It has become unusual for a month to go by without the tax news reporting another case where a taxpayer has lost a charitable contribution deduction due the failure of the taxpayer to follow all of the rules relating to the particular deduction. We have written about this before but it continues to be in the news, and it is apparent that the IRS is continuing to scrutinize closely deductions for charitable contributions. In order to obtain a deduction, the taxpayer must follow a series of very particular rules. A series of court cases indicates there is virtually no margin for error.

A recent case in this area deals with conservation easements. InSeventeen Seventy Sherman Street, LLC (TC Memo 2014-124), the Tax Court disallowed the taxpayer’s charitable contribution deduction because the taxpayer failed to take into account the value of property received back in the transaction. In computing his charitable contribution deduction, the taxpayer must subtract from the gross amount of his gift the value of anything that the taxpayer receives back as a result of making the gift.

The property item that caused the taxpayer to lose his deduction was much less common than the kinds of things normally received, such as attendance at a banquet or the value of goods or services purchased at a charitable auction. In this case the taxpayer dedicated a conservation easement over property the taxpayer owned and hoped to develop. In consideration for the granting of the easement, the taxpayer received a zoning change for the property. The taxpayer did take the value of the zoning change into account in determining the value of the easement for purposes of computing his income tax deduction.

The taxpayer also received a recommendation from the local planning and development agency to the planning board that the taxpayer’s request for a variance from the view preservation ordinance be approved. The taxpayer did not put any value on this recommendation or make any corresponding reduction to the amount of his contribution deduction. The court determined that the recommendation was a bargained-for consideration that, based on the record in the case, was very important to the taxpayer. The taxpayer had not submitted any evidence as to the value of the recommendation; therefore, the court was unable to determine whether the value of the easement granted was greater than the value of the consideration received back by the taxpayer. In short, the court could not determine whether the taxpayer had given anything, so it did not allow any deduction.