Two recent court decisions have addressed issues relating to substantial compliance with the contemporaneous documentation rules relating to charitable gifts of conservation easements: Bruzewicz v. United States, 604 F. Supp. 2d 1197, 1200 (N.D. Ill. 2009) and Gomez v. Commissioner, T.C. Summ. Op. 2008-93: No. 13167-07S (July 30, 2008). These rules require the donor to obtain a “contemporaneous written acknowledgement” of the contribution from the donee containing: a description of the property contributed; whether the donee provided any goods or services in consideration for the donation; and a “good faith estimate of the value” of any goods or services provided. In order to be considered contemporaneous, the written acknowledgement must be obtained by the earlier of the date on which that year’s tax return is filed by the donor or the due date (including extensions) for filing such return. IRC § 170(f)(8).
Bruzewicz v. United States
The Bruzewicz case involved taxpayers who donated a façade easement on their home. In Bruzewicz, the taxpayers did not obtain a contemporaneous written acknowledgement for the façade easement. However, the donee organization did provide the taxpayers a written acknowledgement of some cash contributions they made during the year, identifying the donation type as “Easements.” The taxpayers relied on this written acknowledgement to establish that they substantially complied with the requirements of IRC § 170(f)(8) with respect to the façade easement.
The court followed the narrow interpretation of the doctrine of “substantial compliance” adopted by the Seventh Circuit in Prussner v. United States, 896 F.2d 218 (7th Cir. 1990), which permits substantial compliance only if the taxpayer had a good excuse for failing to comply with either an unimportant requirement or one unclearly or confusingly stated in the regulations or statute. With regard to the letter proffered by the Bruzewicz taxpayers, the court stated that “[t]here is simply no way in which the letter’s identification of cash contributions … can be stretched to encompass façade easements (which are property interests, not money).” The court held that the taxpayers “total failure” to comply with this statutory requirement was alone fatal to their claimed deduction of the preservation easement.
The Bruzewicz court specifically declined to adopt the Tax Court’s somewhat more expansive view of the substantial compliance doctrine, applied in cases such as Bond v. Comm’r, 100 T.C. 32, 41 (1993), where the critical question to be answered is whether the requirements relate “to the substance or essence” of the statute. In Bond, the Tax Court concluded the reporting requirements of Treas. Reg. § 1.170A-13 are directory and not mandatory because they “do not relate to the substance or essence of whether or not a charitable contribution was actually made.”
In Bruzewicz, the taxpayers’ sole reliance on the cash contribution letter was misplaced. Even under the Tax Court’s more expansive view of the substantial compliance doctrine, the taxpayers failed to substantiate at any time (contemporaneously or thereafter) that the donee did not provide any goods or services in consideration for the donation, a requirement which may relate “to the substance or essence of the statute.”
Gomez v. Commissioner
The (pro se) taxpayers made contributions of over $6,000 to their church in 2005. These contributions were made by check, several of which exceeded the $250 and therefore required contemporaneous written acknowledgement. The taxpayers obtained a letter from the church acknowledging the monetary contributions. This acknowledgement was dated January 22, 2008, the same date the Tax Court’s trial session began in El Paso Texas. Amazingly, even this late acknowledgement failed to state whether the charity provided any goods or services in consideration for the contributions.
The Tax Court held that the acknowledgement did not comply with the statutory requirements because (i) it was late, and (ii) it did not contain a statement to prove that the gift was made without any quid pro quo. The Tax Court may well have allowed the charitable contribution deduction, applying the substantial compliance doctrine, if the acknowledgement had contained a statement that the gifts were made without any quid pro quo.
Donors who have made conservation or other charitable contributions valued in excess of $250 without receipt of a contemporaneous written acknowledgement containing the required information may wish to consider whether obtaining the written acknowledgement at this time would be beneficial. Donee organizations should be prepared for such requests and may wish to take a proactive approach.