $250 threshold is for the contributory element of the donation, which is the

amount of the donation that exceeds the fair market value of the goods or services (if any) rendered by the donee (See C. above for quid pro quo contributions).

4. For purposes of the $250 threshold, donations will not be aggregated. See

www.irs.gov/pub/irs-pdf/p1771.pdf and 1.170A-13(f)(1).

5. A donor should not attach the substantiation to his/her tax return but should retain it in his/her records.

6. A failure to substantiate a contribution results in no allowable deduction. See

Castleton v. Comm’r T.C. Memo 2005-58, affirmed by Castleton v. Comm’r, 188 Fed. Appx. 561 (9th Cir. 2006); Gomez v. Comm’r, T.C. Memo 1999-94; Brown v. Comm’r, T.C. Memo 1996-43.

7. In a presentation on appraiser penalties the IRS prepared for IRS Appeals Officers,

it states that no court has ever allowed substantial compliance to satisfy the contemporaneous written acknowledgement requirement. See CCA-331444-09, Number 201002038 at www.irs.gov/pub/irs-wd/1002038.pdf.

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8. The receipt must disclose the amount of cash and a description (but not value) of any property other than cash contributed - I.R.C. §170(f)(8)(B)(i).

9. Whether the donee organization provided any goods or services in consideration, in

whole or in part, for any property contributed - I.R.C. §170(f)(8)(B)(ii).

a. Goods and services that must be disclosed include “cash, property, services, benefits, and privileges ... provided to the donor, including those provided in a year other than the year in which the donor made the contribution.” Treas. Reg. § 1.170A-13(f)(5),(6).

b. Failure to disclose consideration received results in no allowable

deduction. See, e.g. Addis v. Comm’r, 374 F.3d 881 (9th Cir. 2004) (holding that receipts stating that taxpayers received no consideration for their transfers to a tax-exempt organization in connection with “charitable split-dollar” arrangements did not satisfy the substantiation requirement, precluding any deduction for charitable contributions, where taxpayers expected the organization to use their funds to pay part of the premiums on life insurance benefiting their trust). See Part I.E. below for disregarded goods and services.

10. A description and good faith estimate of the value of any goods or services

provided by the donee organization, or, if such goods or services consist solely of intangible religious benefits, a statement to that effect - I.R.C. §170(f)(8)(B)(iii).

a. Payments made for right to participate in a religious service are not

automatically deductible as charitable deductions under the Internal Revenue Code, but rather must still undergo an analysis of quid pro quo benefits received. See Hernandez v. Comm’r, 490 U.S. 680 (1989).

b. Although services of intangible religious benefits are not considered

consideration for the contribution, any portion of a contribution to a religious organization for which a tangible benefit is received falls within the substantiation requirements. See Sklar v. Comm’r, 125 T.C. 281 (2005) (holding that where a family makes a tuition payment to a religious school, the deductible contribution is only for the amount exceeding the fair market value of a comparable secular education). See also Reece v. Commissioner, T.C. Summ. Op. 2009-59 (2009), taxpayers claimed a $2,700 deduction for the payment of their son’s college tuition at Houston Baptist College and miscellaneous gifts and donations. Taxpayers failed to show that the amount paid for tuition exceeded the market value of their son’s education.

c. Individual naming rights are not consideration for a contribution and

therefore do not need to be disclosed.

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11. Examples of Written Acknowledgements.

“Thank you for your cash contribution of $300 that (organization’s name) received on December 12, 2006. No goods or services were provided in exchange for your contribution.”

“Thank you for your cash contribution of $350 that (organization’s name) received on May 6, 2006. In exchange for your contribution, we gave you a cookbook with an estimated fair market value of $60.”

“Thank you for your contribution of a used oak baby crib and matching dresser that (organization’s name) received on March 15, 2006. No goods or services were provided in exchange for your contribution.” See Exhibits B through D for additional examples.

12. Substantiation Problems.

a. In Durden v. Comm’r, T.C. Memo 2012-140 (May 17, 2012), the

taxpayer claimed a charitable contribution deduction for $25,171 in 2007. Commissioner claimed that the taxpayers did not comply with the statute where contemporaneous written substantiation failed to indicate whether the taxpayers received any goods or services in exchange for their contribution. Such an affirmative statement is required by statute. Taxpayers submitted revised substantiation, which was not considered contemporaneous. The court held that the doctrine of substantial compliance did not apply, and ruled in favor of the Commissioner.

b. In Klauer v. Comm’r, T.C. Memo 2010-65 (April 5, 2010), the court dealt with the bargain sale of a scenic overlook by an S Corporation to a charity. The court found that the step transaction doctrine did not apply and ruled in favor of the taxpayer.

c. In Elverson v. Comm’r, T.C. Summ. Op. 2010-36 (Mar. 29, 2010), the taxpayer claimed charitable contribution deductions in the amount of $9,693 for 2005 and $8,362 for 2006. Taxpayer provided bank statements to attempt to substantiate these deductions; however, the court was unconvinced as the amounts designated as charitable contributions included purchases from Wawa, Tobacco Express, ATM withdrawals and checks paid to cash. The taxpayer was unable to identify any of the charities that were recipients of his alleged philanthropy. Finally, taxpayer failed to produce contemporaneous written acknowledgements for any of his claimed contributions. Taxpayer’s deductions were denied for both 2005 and 2006.

d. In Regassa v. Comm’r, T.C. Summ. Op. 2009-166 (Nov. 10, 2009), the

taxpayer claimed a charitable contribution deduction in the amount of $3,175 for contributions to charitable causes in Ethiopia, for contributions to his church and donations of clothes to needy families in the Boston area. The taxpayer provided no substantiation of his charitable

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contributions; however, the court, citing Cohan, found that since he was “an industrious individual working two jobs while attending school” and “his religious commitment appears genuine,” he was entitled to an estimated charitable deduction of $300 for his cash contributions to his church.

e. In Kyne v. Comm’r, T.C. Summ. Op. 2009-98 (June 25, 2009), the taxpayer worked as a sales representative for Thomson West Publishing, selling legal research materials. The taxpayer provided a self-prepared list of his purported charitable deductions, debit card statements and a canceled check to the Memorial Sloan-Kettering Cancer Center. The court found that the canceled check adequately substantiated the taxpayer’s charitable contributions (pre 2007 tax year), but the other purported contributions were not deductible because they were not accompanied by a contemporaneous written acknowledgement, the amount of the charitable contributions changed three times and taxpayer acknowledged that “my accountant who was doing my taxes unfortunately got a little creative and unfortunately I went along with him.”

f. In Reece v. Comm’r, T.C. Summ. Op. 2009-59 (April 30, 2009), the

taxpayers claimed a $4,300 charitable contribution deduction for cash gifts placed in the offering plate at church. Taxpayers provided a letter, contemporaneous and signed by the clerk, from their church stating contributions from them in that amount. The taxpayers also claimed a charitable contribution deduction for other miscellaneous gifts and donations. The taxpayers provided a handwritten list of miscellaneous items contributed to charities but the list did not include the dollar amount of each item nor a receipt; thus, their contributions were not properly substantiated.

g. In Coleman v. Comm’r, T.C. Summ. Op. 2009-16 (Jan. 29, 2009), the

taxpayer claimed a $19,441 charitable contribution deduction for 2004 and $11,061 charitable contribution deduction for 2005 for her contributions to the church of which she was a pastor. The taxpayer purchased a 15-passenger van for the church’s use, fence for the church property and various gifts to the church made by cash or check. Petitioner could not prove that the canceled checks she provided were paid on behalf of the church and failed to provide a contemporaneous written acknowledgement for the expenditures. Taxpayer was permitted a $1,000 charitable contribution deduction in 2005 for the purchase of the fence for the church property based on her submission of canceled checks, letter from the fence supply company, taxpayer’s own log and photographs of the fence. The taxpayer was denied a deduction for the van payments because she continued to own the van and therefore contributed less than her entire interest in the van.

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h. In Stockwell v. Comm’r, T.C. Memo 2007-149 (June 13, 2007), the taxpayer claimed a $225 charitable deduction for cash contributions made and a $924 charitable deduction for property contributions. The taxpayer claimed the cash contributions were made in three $75 contributions to his church but provided no receipts from the church. The court, stating “we may estimate cash charitable contributions under the Cohan rule, found that petitioner was entitled to a $50 deduction for his cash contributions to his church. The court denied the entire $924 property deduction claimed by the taxpayer because he failed to substantiate it.

i. In Stamoulis v. Comm’r, T.C. Summ. Op. 2007-39 (Mar. 12, 2007), an investment banker for Goldman Sachs claimed a $49,000 deduction for designer clothing she had worn once or twice. The court reduced her deduction to $9,000 but did not impose a negligence penalty because she was an “impulsive buyer” who spent an estimated $63,000 on clothes and shoes in the year at issue.

j. In Harrell v. Comm’r, T.C. Summary Opinion 2006-165 (Oct. 16, 2006), the taxpayer’s contributions were reduced from $10,953.00 to $2,550.00. The court did not find the taxpayer’s receipts credible.

k. In Warfield v. Comm’r, T.C. Summary Opinion 2006-145 (Sept. 13,

2006), the taxpayers had cash contributions of $1,790 and $9,040 disallowed for 2002 and 2003, respectively, and $500 of non-cash contributions disallowed in each of the above years due to lack of substantiation.

l. In Muhammad v. Comm’r, T.C. Summary Opinion 2006-144 (Sept. 13, 2006), the taxpayer’s deduction of $8,500.00 for charitable contributions was disallowed for lack of substantiation. The taxpayer claimed all contributions were made in cash and his only evidence was a letter from a Mosque that he received a few weeks before the trial.

m. In Warren v. Comm’r, T.C. Summary Opinion 2006-142 (Sept. 13, 2006), Harrell v. Comm’r, T.C. Summary Opinion 2006-141 (Sept. 13, 2006), and Lewis v. Comm’r, T.C. Summary Opinion 2006-140 (Sept. 13, 2006), each of the taxpayers had charitable contributions disallowed for lack of substantiation.

n. In Haas v. Comm’r, T.C. Summary Opinion 2006-9 (Jan. 30, 2006),, the

taxpayers took a charitable deduction for gifts of property to the Salvation Army, Goodwill Industries, and Sun City’s Animal Rescue. The Court found that the taxpayers only gave general descriptions of the property donated and that the amounts appeared to be inflated. The taxpayers had no corroborating evidence regarding the method they used to value the property. The Court found that the taxpayers failed to prove the value of their contributions, but did not totally disallow the deduction. Using the Cohan Rule, the Court reduced the value from $6,347.00 to $2,000.00.

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The Court also disallowed cash donations to a church, holding that the taxpayers had not met the substantiation requirements. The accuracy-related penalty was also upheld.

o. In Kendrix v. Comm’r, T.C. Memo 2006-9 (Jan. 23, 2006), the taxpayer’s

cash and non-cash charitable contribution deductions were disallowed. The taxpayer’s receipts from a church failed to indicate whether any goods or services had been provided in consideration for the contribution; therefore, the Court held the contributions non-deductible to the extent they exceeded $250.00. The Court also found that the Salvation Army and Goodwill receipts for non-cash charitable contributions failed to state whether those organizations provided any goods or services in exchange for the contributions; therefore, the contributions were nondeductible. In one case the taxpayer had a receipt with the proper language on it; however, the Court denied the deduction because the receipt did not provide detail reasonably sufficient to describe the items of donated property. There was almost no information on the quality, age or condition of the donated items. A worksheet prepared by the taxpayer and attached to an amended Form 8283 was also rejected because it was not prepared contemporaneously with the contributions, but was prepared at the time of the audit. The taxpayer had indicated in a bankruptcy petition that she made no charitable contributions. The taxpayer had worked for the IRS for 33 years.

p. The cash contributions allowed in some of the above cases may not have been allowed under current substantiation requirements.

E. Goods or Services Disregarded – Treas. Reg. §1.170A-13(f)(8).

1. Goods or services that have insubstantial value under the guidelines provided in Revenue Procedures 90-12, 1990-1 C.B. 471 and 92-49, 1992-1 C.B. 987. Goods and services are considered to be insubstantial if the payment occurs in the context of a fund-raising campaign in which a charitable organization informs the donor of the amount of the contribution that is a deductible contribution, and:

a. The fair market value of the benefits received does not exceed the lesser

of 2% of the payment or $99.001, or

b. The payment is at least $49.502, the only items provided bear the organization’s name or logo (e.g., calendars, mugs, or posters), and the cost of these items are within the limits for “low-cost articles,” which is $9.90.

Free, unordered low-cost articles are also considered to be insubstantial.

1 These amounts are for 2012. The amounts are adjusted annually for inflation. 2These amounts are for 2012. The amounts are adjusted annually for inflation.

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2. Annual membership benefits offered to a taxpayer in exchange for a payment of $75 or less per year that consist of:

a. Any rights or privileges, other than those described in section 170(l), that

the taxpayer can exercise frequently during the membership period. Examples of such rights and privileges may include, but are not limited to, free or discounted admission to the organization’s facilities or events, free or discounted parking, preferred access to goods or services, and discounts on the purchase of goods or services.

b. Admission to events during the membership period that are open only to

members of a donee organization and for which the donee organization reasonably projects that the cost per person (excluding any allocable overhead) attending each such event is within the limits established for “low cost articles” under section 513(h)(2).

3. Examples for Part II.D, “Goods and Services Disregarded”:

a. Example 1. Membership benefits disregarded. Performing Arts Center E

is an organization described in section 170(c). In return for a payment of $75, E offers a package of basic membership benefits that includes the right to purchase tickets to performances one week before they go on sale to the general public, free parking in E’s garage during evening and weekend performances, and a 10% discount on merchandise sold in E’s gift shop. In return for a payment of $150, E offers a package of preferred membership benefits that includes all of the benefits in the $75 package as well as a poster that is sold in E’s gift shop for $20. The basic membership and the preferred membership are each valid for twelve months, and there are approximately 50 performances of various productions at E during a twelve-month period. E’s gift shop is open for several hours each week and at performance times. F, a patron of the arts, is solicited by E to make a contribution. E offers F the preferred membership benefits in return for a payment of $150 or more. F makes a payment of $300 to E. F can satisfy the substantiation requirement of section 170(f)(8) by obtaining a contemporaneous written acknowledgment from E that includes a description of the poster and a good faith estimate of its fair market value ($20) and disregards the remaining membership benefits.

b. Example 2. A contemporaneous written acknowledgment need not

mention rights or privileges that can be disregarded. The facts are the same as in Example 1, except that F made a payment of $300 and received only a basic membership. F can satisfy the section 170(f)(8) substantiation requirement with a contemporaneous written acknowledgment stating that no goods or services were provided.

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c. Example 3. Rights or privileges that cannot be exercised frequently.

Community Theater Group G is an organization described in section 170(c). Every summer, G performs four different plays. Each play is performed two times. In return for a membership fee of $60, G offers its members free admission to any of its performances. Non-members may purchase tickets on a performance by performance basis for $15 a ticket. H, an individual who is a sponsor of the theater, is solicited by G to make a contribution. G tells H that the membership benefit will be provided in return for any payment of $60 or more. H chooses to make a payment of $350 to G and receives in return the membership benefit. G’s membership benefit of free admission is not described in paragraph (f)(8)(i)(B) of this section because it is not a privilege that can be exercised frequently (due to the limited number of performances offered by G). Therefore, to meet the requirements of section 170(f)(8), a contemporaneous written acknowledgment of H’s $350 payment must include a description of the free admission benefit and a good faith estimate of its value.

d. Example 4. Multiple memberships. In December of each year, K, an

individual, gives each of her six grandchildren a junior membership to Dinosaur Museum, an organization described in section 170(c). Each junior membership costs $50, and K makes a single payment of $300 for all six memberships. A junior member is entitled to free admission to the museum and to weekly films, slide shows, and lectures about dinosaurs. In addition, each junior member receives a bi-monthly, non-commercial quality newsletter with information about dinosaurs and upcoming events. K's contemporaneous written acknowledgment from the Dinosaur Museum may state that no goods or services were provided in exchange for K’s payment.

F. Date of Contributions.

1. Date of Delivery – a charitable gift is considered made on the “date of delivery.”

a. It determines the tax year in which the gift is deductible.

b. It determines the value of the gift for assets that fluctuate in value (e.g., stock).

c. In some cases it determines whether a gift is short-term or long-term

property.

2. Securities.

a. Delivery must be unconditional and the stock certificate must be properly endorsed.

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b. If a security is hand delivered the day the charity receives the securities is the date of the gift.

c. If a security is mailed the date is the day postmarked, provided it is

received in the “ordinary course of mail,” is the date of the gift.

d. If a security is delivered to the donor’s broker (as his agent) the date the stock is transferred to the charity’s name on the corporation’s books is the date of delivery 1.170A-1(b). The donor loses control over the delivery date and the amount of the deduction if the securities fluctuate in value. In Ferguson v Comm’r, 108 T.C. 244 (1997), the Tax Court held that a charitable contribution was made on the date the donor executed an authorization to transfer the shares to the charity.

3. Gifts by Check.

a. The date of mailing is the date of the contribution. Use certified mail to

establish the date of mailing.

b. If insufficient funds, the delivery date will not be considered to be date of mailing. However, in Reedy v. Comm’r, T.C. Memo 1981-590 (1981) a check was deductible for the year of mailing even though it was dishonored for insufficient funds the following year. This was only because the insufficiency was due to an IRS notice of levy against the account. Upon discovering the insufficiency, the donor placed additional funds into the account to cover the check. The Tax Court held it was deductible in the year of mailing despite being dishonored later.

c. Post-dated checks are not considered gifts until the date on the check.

4. Gifts of Tangible Personal Property.

a. The date of delivery is the day the property is received. Title must be transferred also.

b. Party’s intentions will govern determinations in unusual circumstances.

For example, if the donee simply does not have space to store the donation, the donor may transfer title but must take pains to indicate no intent to retain domain and control over the gift.

c. State law usually determines the legal formalities necessary to constitute

constructive delivery. In Bennett v. Comm’r, T.C. Memo 1991-604, the taxpayer was denied a charitable contribution deduction for a piano he transferred to the College of William and Mary. Because William and Mary did not have the space for the piano, the taxpayer retained possession. A document transferring title was prepared and signed both by the taxpayer and the College. The Tax Court stated that “while tangible personal property normally must be physically delivered to

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complete a gift, the delivery of a deed to the donee may substitute for delivery of the gift where actual delivery is inconvenient or impracticable.” The donor was from Louisiana and Louisiana law required that the document transferring the gift be notarized and signed by two witnesses. The deed of gift actually executed was not notarized or signed by witnesses; therefore, it was ineffective to transfer the property.

5. Real Estate.

a. The delivery date is the day the charity receives a properly executed deed.

b. If the deed must be recorded to pass title under local law, delivery date is

the day it is recorded. See Ankeny v. Comm’r, T.C. Memo 1987-247.

6. Pledges.

a. Pledges are deductible in the year they are fulfilled, not the year they are made.

b. Pledges fulfilled after the donor’s death are deductible as an estate debt,

unless the pledge was non-binding and is fulfilled only in accordance with the will.

7. Options.

a. Options, a promise to sell specified property at a certain price in the

future, is treated like a donor’s pledge.

b. The amount of the contribution is the FMV of the property on the date the option is exercised, minus the exercise price.

8. Credit Card Gifts.

a. They are deductible when the charge is made. It is not necessary to wait

until the donor pays the bank. It is similar to the use of borrowed funds to make a contribution. Rev. Rul. 78-38, 1978-1 C.B. 67.

b. The same is the case when a donor uses “pay-by-phone” account with a

bank: the date of the gift is the day the bank mails, transfers or delivers the funds to the charity. Rev. Rul. 80-335, 1980-2 C.B. 170.

IV. Application of the Substantiation Requirements and Deduction Rules for Specific Types

of Contributions. A. Contributions Made by Payroll Deduction - Treas. Reg. §1.170A-13(f)(11).

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1. A contribution made by means of withholding from a taxpayer’s wages and payment by the taxpayer’s employer to a donee organization may be substantiated by:

a. Pay Stub or W-2 Form showing the amount withheld, and

b. A pledge card or other document prepared by or at the direction of the

donee organization. For contributions of $250 or more, the pledge card must include a statement to the effect that the organization does not provide goods or services in whole or partial consideration for any contributions made to the organization by payroll deduction.

2. For purposes of the $250 threshold, each deduction is considered a separate

contribution. 3. See IRS Notice 2006-110.

B. Distributing Organizations as Donees – Treas. Reg. §1.170A-13(f)(12).

Such organizations are considered donees only for the purposes of substantiation by written acknowledgement and only if the distributee organization provides no goods or services to the donor.

C. Transfers to Certain Trusts - Treas. Reg. §1.170A-13(f)(13).

The substantiation requirements of §170(f)(8) do not apply to a transfer of property to a trust described in section 170(f)(2)(B), a charitable remainder annuity trust (as defined in section 664(d)(1)), or a charitable remainder unitrust (as defined in section 664(d)(2) or (d)(3) or § 1.664(3)(a)(1)(i)(b)), but does apply to transfer to a pooled income fund (as defined in section 642(c)(5)); for such a transfer, the contemporaneous written acknowledgment must state that the contribution was transferred to the donee organization’s pooled income fund and indicate whether any goods or services (in addition to an income interest in the fund) were provided in exchange for the transfer. The contemporaneous written acknowledgment is not required to include a good faith estimate of the income interest.

D. Payments to a College or University for the Right to Purchase Tickets to Athletic Events - Treas. Reg. §1.170A-13(f)(14).

The right to purchase tickets is valued at 20% of the payment for that right.

E. Annuities Purchased from a Charitable Organization - Treas. Reg. §1.170A-13(f)(16).

1. Written acknowledgement must state whether goods and services beyond the

annuity were rendered to the donor.

2. The written acknowledgement need not include the usually required “good faith estimate” of the annuity’s value.

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F. Matched Payments - Treas. Reg. §1.170A-13(f)(17). 1. Goods and services rendered by the donee are in consideration for the original

donor only and not for the donation of the matching payment.

2. Thus, in the written acknowledgement to the matching entity, the donee must state that no goods or services were received in consideration for the payment.

3. Example: Taxpayer makes a $400 payment to Charity L, a donee organization.

Pursuant to a matching payment plan, Taxpayer's employer matches Taxpayer’s $400 payment with an additional payment of $400. In consideration for the combined payments of $800, L gives Taxpayer an item that it estimates has a fair market value of $100. L does not give the employer any goods or services in consideration for its contribution. The contemporaneous written acknowledgment provided to the employer must include a statement that no goods or services were provided in consideration for the employer's $400 payment. The contemporaneous written acknowledgment provided to Taxpayer must include a statement of the amount of Taxpayer's payment, a description of the item received by Taxpayer, and a statement that L's good faith estimate of the value of the item received by Taxpayer is $100.

G. Donations of Services.

1. I.R.C. § 170 permits the deduction of contributions made in money or property, but

deductions are not allowed for donations of time or services. Treas. Reg. § 1.170A-(1)(g).

2. Unreimbursed out-of-pocket expenses directly connected with and solely

attributable to the rendition of gratuitous service performed for a charitable organization may qualify as a deduction. Treas. Reg. § 1.170A-(1)(g). In Work v. Comm’r, T. C. Memo 2005-259, the Tax Court held that the taxpayer could not claim the amount he spent purchasing lunches while volunteering at a museum as a charitable contribution. “While away from home” has the same meaning for charitable purposes as it does for business purposes (travel must involve an overnight stay).

3. Individuals incurring unreimbursed expenses incident to their rendition of services

on behalf of a charity must maintain substantiation of the expenses.

4. The substantiation must include adequate records to support the deduction as well as a receipt from the charity.

5. The receipt should include: a description of the services provided by the donor; a

statement of whether or not the donee organization provided any goods or services to the donor; if any goods or services are provided to the donor, a description and good faith estimate of the value of such goods and services; and, if the donee organization provided an intangible religious benefit, a statement to that effect.

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H. Tangible Personal Property.

1. If tangible personal property valued at $5,000 or more donated to a charity and intended to be used for a related use is sold within three years of the donation, there are adverse tax consequences to the donor.

2. If the property is sold in the year of the donation, the deduction is limited to the

taxpayer’s basis. If the property is sold within three years of the donation, but not in the year of the donation, the donor must report ordinary income equal to the excess of the deduction claimed over the donor’s cost basis in the property at the time of contribution.

3. An exception to the above rules apply if the donee organization certifies that the

property was used in a related way and describes how it was used, or states it was intended to be used in a related way, but the intended use became impossible or infeasible to implement.

4. There is a penalty of $10,000.00 on a donor who knowingly claims a deduction for

fair market value when the donor knows the property will not be used in a related use.

5. This provision is effective for contributions after September 1, 2006.

I. Clothing and Household Items.

1. Contributions of clothing and household items made after August 17, 2006, are deductible only if the items are in good used condition or better.

2. The new rule does not apply to a single item for which a deduction of more than

$5,000.00 is claimed if the donor includes a qualified appraisal with his or her return.

3. Household items include furniture, furnishings, electronics, appliances, linens and

other similar items. They do not include food, paintings, antiques, art objects, jewelry and gems, and collections.

4. This provision is applied at the entity level for pass-through entities; however, the

deduction shall be denied at the partner or shareholder level.

J. Fractional Gifts.

1. No deduction for a fractional interest is allowed unless immediately prior to the contribution all interests in the property were owned either by the donor or by the donor and the donee. Regulations may allow for an exception in cases where all persons who hold an interest in the property make proportional contributions of a fractional interest of their entire interest to the donee organization.

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2. If the donor does not contribute all remaining interest in the property within ten years of the initial gift or, if earlier, death, a recapture rule applies.

3. Recapture also applies if the donee fails to take substantial physical possession of the property and use the property in a related way.

4. Appreciation in value following the initial fractional interest gift is disregarded in

determining the deduction for subsequent fractional interest gifts. This could create estate tax issues for appreciated property.

5. The first gift after August 17, 2006 will be considered the first fractional

contribution under these rules.

K. Taxidermy.

1. Donations of taxidermy property by either the person who prepared, stuffed, or mounted the property, or by any person who paid or incurred for such costs is limited to the lesser of the donor’s costs basis or fair market value.

2. Taxidermy property means any work of art which is the reproduction or preservation of an animal, in whole or in part, is prepared, stuffed or mounted for purposes or recreating one or more characteristics of such animal, and contains a part of the body of the dead animal.

L. Auctions.

1. The donor of an item to be sold at an auction will be treated as any donor of

tangible personal property put to an unrelated use by the donee organization. The deduction will be reduced by the amount that would have been recognized as long-term capital gain had the donated property been sold at its fair market value. Thus, in-kind donations of appreciated tangible personal property to an auction do not make sense.

2. Items donated are deductible and must be substantiated by written

acknowledgement if they are valued at over $250.

3. The winning bidder of an auction item may be entitled to a charitable contribution deduction if the amount paid for the item exceeds the item’s fair market value. The donee organization must make a good faith estimate of the item’s fair market value. See Regulation 1.170A-1(h)(5) example 2. The donee should publish the estimated fair market value of the auction items prior to the auction. The winning bidder’s purchase must be substantiated by written acknowledgement if the payment exceeds the fair market value of the item by $75 or more. See also Rev. Rul. 67-246, 1967-2 C.B. 105 (“[P]ayment... qualif[ies] as a deductible gift only to the extent that it is shown to exceed the fair market value of any consideration received....”).

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4. The donee organization is not required to use an independent appraiser to value the items sold at auction.

M. Raffles.

1. Prizes donated for a raffle will be treated in the same manner as items donated to a

charitable organization for an auction.

2. The value of a donated raffle prize is deductible; however, payments for raffle tickets are not. See Goldman v. Comm’r, 46 T.C. 136, 139 (1966), aff’d, 388 F.2d 476 (6th Cir. 1967); Rev. Rul. 67-246, 1967-2 C.B. 104, Example 5 and Rev. Rul. 83-130, 1983-2 C.B. 148.

3. Thus, only the donated prizes or payments for raffle tickets above the value of the

ticket itself fall within the substantiation requirements.

4. When no payment is required to enter a raffle, any amounts contributed remain deductible. See PLR 200012061.

N. Internet Solicitation (corporate sponsorships, malls, auctions, contributions through a

website). 1. If a purchaser makes a purchase through a charity mall, pays an amount for an item

that exceeds its fair market value, and gives the excess payment to an exempt organization, the excess payment to the organization should be deemed a charitable contribution that gives rise to a charitable deduction for the purchaser, regardless of any arrangement between the online vendor and the exempt organization.

2. Electronic receipts are acceptable for purposes of Sections 6115 and 170(f)(8). See

Charitable Contributions - Substantiation and Disclosure Requirements, I.R.S. Publication 1771, available at http:// www.irs.gov/pub/irs-pdf/p1771.pdf.

O. Charitable Contributions of Automobiles, Boats, Airplanes – §170(f)(12).

1. “Qualified Vehicle” donated to charity, sold by charity.

a. Qualified Vehicles include: 1) automobiles that are manufactured primarily for use on public streets, roads and highways; 2) boats; 3) airplanes. IRS Publication 4303 states that inventory of a vehicle dealer is not considered a qualified vehicle.

b. If claimed value is over $500, donor must comply with the rule.

c. If charity sells the vehicle, deduction cannot exceed gross proceeds

charity receives from sale (i.e., a “deduction cap”).

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d. The deduction cap does not apply if the charity uses the vehicle in a significant manner before selling it or materially improves the vehicle before selling it.

2. Contemporaneous Written Acknowledgement. (Form 1098-C).

a. Contemporaneous acknowledgement should be issued:

i. Within 30 days of the date that the vehicle is sold.

ii. Within 30 days of receipt of the vehicle by charity if one of the

exceptions apply.

b. The receipt must contain:

i. Donor’s name, taxpayer ID, vehicle identification number.

ii. If the charity sells the vehicle, the acknowledgement must include gross proceeds, state that the deductible amount cannot exceed the price and state that the sale was conducted in an arm’s length transaction between unrelated parties.

iii. If the charity retains the vehicle, the acknowledgement must contain

certification that either states the charity’s planned use of the vehicle and the duration of use, or the planned material improvement of the vehicle. The acknowledgement must certify that the vehicle will not be transferred prior to completion of use or improvements.

iv. The statement regarding whether goods or services were provided

by the charity.

v. If the charity gives or sells the vehicle to a needy individual at a price significantly below fair market value and the gift or sale is in direct furtherance of the charity’s charitable purpose, the acknowledgement must contain a statement certifying the above.

c. The donor must attach the acknowledgement and Form 8283 to the tax

return.

d. The charity is also required to provide a copy of the acknowledgement to the IRS.

e. See Notice 2005-44 and Notice 2006-1.

3. Penalties: §6720.

a. For knowing failure to provide written acknowledgement.

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b. For known falsity or fraud in acknowledgement.

c. If the vehicle is sold without use or improvement, the penalty equals the gross proceeds from the sale multiplied by the highest federal income tax rate (currently 35%).

c. If the vehicle is retained for its use the penalty equals the greater of:

i. $5,000.

ii. The claimed value of the vehicle multiplied by the highest federal

income tax rate.

P. Contributions of Patents and Similar Property.

1. For patents and similar property the deduction is limited to the lesser of:

a. Donor’s basis in the property; or b. Fair market value.

2. Additional Deduction: Income from contributed intellectual property can be treated as an additional charitable contribution. See IRC §170(m).

a. Deductions allowed for “qualified donee income” received during period

beginning the year of the contribution and ending 12 years later. b. “Qualified Donee Income” is the amount of donee income attributable to a

“qualified intellectual property contribution” (i.e., the royalties received). c. Donor must notify the charity that the contribution was meant to be made in

accordance with these rules. d. Income is not “qualified donee income” if it is first received by the charity

more than ten years after receipt of the initial contribution.

3. Percentage Limitations: Deduction is limited to a percentage of the qualified donee income.

a. 100% for the first two years. b. In each subsequent year, the percentage is reduced by 10% until it reaches

10% in the eleventh and twelfth years. c. For all years, the deduction is available only to the extent that the aggregate

of all otherwise qualified donee income exceeds the amount deducted for the initial contribution of property.

4. No deductions are allowed after the end of the property’s legal life.

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5. Each charity must file an annual return (Form 8899, a copy follows the outline) by

the last day of the first full month following the close of the donee’s tax year, describing the property, the date of contribution and the amount of net donee income for the tax year allocable to the qualified intellectual property. A copy must also be sent to the donor.

6. Contributions of intellectual property to nonoperating private foundations are still

limited to the lesser of the donor’s basis or the property’s fair market value.

Q. Reporting Requirements for Non-Cash Property Contributions –§170(f)(11).

1. C corporations must obtain qualified appraisals for certain non-cash contributions valued at more than $5,000. This provision is retroactive to contributions made after June 3, 2004.

2. Individuals and corporations must now also attach their qualified appraisals, not

just the Form 8283, to their returns for property with a claimed value that exceeds $500,000.

3. The rule applies to the aggregate of similar contributions (regardless of whether

they were donated to different charities). That is, a group of items donated (to whomever) is considered to be a single donation subject to the appraisal requirement for donations of $5,000 or more.

V. Appraisals.

A. In General – Treas. Reg. §1.170A-13(c) and Prop. Reg. 1.170A-17.

1. Deductions in excess of $5,000 require a qualified appraisal to be made – IRC §170(f)(11)(C) and Treas. Reg. §1.170A-13(c)(2).

2. An appraisal summary (form 8283) must be attached to the tax return. - Treas. Reg.

§1.170A-13(c)(2)(B).

3. The appraisal must be done not more than 60 days before the contribution is made and no later than the due date of the return (including extensions). Treas. Reg. §1.170A-13(c)(3)(i).

4. A charitable deduction was not allowed when a donor (a CPA!) failed to obtain a

qualified appraisal. D'Arcangelo v. Comm’r, T.C. Memo 1994-572.

5. Neither a tax statement as to the value of the property nor an appraisal summary are adequate if the appraisal summary does not have all of the required information. Such failure to include all of the required information will result in the disallowance of the deduction.

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6. However, “the reporting requirements do not relate to the substance or essence of whether or not a charitable contribution was actually made…[T]herefore…the reporting requirements are directory and not mandatory.” Bond v. Comm’r, 100 T.C. 32 (1993) (holding that an appraisal was sufficient to validate a deduction when the taxpayer substantially complied with the appraisal requirements).

7. However, the Bond substantial compliance doctrine will cure only those defects

where the taxpayer made a genuine effort to comply with the substantiation requirements. In Hewitt v. Comm’r, 1998 U.S. App. LEXIS 29519 (4th Cir. 1998), John and Linda Hewitt, owners of Jackson Hewitt Tax Service, donated shares of the company’s nonpublicly traded stock to a private foundation and a church. The Hewitts claimed deductions in the amount of the average price of the stock at the time the gifts were made but failed to obtain an appraisal. The Commissioner disallowed the deductions for all but their basis in the stock. The Hewitts appealed but the Fourth Circuit upheld the Commissioner. The court found that the qualified appraisal requirement was mandatory and that a taxpayer seeking a deduction must meet every condition imposed by Congress. The court found that the Hewitts did not substantially comply with the substantiation requirements as set forth in Bond because they “utterly ignored the appraisal requirement” and also failed to obtain the other information required by the regulations, such as the number of shares donated and the method of valuation used. Thus, the Hewitts’ deductions were limited to their basis in the stock.

8. The Tax Court’s formulation of the substantial compliance doctrine and its Bond

decision have been criticized by the 7th Circuit and the District Court for the Northern District of Illinois as confusing and difficult to apply. Thus, the 7th Circuit has adopted a narrow interpretation of the substantial compliance doctrine, applying it only where the “taxpayer had a good excuse (though not a legal justification) for failing to comply with either an unimportant requirement or one unclearly or confusingly stated in the regulations or the statute.” See Bruzewicz v. U.S., 604 F.Supp. 2d 1197 (N.D. Ill. 2009), and Prussner v. U.S., 896 F.2d 218 (7th Cir. 1990) (discussing how the Seventh Circuit found the Tax Court’s application of the substantial compliance doctrine difficult to apply and “enough to make one’s head spin”).

B. Property Excluded.

1. The appraisal rules do not apply to gifts of publicly traded securities. Publicly traded securities are those for which market quotations are readily available on an established securities market. See Reg. §1.170A-13(c)(7)(xi).

2. “Publicly traded” means regularly traded on a national, regional, or over-the-

counter market and includes shares of an open-ended investment company or mutual fund for which quotes are published daily in a newspaper. If the market value is only available through an interdealer quotation system, the stock is publicly traded provided that it meets five rules set out in that regulation, relating to maintenance of records and availability of information.

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3. Even though the stock may meet the definition of publicly traded securities, if a block of stock given is so large that a discount would be applied in the event of a sale, in other words, a blockage situation, then the fair market value of the stock may not necessarily equal its market quotation. If the contributed securities are restricted with respect to sale, in other words, if SEC Rule 144 would limit sales in any particular quarter, then these shares may not be readily marketable and will not be considered publicly traded securities.

4. PLR 9247018 described a gift by a taxpayer of 5.5 % of the stock of a corporation

traded on the New York Stock Exchange. Because of Securities and Exchange Rule 144, the donor was prevented by restrictions temporarily blocking its sale from selling or exchanging the stock before a certain transfer date. Prior to that date, the donor made a gift of the stock to a private foundation.

Section 170(e)(5) allows a full fair market value deduction for gifts of “qualified appreciated stock” to certain non-operating private foundations. “Qualified appreciated stock” is defined to mean stock that is “capital gain property” and “for which (as of the date of the contribution) market quotations are readily available on an established securities market.” If the contributed stock failed to meet the definition of qualified appreciated stock, the donor would be limited to his tax basis or cost for the deductibility of the gift, whereas if the gift were of qualified appreciated stock, he would obtain the deduction for the full fair market value.

The Service ruled that the stock in question was not “qualified appreciated stock” because of the restrictions.

5. In PLR 9623018 the IRS held that the appraisal rules required an appraisal of

shares which were traded regularly on an exchange but were subject to SEC restrictions in the hands of the donor who planned to give them to a charitable remainder unitrust of which he would serve as trustee.

6. The following property is also excluded from the appraisal requirements: a. Patents, copyrights, trademarks, and other similar property. b. Inventory.

c. Motor vehicles, boats, and airplanes.

C. Information Required - Treas. Reg. §1.170A-13(c)(3)(ii) and Prop. Reg. 1.170A-17.

1. Description of property in sufficient detail for a person who is not generally familiar with the type of property to ascertain that the appraised property is the property to be contributed.

2. Condition of the Property – in the case of tangible property.

3. Date (or expected date) of contribution.

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4. Terms of agreement entered into between the donor and donee regarding use, sale or other disposition of the property, including:

a. Restrictions on use of the property. b. Reservations to, or conferring upon, any third party (not cooperating with

the donee for fundraising) the right to income from the property or use of the property.

c. Earmarking the property for particular use.

5. Name, address and appraiser’s identification number as well as the name, address and tax ID of the partnership or employer of appraiser.

6. Qualifications of appraiser, including background, experience, education and

membership in professional organizations.

7. Date of Appraisal.

8. Fair Market Value.

9. Method and Basis of Valuation.

10. Specific Basis for Valuation.

11. The declaration of the appraiser contained in the proposed regulation.

12. The Pension Protection Act added the requirement that a qualified appraisal be conducted in accordance with generally accepted appraisal standards. Notice 2006-96 states that an appraisal that is consistent with the substance and principles of the Uniform Standards of Professional Appraisal Practice as developed by the Appraisal Standards Board of the Appraisal Foundation will satisfy this requirement. See http://www.appraisalfoundation.org for more information.

D. Appraisal Summary.

1. The appraisal summary goes on Section B of Form 8283.

2. It must be:

a. Signed and dated by the donee-charity (or presented to it for signature); b. Signed and dated by the qualified appraiser; and c. Attached to the tax return on which the donor claims or reports the gift.

Reg. §1.170A-13(c)(4)(i).

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3. Required Information.

a. The donor's name and Taxpayer Identification Number (Social Security

number if the donor is an individual; employer identification number if the donor is a closely held corporation, personal service corporation, partnership or S corporation).

b. A description of the property in sufficient detail for a person who isn't

generally familiar with the type of property to ascertain that the appraised item is the property that was contributed.

c. In the case of tangible property, a brief summary of its overall physical

condition at the time of contribution. d. The date and manner of acquisition (e.g., purchase, exchange, gift or

bequest) of the property by the donor--or, if the property was created, produced or manufactured by or for the donor, a statement to that effect and the approximate date the property was substantially completed.

e. The cost or other basis of the property, adjusted as provided by IRC §1016. f. The name, address and Taxpayer Identification Number of the donee-

charity. g. The date the donee-charity received the property. h. Whether the donation involved a bargain sale; if so, the form must tell what

the donor received in return. i. The name, address and Taxpayer Identification Number of the qualified

appraiser (or appraisers) who signs the appraisal summary and--if the appraiser is a partner in a partnership, an employee of any person or an independent contractor engaged by a person other than the donor--the name, address and Taxpayer Identification Number of the partnership or person who employs or engages the appraiser.

j. The appraised fair market value of the property on the date of contribution.

4. An appraisal summary can sometimes pass muster even if the donee does not sign it. If, for instance, the donor made a gift to a charity that later went out of business, the IRS may allow the deduction if the donor attaches a detailed statement explaining why he couldn't get the donee's signature. Reg. §1.170A-13(c)(4)(iv)(C)(2).

5. An appraisal summary can sometimes satisfy the IRS even if it does not tell how or

when the donor acquired the donated property, or the cost basis. The donor must

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attach to the appraisal summary “an appropriate explanation” that shows reasonable cause for his inability to provide the information. Reg. §1.170A-13(c)(4)(iv)(C)(1).

6. As long as the blanks are filled in when the donor claims the deduction, the

appraisal summary doesn’t have to include certain information when the donee signs it:

a. the appraiser’s signature, name, address, Taxpayer Identification Number,

qualifications or various declarations; b. when and how the donor acquired the property; c. the donor’s basis in the property; d. the property’s appraised value; e. the donor’s “bargain sale” statement, if applicable; and f. the average trading price of certain securities. Reg. § 1.170A-

13(c)(4)(iv)(D).

7. The donor must give the donee a copy of the appraisal summary when presenting it for signature. Reg. §1.170A-13(c)(4)(iv)(E).

8. Trusts: Who’s the “donee” when the gift is in trust? The trust is considered the

donee, and thus the trustee must sign the appraisal summary. Reg. §1.170A-13(c)(7)(v)(B).

E. Qualified Appraisers.

1. The definition is critically important. A donor who fails to use a qualified appraiser will not be entitled to deduct a charitable contribution of property valued over $5,000. IRC §170(f)(11)(E)(ii) defines a qualified appraiser as an individual who:

a. Has earned an appraisal designation from a recognized professional

appraiser organization or has otherwise met minimum education and experience requirements set forth in the regulations;

b. Regularly performs appraisals for which the individual receives

compensation; c. Meets other requirements as may be prescribed by regulations or other IRS

guidance; d. Demonstrates verifiable education and experience in valuing the type of

property subject to the appraisal; and

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e. Has not been prohibited from practicing before the IRS anytime during the three year period ending on the date of the appraisal.

2. In addition to the above requirements, the regulations that were promulgated prior

to the PPA define a qualified appraiser as an individual who includes on the appraisal summary a declaration that:

a. The individual holds herself out to the public as an appraiser, or performs

appraisals on a regular basis; b. Because of the appraiser’s qualifications (as described in the appraisal), the

appraiser is qualified to make appraisals of the type of property being valued;

c. The appraiser is not a person excluded from the definition of “qualified

appraisers”; and d. The appraiser understands that a false or fraudulent overstatement of the

property's value in the qualified appraisal or appraisal summary may subject him or her to a civil penalty under IRC §6701 for aiding and abetting an understatement of tax liability and thereafter his or her appraisals may be disregarded by IRS. Reg. §1.170A-13(c)(5)(i).

3. The IRS issued Notice 2006-96 to provide transitional guidance under the PPA.

The Notice points out that the existing requirements in the regulations continue to apply unless they are inconsistent with the new requirements.

a. An appraiser will be treated as having met minimum education and

experience requirements for appraising real estate if the appraiser is licensed or certified for the type of property being appraised in the state in which the appraised real estate is located.

b. For other types of property the appraiser must have:

i. Successfully completed college or professional level coursework that is relevant to the property being valued;

ii. Obtained at least two years of experience in the trade or business of

buying, selling, or valuing the type of property being valued; and

iii. Fully describe in the appraisal the appraiser’s education and experience that qualify the appraiser to value the property.

4. The proposed regulations state that an appraiser has the required education and

experience if he or she: 1) has completed professional or college level coursework and has two or more years of experience in valuing the relevant type of property, or 2) earned a recognized appraisal designation. Examples of recognized appraisal

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designations included in the regulations are: MAI, SRA, SREA, and SRPA.

5. Even if an appraiser complies with the requirements just described, he or she is not a qualified appraiser if the donor had knowledge of facts that would cause a reasonable person to expect the appraiser to falsely overstate the property's value (e.g., the donor and the appraiser have agreed in advance on the value, and the donor knows that it’s more than the fair market value). Reg. §1.170A-13(c)(5)(ii).

6. “Qualified Appraiser” exclusions.

a. The donor or the taxpayer who claims or reports a deduction under IRC §170 for the property that is being appraised.

b. A party to the transaction in which the donor acquired the property being

appraised (i.e., a person who sold, exchanged or gave the property to the donor, or any person who acted as an agent for the transferor or for the donor on the sale, exchange or gift), unless the property is donated within two months of the date of acquisition and its appraised value does not exceed the acquisition price.

c. The donee-charity. d. Anyone employed by, or related or married to, anyone related under IRC

§267(b) to any of the foregoing persons (e.g., if the donor acquires a painting from an art dealer, no persons employed by the dealer can be qualified appraisers regarding that painting).

e. An appraiser who is regularly used by any person described above and who

does not perform a majority of his or her appraisals during the taxable year for other persons. Reg. §1.170A-13(c)(5)(iv).

F. Payment for Appraisals.

1. Generally, no part of the fee for a qualified appraisal can be based, in effect, on a percentage (or set of percentages) of the property’s appraised value. Reg. §1.170A-13(c)(6)(i).

2. If a fee is based in whole or in part on the amount of the appraised value of the

property allowed as an income tax charitable deduction after IRS examination (or otherwise), it will be treated as “based on a percentage of the appraised value of the property,” and the deduction may be disallowed for failure to comply with the substantiation regulations.

3. Payment of an appraisal fee by the donee will reduce the amount of the charitable

contribution.

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4. The appraisal fee is deductible as a miscellaneous itemized deduction subject to the 2% rule.

G. Penalties

The IRS issued a memorandum for all examiners, estate and gift attorneys and appellate officers concerning implementing the penalty for substantial and gross valuation misstatements attributable to incorrect appraisals. The memorandum is dated August 18, 2009. In addition to discussing the penalty, the memorandum explains how examiners should assess it and contains sample forms. It also contains a list of questions to assist examiners in determining if the penalty should be assessed. Appraisers are subject to a penalty for an appraisal that results in a substantial valuation misstatement or a gross valuation misstatement. The amount of the penalty is the lesser of: 1) the greater of 10% of the amount of the underpayment attributable to the misstatement or $1,000, or 2) 125% of the gross income received by the appraiser for preparation of the appraisal.

H. Valuation and Appraisal Substantiation Issues.

1. In Scheidelman v. Comm’r, 2012 WL 2161155 (2nd Cir. June 15, 2012), the Second Circuit held that the appraisal for a donation of a “facade conservation easement” to preservation organization sufficiently detailed the method and basis of valuation. The “before and after method,” which approximates the easement’s fair market value by measuring the difference between the fair market value of the property without regard to the easement (before value) and the fair market value of the property encumbered by the easement (after value), was a sufficient method for valuation. Further, the appraiser’s reliance on IRS publications (since removed from circulation), tax court decisions (i.e. Hilborn v. Comm’r, 85 T.C. 677 (1985)), personal past valuation experience, and the location of the house in determining the percent loss in value the appraiser attributed to the easement (11.33%) was a sufficient basis for the valuation.

2. In Rothman v. Comm’r, T.C. Memo 2012-163 (June 11, 2012), the Tax Court held

that using fixed percentages to determine the after value for a donation of a “historic preservation facade easement” was not qualified appraisal. The Court found that the appraisal, which used the before and after approach, was identical in all material respects to the appraisal in Scheidelman. This case was decided before the Second Circuit held that this kind of appraisal was qualified. See, infra, Scheidelman v. Comm’r, 2012 WL 2161155 (2nd Cir. June 15, 2012) (vacating and remanding the Tax Court decision). Thus, even though this Court held that the appraisal was not qualified because it failed to include a valuation method or a specific basis for the value determined, it will likely be vacated and remanded on appeal because of the result in Scheidelman.

3. In Mohamed v. Comm’r, T.C. Memo 2012-152 (May 29, 2012), the Tax Court held

that the taxpayer attempting to get a deduction based on the donation of extremely

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valuable real estate to charity was not done by a qualified appraiser, and, consequently, not a valid qualified appraisal. Regulations say that a qualified appraiser cannot be the donor or taxpayer claiming the deduction or the donee of the property. See sec. 1.170A13(c)(3)(i)(B), Income Tax Regs.. Here, the appraiser was the donor and the taxpayer claiming the deductions as well as the donee in his capacity as the trustee of the Trust receiving the donation. Thus, even though the amount of the appraisal was actually lower than the independent appraisal, it was not qualified. Further, neither section B of the Form 8283 nor the appraiser’s attached statement qualified as an appraisal summary because the appraiser didn’t include his bases in the properties, there was no bargain-sale statement, and there were no statements from a qualified appraiser. Finally, the Court held that section 1.170A–13, Income Tax Regs., which sets forth the substantiation requirements for donations of property for which the claimed value exceeds $5,000, was valid.

4. In Friedman v. Comm’r, T.C. Memo 2010-45 (Mar. 11, 2010), the taxpayers

donated diagnostic and laboratory equipment to Global Operations and the University of Southern California and subsequently claimed a $217,500 charitable deduction. Petitioners argued that, in spite of their failure to strictly comply with the substantiation requirements, they were entitled to the charitable deduction because of substantial compliance. Petitioners were not entitled to the deduction even under the Bond substantial compliance doctrine because they never even obtained the necessary appraisal, failed to provide an adequate description of the items contributed and failed to indicate the valuation method used or the basis for the appraisal values.

5. In Consolidated Investors Group v. Comm’r, T.C. Memo 2009-290 (Dec. 16,

2009), Consolidated Investors Group claimed a $641,000 charitable contribution deduction based on a purported bargain sale of land adjacent to a highway interchange to the Ohio Turnpike Commission. Though the taxpayer’s appraisal failed to state that it was prepared for income tax purposes and was a premature appraisal (3 months), the court found that these shortcomings were insubstantial and therefore Consolidated was entitled to the entire charitable deduction claimed as it substantially complied with the substantiation requirements of § 1.170A-13.

6. In Bruzewicz v. U.S., 604 F. Supp. 2d 1197 (N.D. Ill. 2009), Elizabeth Bruzewicz

and her husband, Howard Prossnitz, claimed a charitable contribution deduction in the amount of $216,000 for the preservation easement on their home contributed to the Landmarks Preservation Council of Illinois. Their home is located in the Frank Lloyd Wright-Prairie School of Architecture Historic District in Oak Park, Illinois. Taxpayers failed to provide a contemporaneous written acknowledgement and qualifications of the appraisers.

7. In Berquist v. Comm’r. 131 T.C. No. 2 (July 22, 2008), a number of doctors

contributed their shares in professional corporations to a tax exempt organization controlled by a university. The medical practice corporations were dissolved. The doctors received an appraisal of their corporate shares that valued the corporation as a "going concern." The tax court held that valuing the

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Corporation as a going concern was unreasonable because the Corporation was going to be dissolved. In addition to not accepting the valuation, the court imposed a 40% accuracy related penalty. The doctors had taken charitable contribution deductions of $176,788, valuing each share at $401.79. The tax court allowed values of $37 for voting shares and $35 for nonvoting shares, less than 10% of the taxpayers' value.

8. In Jones v. Comm’r, 129 T.C. No. 16 (Nov. 1, 2007), the taxpayer claimed a

deduction for materials he donated to a university library. The taxpayer, one of the attorneys for Oklahoma City bombing defendant Timothy McVeigh, donated photocopied materials relating to the case, none of which was the taxpayer own work product and none of which bore any original signatures of McVeigh. The taxpayer hired a Mr. John Payne to value the materials, which he determined to be $294,877. Mr. Payne spent one day looking through a small percentage of the total materials, which consisted of hundreds of thousands of documents in 171 boxes. Mr. Payne did not adjust the value of the documents based on the fact that multiple copies were delivered to various attorneys throughout the trial and reached his appraisal amount by comparing the documents to what he considered comparable collections. The collections to which he compared the donated documents were comprised of original documents, handwritten letters and original signatures. The court disposed of the case on other grounds (that the documents were not the taxpayers property and therefore not his to donate) but noted serious deficiencies in the appraiser’s methods and ultimate conclusion of value. In Jones v. Comm’r, 560 F.3d 1196 (10th Cir. 2009), the 10th Circuit affirmed the decision of the Tax Court, though based on a different rationale, that the discovery material is not a capital asset.

9. In Bruce K. v. Comm’r, T.C. Summary Opinion 2006-154 (April 17, 2006), the taxpayer claimed a non-cash charitable contribution deduction of $210,306.00 for a bargain sale of development rights to a non-profit organization. The Form 8283 attached to the taxpayer’s return was not signed by an appraiser. Upon audit the taxpayer provided the IRS with two Forms 8283 signed by a representative of the non-profit, but not signed by an appraiser. Over a year later, after a notice of deficiency was issued, the taxpayer submitted a Form 8283 signed by an appraiser. The Tax Court held that the taxpayer had not substantially complied with the regulations. A qualified appraisal requirement is mandatory, not merely directory and the requirement that the appraiser and the donee sign Form 8283 is also mandatory. The Court rejected the taxpayer’s argument that it would be inequitable to disallow the deduction. The Court pointed out that the taxpayer had approximately 16 months to obtain a qualified appraisal and that the appraisals actually made were done more than three years after the due date of the taxpayer’s return.

10. In Koblick v. Comm’r, T.C. Memo 2006-63 (April 3, 2006), the taxpayers

transferred their shares of a closely held corporation to a qualified charity. Their shares represented 45% of the total outstanding stock. The other two shareholders

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also transferred their shares to the same charity. The Court considered both a minority discount and a lack of marketability discount for the shares. Although the Tax Court reduced the value of the deduction that the taxpayers claimed on their return, the Court reduced the minority discount from 22% to 10% because the taxpayers had transferred their interest in a prearranged plan with the other two shareholders to transfer a 100% controlling interest in the company to the charity.

11. In Herman v. U.S., 73 F.Supp.2d 912 (E.D.Tenn. 1999), the IRS asserted that the taxpayers did not use a qualified appraiser and that the appraiser’s report was not adequate. The taxpayer made a large property contribution to a hospital. The appraiser used did not hold himself out to the public as an appraiser; however, he had 30 years of experience in buying and selling new and used medical equipment and regularly performed appraisals of hospitals and medical equipment according to the Court. In addition to finding him qualified, the Court held that his appraisal was qualified although it did not comply with the regulations because it did not indicate the date of the contribution, that it was prepared for income tax purposes, the method of valuation used, the specific basis for valuation, or report the appraiser’s fee arrangement (the appraisal was done without any fee).

The taxpayers purchased the equipment for $20,000 from a bankrupt hospital and claimed a $500,000 charitable contribution based on the appraisal. The Court allowed the full deduction. Note: This case was decided before the changes in the definition of a qualified appraiser.

12. In D'Arcangelo v. Comm’r, T.C. Memo 1994-572 (Nov. 21, 1994), a CPA claimed a charitable deduction for art supplies donated to a high school. The CPA submitted a Form 8283 along with a letter of appraisal prepared by the school principal. The IRS said that the CPA failed to obtain a qualified appraisal. The CPA argued that Form 8283 and the principal’s appraisal letter attached to tax return constituted a “qualified appraisal” even though it did not meet the requirements of the regulations. The CPA contended that an individual in the field of art is just as qualified to value artwork as an individual in the appraisal business. The CPA further claimed that even though the principal was an employee of the “donee,” that should not prevent the principal from being “qualified appraiser”. The Tax Court held that the CPA failed to obtain a qualified appraisal. “The record does not establish that [high school principal] holds himself out as an appraiser or performs appraisals on a regular basis. Consequently, we hold that he is not a qualified appraiser. Moreover, [Reg. §]1.170A-13(c)(5)(iv)(D)... expressly prohibits an employee of the donee from making the appraisal.... Finally, [CPA] did not submit a fully completed appraisal summary.”

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VI. Tax Forms.

A. Form 8283.

1. Who Must File: If an individual, partnership or corporation claims a deduction exceeding $500 for non-cash gifts in excess of $500, the Form 8283 must be filed.

a. The amount of deduction means the deduction before applying income

limits that could result in a carryover (see the carry over rules in IRS Pub. 526).

b. Any required reductions to fair market value must be made before

determining whether 8283 must be filed. c. For C corporations, other than personal service corporations and closely

held corporations, the threshold for filing is $5,000 rather than $500.

2. Groups of Items: Similar items of property are items of the same generic category or type, such as stamp collections, paintings, books, non-publicly traded stock, land or buildings.

3. Section A: Complete section A only for those items (or groups of items) for which

a deduction of less than $5,000 or less per item (or group of items). Also include the following securities regardless of amount:

a. Securities on an exchange in which quotations are published daily. b. Securities regularly traded in national or regional over-the-counter markets

for which published quotations are available. c. Securities that are shares of a mutual fund for which quotations are

published daily in a newspaper of general circulation throughout the United States.

4. Section B: Include in Section B only items (or groups of items) for which a

deduction of more than $5,000 was claimed.

a. Omit publicly traded securities reportable in Section A. b. Items reported in Section B will require information based on a written

appraisal by a qualified appraiser – See above. c. A complete copy of the signed appraisal must be attached for artwork

valued at $25,000 or more. Also, a photograph must be provided upon request.

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B. Form 8282.

1. If an organization receives charitable deduction property for which it signed a Form 8283 and within 3 years sells, exchanges, or disposes of the property, the organization must file Form 8282, Donee Information Return.

2. However, an organization is not required to file Form 8282 if:

a. The property disposed of is valued at $500 or less and was clearly identified

on the Form 8283 (the $500 threshold will only arise when an item was given as part of a larger group of items (i.e., one book out of a collection) because a Form 8282 is only required if a Form 8283 was initially signed by the donee organization).

b. The property is consumed or distributed for charitable purposes (i.e. for

your tax-exempt purposes).

3. Form 8282 must be filed within 125 days after the disposition. A copy of Form 8282 must be given to the donor.

4. If the organization fails to file the required information return, a penalty of $50 per

failure will apply, with a maximum penalty of $250,000 within a calendar year. There is also a penalty for failure to provide a copy of Form 8282 to the donor. Each failure is subject to a $50 penalty with a maximum of $100,000 in a calendar year. Both of the above increase to the greater of $100 per return or 5% of the amount of items required to be reported correctly if the failure was due to intentional disregard of the requirement. Penalties can be avoided if the donee can show that the failure was due to reasonable cause and not to willful neglect. See IRC §6721.

5. Successor Donee. If the property is donated to another charity, that organization must be given the following information:

a. Name, address and Employer Identification Number of the organization. b. A copy of the appraisal summary (Form 8283 received from the original

donor).

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EXHIBIT A

GIFT RECEIPT Date Donor X Address Thank you for your generous support of XXXX. Private support is making a difference at the University. Your commitment expresses your dedication to our mission of excellence and affirms your friendship. The following information is provided for your records. Project: XXXXX Total Received: $2,500.00 Estimated Value of Goods In exchange for this contribution you received membership in the

Presidents Club: Opportunity to purchase football tickets and campus parking permit. The estimated fair market value of these benefits is $390.00

Net Amount of Charitable Contribution: $2,110.00 Date of Gift: May 3, 2007 If you should have any questions, please feel free to contact Gift Processing at (XXX) XXX-XXXX.

KEEP THIS FOR YOUR RECORDS

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EXHIBIT B

GIFT RECEIPT

Date Donor X Address Thank you for your generous support of XXXX. Private support is making a difference at the University. Your commitment expresses your dedication to our mission of excellence and affirms your friendship. The following information is provided for your records. Project: XXXX Total Received: $500.00 Estimated Value of Goods No goods or services were received in exchange for this contribution. Date of Gift: May 3, 2007

Net Amount of Charitable

Contribution: $500.00 If you should have any questions, please feel free to contact Gift Processing at (XXX) XXX-XXXX.

KEEP THIS FOR YOUR RECORDS

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EXHIBIT C

GIFT RECEIPT

Date Donor X Address Thank you for your generous support of XXXX. The following information is provided for your records.

Description of gift: One buckeye tree Project: XXXXX Explanation of Goods or Services Received:

No goods or services were provided in exchange for this contribution.

Date of Gift: May 3, 2007

Please consult your legal or financial advisor to determine the deductibility of your gift under the Internal Revenue Service charitable contribution rules. Enclosed for your convenience is IRS Form 8283 and a return envelope should you require our signature. Please direct any questions to XXXXX at XXX-XXX-XXXX.

KEEP THIS FOR YOUR RECORDS

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EXHIBIT D

GIFT RECEIPT Date Donor X Address Thank you for your generous support of XXXX . Private support is making a difference at the University. Your commitment expresses your dedication to our mission of excellence and affirms you friendship. The following information is provided for your records. Security: 45 Shares of XXXX, Inc. Fund: XXXXX

XXXXX Explanation of Goods Or Services Received: No goods or services were received in exchange for this gift. High: 54.25 Low: 52.3125 Mean: 53.2813 Total: $2,397.66 The above information is as of July 12, 2006, the date of your gift, and is provided to assist you in determining the amount of your gift. Please consult your tax advisor regarding the deductibility of your gift.

KEEP THIS FOR YOUR TAX RECORDS

Note: The information on the securities price is not required, but is provided for donor relations reasons.

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45

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4.19.15.24.4.1 (11-29-2011) Acceptable Documentation for Charitable Contributions

1. The following table lists examples of acceptable documentation for charitable contributions.

Type of Contribution Types of Documentation Cash contributions of less than $250 to a single organization, including regular contributions to a single organization – for example $10 a week to a church

Cancelled checks, receipts, verification of electronic funds transfer, bank records, or a statement from qualified charity. The documentation must show the name of the organization, the date, and the amount of the contribution. Refer to IRM 4.19.15.24.4.1., Acceptable Documentation for Charitable Contributions, (6) through (9) below for additional information about verifying contributions if there is doubt regarding the authenticity of the statement provided.

Cash contribution of $250 or more to a single organization

For each such donation -the taxpayer must provide an acknowledgement/statement or receipt from the organization showing the date of the contribution, amount of the contribution, a description of any goods or services received, and an estimate of the value of the goods and services received, or if the goods and services provided are solely intangible religious benefits then a statement to that effect. The taxpayer must receive/obtain the statement from the organization by the earlier of the filing of the return or the due date for the filing of the return (including extensions). Refer to IRM 4.19.15.24.4.1, Acceptable Documentation for Charitable Contributions, (6) through (9) below for additional information where there is doubt regarding the authenticity of statements for verifying contributions.

Expenses of less than $250 incurred while volunteering for a charitable organization

Taxpayer's own records, showing the name of the donee, the date that services were performed, the amount of the expense, and the amount of reimbursement received, if any.

Expenses of $250 or more incurred while volunteering for a charitable organization.

Taxpayer's own records, showing the name of the donee, the date that services were performed, the amount of the expense, and the amount of reimbursement received, if any, and a statement from the organization describing the services provided as well as providing a description of any goods or services provided in consideration and a good faith estimate of the value of those goods or services.

Non-cash contribution less than $250

A receipt from the charity showing the name and location of the organization, date of the donation, and the amount of the contribution. If a receipt was impracticable to obtain (such as clothing left at an unattended Goodwill dropbox), the taxpayer must maintain a reliable written record that includes the fair market value of the property at the time of the contribution, and any terms or conditions attached to the gift.

Non-cash contributions of $250 or more.

Taxpayer must provide a written statement from the organization. Refer to IRM 4.19.15.24.4.1, Acceptable Documentation for Charitable Contributions (6) through (9) below.

Non-cash contributions over $500 but not more than $5,000

Taxpayer must provide a written statement from the organization showing all the information required for non-cash contributions of $250 or more. In addition, Form 8283, Noncash Charitable Contribution, Section A, must be completed and attached to the return.

Non-cash contributions over $5,000

Same documentation as above for non-cash gifts up to $5,000 except, in lieu of Form 8283, Section A, Form 8283, Section B, must be completed and attached to the return. The taxpayer must also obtain a qualified appraisal unless the non-cash contribution is inventory, publicly traded stock or intellectual property. (See Publication 561, Determining the Value of Donated Property).

Non-cash contribution of property over $500,000

Taxpayer must attach appraisal to return unless contribution is inventory, publicly traded stock, or intellectual property. Form 8283 must also be completed and attached to the return. Everything required for property over $5,000 is also required.

Contribution of motor vehicle, Taxpayer must attach Form 1098-C, Contributions of Motor Vehicles,

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Type of Contribution Types of Documentation including automobiles, boats and airplanes of more than $500

Boats, and Airplanes, or other statement received from the charitable organization that reports the same information as the Form 1098-C. A qualified appraisal is also required if the taxpayer is entitled to deduct the fair market value, and the deduction is $5,000 or more for motor vehicles.

Clothing and household furniture not in good used condition or better (contributions made after 8-17-2006)

If the amount claimed is more than $500 for a single item of clothing or household item, the return must include a qualified appraisal that substantiates valuation of more than $500.

Easements in Registered Historic Districts

A qualified appraisal, photographs of the entire exterior of the building, and a description of all restrictions on the building must be included with the return.

2. Exhibit 4.19.15-19., Form 886-A. Schedule A - Gifts to Charity. 3. Taxpayers can provide information via mail, fax or telephone. 4. Contributions are deductible only in the year they are made. Checks, receipts and other documentation provided by taxpayers should be dated for the tax year in question. 5. Written statements from charitable organizations must be received by the taxpayer on or before the earlier of: the date the return is filed for the year contribution was made is filed, or the due date of the return, including extensions.

Note:

See Notice 2002–25 for special rules for contributions made after 09-10-2001 and before 01-01-2002.

6. For contribution of $250 or more, acceptable charitable organization statements must include: Name of the organization Amount of the contribution Date of the contribution 7. For all cash and non-cash contributions of $250,000 or more (each, not in aggregate) in addition to the above- listed requirements: Amount of cash Description of the non-cash contribution Whether goods or services were provided by the organization in return for the contribution Description and good faith estimate of the value of goods or services, if any, that the organization provided in return for the contribution Statement that goods and services, if any, that the organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case 8. Unless you question the authenticity of the acknowledgement/statement, when above items are present, do 4.19.15.24.4.1 (8) below. 9. There may be instances when you question the truthfulness of the statement submitted by the taxpayer. In those instances it is appropriate to request additional documentation to substantiate the contribution has been made. Some examples of circumstances in which to request additional information are when: the amount of the contribution is excessive in comparison to reported income; documents appear altered; unreadable receipts and/or statement, or the statement or receipts does not include date, amount or the name of the organization.

Note:

Some organizations support the concept of tithing, or giving 10 percent of one's income. A taxpayer's deduction of 10 percent of income, alone, is not a basis to question documentation without considering other factors.

The workpapers must be documented to explain the reasons why additional documentation was requested and reasons when the statement appears questionable.

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10. If you question the authenticity of the acknowledgement/statement, for: Cash contributions — verification should be requested, i.e., cancelled checks or bank records, receipt from organization. All contributions — verification can be requested from the organization to ascertain it provided the acknowledgement/statement submitted by the taxpayer. 11. Most taxpayers make cash contributions for which they have no receipts. Taxpayers must maintain, as a record of a contribution, a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution. 12. If the taxpayer provides acceptable documentation for a portion of the deduction and provides a statement that the balance was made in cash, but does not include the information stated above, use your judgment in allowing the amount claimed, but see the note regarding cash contributions beginning with tax year 2007.