June 12, 2012
For Lack of the Right Paperwork, $18.5 Million in Charitable Contribution Deductions Lost
I often tell my tax students that part of their job is to get the paperwork right. I now have a new illustration of the importance of doing so from the Tax Court's decision in Mohamed v. Commissioner. As the court details, there was no question regarding the contributions themselves and initially the dispute was solely over their value - which the court concluded may very well have been more than the claimed $18.5 million. The ultimately fatal problem, however, was the paperwork documenting the real estate contributions at issue. Specifically, the court found that the taxpayers failed to obtain a qualified appraisal before the due date of the relevant returns, which appraisal had to be from an appraiser other than the donor or taxpayer, and failed to attach an appraisal summary to those returns. Here the donor and taxpayer, who is a certified real-estate appraiser, had appraised the properties himself and, relying solely on the Form 8283 without consulting the instructions for that form, had failed to conform the statement he attached to the returns to the appraisal summary requirements. The taxpayers' attempts to challenge the validity of the regulations imposing these requirements and to claim "substantial compliance" with those requirements were unsuccessful. The court therefore regretfully denied the deductions, concluding:
We recognize that this result is harsh--a complete denial of charitable deductions to a couple that did not overvalue, and may well have undervalued, their contributions--all reported on forms that even to the Court’s eyes seemed likely to mislead someone who didn’t read the instructions. But the problems of misvalued property are so great that Congress was quite specific about what the charitably inclined have to do to defend their deductions, and we cannot in a single sympathetic case undermine those rules.
For news coverage of the decision, see the Wall Street Journal.
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