Charitable Deduction for Contribution of Airplane Interest Doesn't Fly with IRS

(Parker Tax Publishing March 2017)

The Tax Court held that an individual was not entitled to a deduction for a charitable contribution of an interest in an airplane because he failed the substantiation requirements in Code Sec. 170(f)(12)(B) by not including a contemporaneous written acknowledgment with his tax return. The court rejected the taxpayer's argument that the deduction should be allowed because he "substantially complied" with the statutory requirements. Izen, Jr., v. Comm'r, 148 T.C. No. 5.

Background

Joe Izen, Jr., and a partnership purchased a 40-year-old airplane in December 2007 for $42,000. Izen and the partnership each had a 50 percent undivided interest. After its purchase, the aircraft remained in storage for three years at an airfield in Montgomery County, Texas. On December 31, 2010, Izen and the partnership allegedly made completed gifts to the Houston Aeronautical Heritage Society (the Society) of their respective 50 percent interests in the airplane.

Izen's 2010 federal income tax return reported no deduction for charitable contributions. In April 2016, Izen filed a Form 1040X, Amended U.S. Individual Income Tax Return, for 2010. On this return he claimed for the first time a deduction of $338,080 for his alleged contribution to the Society of his 50 percent interest in the airplane.

Izen included with his amended return: (1) an acknowledgment letter addressed to a limited partner of partnership which contributed the other 50 percent interest in the airplane, dated December 30, 2010, and signed by the president of the Society; (2) a Form 8283, Noncash Charitable Contributions, executed by the managing director of the Society, and dated April 2016; (3) a copy of an "Aircraft Donation Agreement" allegedly executed on December 31, 2010, by the president of the Society but bearing no other signatures; and (4) an appraisal dated April 2011, opining that the fair market value of Izen's 50 percent interest in the aircraft, as of December 30, 2010, was $338,080.

The IRS contended that Izen was not entitled to the claimed deduction because he failed to satisfy the substantiation requirements of Code Sec. 170(f)(12), which applies to contributions of used motor vehicles, boats, and airplanes.

Analysis

Code Sec. 170(f) sets forth substantiation requirements that vary depending on the character and size of the taxpayer's charitable gift. For gifts of $250 or more, Code Sec. 170(f)(8) requires that a taxpayer receive from the donee organization, and maintain in his files, a "contemporaneous written acknowledgment" (CWA). This CWA must include: (1) the amount of cash and a description of any property contributed; (2) a statement as to whether the donee provided the taxpayer with any goods or services for the gift; and (3) if so, a description and good-faith estimate of the value of the goods or services received. No deduction is allowed absent a CWA meeting these requirements.

Code Sec. 170(f)(12) provides more stringent substantiation requirements for contributions of used vehicles, including airplanes, whose claimed value exceeds $500. For these contributions, no deduction is allowed unless the taxpayer substantiates the contribution by a CWA of the contribution by the donee organization. A taxpayer can satisfy the CWA requirement by attaching to his return Copy B of Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes. Izen did not include that form with his amended 2010 return, apparently because the Society did not complete or file with the IRS a Form 1098-C relating to Izen's alleged gift. Further, the acknowledgment letter from the Society's president failed to satisfy the CWA requirements because (1) it was not addressed to Izen, (2) it did not acknowledge a gift from him; and (3) it did not include Izen's taxpayer identification number, or state whether the Society had provided him with any goods or services in return for the airplane interest.

The Tax Court noted that it has held that a deed of gift can serve as a de facto CWA if it is contemporaneous and contains all the required information. However, the court concluded the aircraft donation agreement did not qualify as a CWA for three reasons. First, the copy of the agreement that Izen attached to his amended 2010 return included the signature only of the Society's representative (dated the last day of the year) and was signed by neither of the two donors. Because the deed of gift was not signed by either donor, it did not establish that Izen made a completed gift to the Society in 2010.

Second, the aircraft donation agreement could not operate as a de facto CWA because it did not contain the taxpayer identification number (TIN) of the donor as required by Code Sec. 170(f)(12)(B)(i). Under Code Sec. 170(f)(12)(C)(ii), a CWA is contemporaneous only if the donee provides it within 30 days of the contribution. Izen did not file the amended 2010 return including his TIN until April 2016. He could not rely on a document created in 2016 to cure defects in a document allegedly created in 2010, the court said, because the written acknowledgment as perfected would not be contemporaneous.

The court held that Izen's request - that the court read together the multiple documents - would have been more compelling had the Society filed a Form 1098-C that timely supplied the IRS with his TIN and the other required information. But the Society did not file Form 1098-C, so the IRS received no information about Izen's alleged gift until years after it was supposedly made. Here, there was no contemporaneous document with which the aircraft donation agreement could be read together to cure its omission of the statutorily-required information.

The third defect in Izen's "deed of gift as CWA" argument was that the aircraft donation agreement contained no certification of the intended use of the airplane and the intended duration of such use. The court discovered no judicial authority that outlines what a certification must include. The aircraft donation agreement contained no certification of any kind, the court noted, much less a detailed description of the Society's intended use of the aircraft.

Izen had urged that Tax Court excuse these defects on the ground he "substantially complied" with the statutory requirements. However, the court said, as it has repeatedly held in similar cases, the doctrine of substantial compliance does not apply to excuse compliance with the statute's strict substantiation requirements. In each instance, the Code unambiguously provides that no deduction is allowed without a CWA that satisfies the statute's specific demands.

For a discussion on the substantiation requirements for charitable deductions relating to vehicles, boats, and airplanes, see Parker Tax ¶84,145.

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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