February 28, 2024


Interior Of The Road

Charitable Acknowledgements For Tax Purposes Go Badly Wrong

The principles for substantiation of charitable deductions are extremely stringent with added layers when a donor encouraged fund or house donations are associated. You can get a quite fantastic come to feel for how matters can go poorly incorrect from a recent view by Choose Jane Boyle of the United States District Court Northern District of Texas – Kevin M. Keefer and Patricia Keefer v US.

A Complex Transaction

I could visualize this transaction getting utilized in an exam for a Masters in Taxation. Kevin had started out his job in general public accounting, but experienced been working in the hospitality equilibrium. Patricia had also held a CPA license for whichever that is really worth. Kevin held indirectly a minimal partnership interest in Burbank HHG Hotel LP. Burbank owned a Marriot Courtyard lodge around Burbank Airport in Los Angeles. Apple Healthcare facility REIT expressed an desire in getting the lodge in 2015.

Prior to any sale remaining finalized Mr. Keefer transformed part of his indirect interest into a immediate 4% curiosity. He then donated that desire to the Utah dependent Pi Basis which proven a donor recommended fund with the donation. An appraiser valued the curiosity at $1,257,000 mostly on the basis of the pending sale, which ended up going through. The Keefers took that as a charitable contribution deduction.

Mainly because the interest was a partnership desire with involved liabilities in excessive of foundation there was some acquire regarded. There is a specific rule that apportions some of the foundation to the contribution producing the recognized gain to be bigger than it would have been experienced the partnership interest been offered for a dollar. If you will not get that, will not stress so much about it unless you have a bunch of partnership interests or are studying for your MST.

The Audit Report

The Keefer 2015 return was topic to audit. The agent disallowed the $1,257,000 charitable contribution resulting in a deficiency of $423,304. It appears to be to me that there really should have been an adjustment to the get, due to the fact with the charitable deduction disallowed there ought to not be a foundation adjustment. Even while the adjustment is stated in the audit report, the agent does not do everything about it. Lawyer Kenneth Horwitz wrote a letter to the agent pointing out her failure to reverse the foundation adjustment and asking her to modify her report, but apparently that went nowhere.

The report disallows the charitable contribution on two grounds. It notes that Type 8283 signed by each the appraiser and acquiring establishment with an appraisal hooked up as necessary for property valued at much more than $500,000. There was a catch nevertheless:

Examiner built the dedication that the appraisal was not skilled because it did not contain the employer identification variety (EIN) or Social Safety selection of the certified appraiser or the human being who employs or engages the certified appraiser. An appraisal that does not comprise just about every of the eleven provisions as described in Treas. Reg. ยง 1.170A-13{c)(3)(ii)(E) is not a competent appraisal.

Then there is the challenge with the acknowledgement necessary for contributions around $250. In the case of a donor recommended fund the acknowledgement needs to consist of a statement that the money are beneath the distinctive legal handle of the sponsoring organization.

I am more fanatical about having acknowledgements for charitable contributions than a ton of folks, but I have to confess that there is a fantastic chance that the two of these gotchas would have gotten by me if I had been examining the return. Thus I are inclined to believe that asserting the accuracy penalty was form of overkill, but the accuracy penalty is pretty regime.

The Opinion

Fairly than go to Tax Courtroom, the Keefers determined to shell out the tax and check with for a refund followed by a suit in District Court. This threw the IRS pcs for a loop. The refund request was denied as remaining untimely since the statute experienced run on the authentic return. The discover by itself recites that the deadline is the later of inter alia “2 many years following you paid the tax”, but somehow they didn’t register with the programmers. What is really odd is that the IRS did not concede this place in the litigation and it had to be dealt with by Choose Boyle, who dominated that the claim was well timed. From there things get worse for the Keefers.

Initially of all I believed that finding at minimum some refund because of to the foundation concern was a certain thing. The authorities came up with a thing though. They argued that the donation was an anticipatory assignment of income. Decide Boyle notes that the sale was not a positive matter when the donation was manufactured, which favors the taxpayers. There is yet another problem though. The 4% partnership curiosity that was carved out to make the donation did not include a share of reserve funds. That meant that the Keefers experienced not donated their total fascination. That would produce supplemental tax that would wipe out the foundation adjustment.

On denial of the deduction Decide Boyle dominated that the failure of the acknowledgement by Pi to condition that they had authorized regulate was adequate to deny the deduction. This was in spite of there remaining a different bundle in which that was stated. Since that was adequate to torpedo the deduction Decide Boyle did not get into the argument about the appraiser’s ID selection. So we can preserve shedding slumber around that a single also.


All in this is a superior illustration about how meticulous you really should be with charitable contributions in general but especially those people of house and to donor advised funds. I have to feel that the men and women running the cash could possibly be wanting to look at their acknowledgements. I hope that this decision receives appealed, but have not gotten any reaction to my inquiries on it.

Lew Taishoff who blogs the Tax Court relentlessly agrees with the authorities on the assignment of cash flow issue. Currently being a partnership man, I am not so certain, but I have a tendency to defer to the far more learned. He agrees that the IRS timeliness argument borders on frivolous. On why they went to District Courtroom instead than his preferred location, he wrote me:

The strategic thought is possibly that USDCNDTX is allegedly taxpayer-welcoming and tax legislation clueless. Your schoolmate Choose Albert G (“Scholar Al”) Lauber would have hung Keefer out to dry.

Other Coverage

Theresa Schiep has Texas Few Denied $1.3M Deduction For Fascination Donation on Regulation360 Tax Authority.

The Preachers’ Support Culture and Gain Fund discusses the scenario at some length in its Washington Information area – Partnership Present Charitable Deduction Denied. It closes with some useful guidance.

Most donors give funds or general public inventory to DAF sponsoring corporations. The examine is immediately cashed and the inventory generally is immediately offered and transformed to money. Thus, the actions of the organization display exclusive control and are in compliance with Segment 170(f)(18)(B). Having said that, this District Court conclusion may be adopted by the Tax Court or other District Courtroom judges. For this rationale, it is vital that donor receipts for DAF items be modified to include this provision:

“No goods or products and services were being supplied in exchange for your generous economic donation and the nonprofit organization has distinctive lawful regulate about the property contributed.”

For comfort, it would be appropriate for the a lot more intensive language to be made use of for all DAF gift receipts. In the pursuits of simplicity, several companies may possibly choose to use this language for all receipts.

Whilst the risk is principally for DAF presents of partnership interests, business passions or minority pursuits in actual estate, it is crucial for all organizations that sponsor DAFs to use the expanded language in long run contemporaneous written acknowledgments. This language is intended to comply with Section 170(f)(8) and Part 170(f)(18) prerequisites.