We have reported recently on several cases that emphasize the strictness of the rules relating to charitable contributions of appreciated property. The IRS and Tax Court both have traditionally insisted on strict compliance with all of the various charitable contribution rules and procedural requirements, including a written acknowledgement of the gift by the donee and a qualified appraisal. In Crimi v. Commissioner (Tax Court, February 14, 2013), the IRS acted predictably and disallowed the taxpayer’s deduction for the contribution of real property to a county in New Jersey.
The IRS found fault with the form of donee acknowledgement. According to the IRS, the written acknowledgement contained an error in the description of the property, was not signed by the county, and did not include a statement as to whether any goods or services were provided to the donor. The appraisal was faulty because it was made earlier than 60 days before the donation, did not value the property as of the donation date, did not state the date of the expected contribution, did not recite that it was prepared for income tax purposes, described the property as having more acres than it had, and used market value instead of fair market value as the valuation standard.
In a surprising decision, the Tax Court was willing to overlook the various problems pointed out by the IRS. As to the acknowledgment from the donee, the court held it was signed on behalf of the county by someone with either actual or apparent authority to do so. The error in the description was minor and would not prevent the IRS from identifying the property. The acknowledgment letter also did state whether goods and services were provided because the gift transaction was in the form of a bargain sale in which the deduction claimed was for the value of the property in excess of the sale price, and the acknowledgment did state the amount paid for the sale.
While the appraisal was clearly defective, the court excused the defects for reasonable cause because the taxpayer relied on his CPA of more than 24 years to determine the requirements for the appraisal. Even though the CPA was wrong in this case, the court held that the taxpayer had reasonably relied on him. The statute specifically provides for the reasonable cause exception.
This case should not serve as justification for careless practice in connection with charitable gifts. The IRS was not prepared to show any leniency here, and the taxpayer was very lucky that the court did. Reasonablecause arguments are usually a tough sell, and whether they will work is always uncertain. The best practice is to follow the rules carefully and not put yourself in a position of needing to rely on a reasonable-cause argument.