Missing Document Dooms Taxpayer's Charitable Donation Deduction

(Parker Tax Publishing June 2022)

The Tax Court held that a taxpayer who donated Native American jewelry and artifacts to a museum was not entitled to a charitable donation deduction because she failed to provide a contemporaneous written acknowledgement of the donation from the museum stating that the museum provided no goods or services in return for the donation as required under Code Sec. 170(f)(8). The taxpayer attached to her tax return a deed she received from the museum but did not attach a separate agreement which was referenced in the deed; thus, the court concluded that it was ambiguous whether additional terms, including the museum's provision of goods or services, were part of the donation. Albrecht v. Comm'r, T.C. Memo. 2022-53.

Background

Martha Albrecht and her late husband acquired a large collection of Native American jewelry and artifacts during their marriage. In 2014, Albrecht donated approximately 120 items from this collection to the Wheelwright Museum of the American Indian in Santa Fe, New Mexico. In connection with the donation, the Wheelwright Museum and Albrecht executed a "Deed of Gift" that consisted of five pages. The first page stated that Albrecht "hereby donates the material described below to the Wheelwright Museum of the American Indian under the terms stated in the Conditions Governing Gifts to the Wheelwright Museum of the American Indian." Immediately under this clause was the heading "Description of Material: See Attached List." The first page also included the museum's logo, Albrecht's address, and her donor identification number, as well as the signatures of Albrecht and a museum official.

The second page of the deed was titled "Conditions Governing Gifts to the Wheelwright Museum of the American Indian" and specified conditions governing gifts to the museum. One of these conditions stated that "the donation is unconditional and irrevocable; that all rights, titles and interests held by the donor in the property are included in the donation, unless otherwise stated in the Gift Agreement." The final three pages of the deed listed items of donated property. Despite "the Gift Agreement" reference on the second page of the deed, no such agreement was included with the deed, and the Wheelwright Museum did not provide Albrecht with any further written documentation concerning the donation.

On her tax return for 2014, Albrecht reported the donation as an itemized deduction and attached a copy of the deed to the return. Following an examination of Albrecht's return, the IRS disallowed the donation on the ground that the requirements of Code Sec. 170 were not met. Albrecht took her case to the Tax Court.

A taxpayer may deduct charitable contributions made during the tax year under Code Sec. 170(a)(1). Such deductions are allowable only if the taxpayer satisfies specific substantiation requirements provided in Code Sec. 170 and Reg. Sec. 1.170A-13. For any contribution of $250 or more, Code Sec. 170(f)(8)(A) requires that the taxpayer obtain from the donee organization a "contemporaneous written acknowledgement" (CWA). The CWA must include (1) the amount of cash and a description (but not value) of any property other than cash contributed; (2) whether the donee organization provided any goods or services in consideration, in whole or in part, for any such property; and (3) a description and good faith estimate of the value of any such goods or services. Furthermore, Code Sec. 170(f)(8)(C) provides that the taxpayer must receive the CWA from the donee organization on or before the earlier of the date the taxpayer files his or her return or the due date for filing such return. In 15 W. 17th St. LLC v. Comm'r, 147 T.C. 557 (2016), the Tax Court held that while a CWA is not required to take any particular form, the requirement that a CWA be obtained "is a strict one."

In French v. Comm'r, T.C. 2016-53, the Tax Court held that where a deed did not explicitly state whether a donee provided any goods or services with respect to a donation, the deed as a whole had to be examined to determine whether such goods or services were provided. Specifically, the court considered whether the deed (1) effectively stated whether any goods or services were provided in the exchange; (2) stated the donation was an unconditional gift; (3) recited no consideration received in the exchange; and (4) contained a provision stating that the deed was the entire agreement of the parties.

The IRS contended that the deed did not comply with Code Sec. 170(f)(8)(B) because it did not specify whether the Wheelwright Museum provided any goods or services in return for the donation or state that it represented the entire agreement between the museum and Albrecht. Specifically, the IRS pointed out the reference in the deed to the "Gift Agreement" as creating ambiguity as to whether additional terms, including donee provision of goods or services, were part of the donation. Albrecht argued that the Gift Agreement was irrelevant to the issue of whether the Wheelwright Museum provided goods or services in exchange for the donation because the sole purpose of the Gift Agreement was to describe the extent to which she retained certain rights, titles, or interests in the donation. Albrecht also insisted that the Wheelwright Museum's failure to provide her with a Gift Agreement indicated a presumption that all of her rights and interests in the donated property were included in the donation.

Analysis

The Tax Court held that Albrecht was not entitled to a charitable contribution deduction because the deed did not satisfy the strict requirements of Code Sec. 170(f)(8)(B). The court found that although the deed provided that the donation was "unconditional and irrevocable," it continued that "all rights, titles and interests held by the donor in the property are included in the donation, unless otherwise stated in the Gift Agreement." Thus, the terms of the deed were subject to a separate agreement, but the Wheelwright Museum did not provide Albrecht with this document before the return was filed.

Observation: The court noted that Albrecht and the IRS agreed that the Wheelwright Museum did not provide any consideration as part of the donation, but said that this fact was of no consequence. According to the court, in assessing whether a taxpayer has strictly complied with Code Sec. 170(f)(8), the focus is exclusively on what the taxpayer obtained from the donee organization at the earlier of the time the return was filed or the filing due date.

The court was not persuaded by Albrecht's arguments when construing the plain text of the deed. In the court's view, by referencing another document that superseded the terms of the deed with respect to the donor's rights in the donation, the deed provided Albrecht with the ability to retain an interest in the donation, including under a potential quid pro quo arrangement. Albrecht cited no authority, the court noted, for the proposition that a separate agreement referenced in a deed but not attached to it created a presumption that the deed alone satisfied Code Sec. 170(f)(8). The court said it was unwilling to create such a rule, especially when the deed did not indicate it constituted the entire agreement of the parties or that any prior discussions, negotiations, or understandings between them were merged into the deed.

In the court's view, when looking exclusively at the deed and considering it as a whole, a significant question remained as to whether the parties had entered into a side agreement that included additional, superseding terms. The court referred to its decision in French, where it refused to uphold as a CWA a deed that, when analyzed as a whole, did not represent the entire agreement between the donee and donor. The court concluded that it appreciated Albrecht's good faith attempt to substantially comply with the Code by executing the deed with the Wheelwright Museum but substantial compliance did not satisfy the strict requirements of Code Sec. 170(f)(8).

For a discussion of the recordkeeping and substantiation requirements for charitable donation deductions, see Parker Tax ¶84,190.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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