Tuesday, October 4, 2022
Tax Court Denies Charitable Contribution Deductions for Crops Donated to CRATs, After Initial Grant By IRS Examining Agent
In Furrer v. Commissioner, the U.S. Tax Court denied an attempt by taxpayers to partially deduct as charitable contributions the value of crops donated to charitable remainder annuity trusts (CRATs). Interestingly, the taxpayers only asserted the deductions during examination but the examining agent had granted them. The IRS, which changed its position with the court's position in an amended answer, therefore had the burden of proof.
The court found that the claimed deductions failed for two reasons. First, the taxpayers had not satisfied the substantiation requirements for noncash charitable contributions with a value in excess of $5,000, having neither sought a qualified appraisal nor attached a Form 8283 substantiating the gifts to their returns nor maintaining the required written records. Second, the donated crops were ordinary income property of the taxpayers, who were engaged in the farming business, and the conceded basis in the crops was zero as the taxpayers had fully expensed all the costs of growing the crops.
The result is not a surprise given these well known requirements, but it is surprising the examining agent initially allowed the deductions.