When is a Charitable Contribution Not Deductible?

Hook Law News | Sep 24, 2021 | Hook Law Center

When taxpayers fail to comply with noncash charitable contribution reporting requirements..

If you itemize your deductions on your tax return, you may be eligible to deduct charitable contributions to offset your tax liability. Charitable contributions can be cash donations or noncash contributions, such as investments, household items, automobiles, or land.

Additional reporting and substantiation requirements are imposed by the IRS when making a noncash charitable contribution. If your noncash charitable contribution is not reported to the IRS correctly, your charitable contribution deduction could be denied.

If the amount of the noncash contribution is greater than $500, the IRS requires you to include Form 8283 with your tax return. If the amount of the noncash contribution is more than $5,000, you will also need a qualified appraisal of the noncash property. If you are claiming a deduction of more than $500,000 for an item, you must attach the qualified appraisal of the property to your return unless an exception applies.

The Treasury Inspector General for Tax Administration (“TIGTA”) conducted an audit of 2010 tax returns that claimed more than $5,000 in noncash charitable contributions. TIGTA found that approximately 60 percent of the taxpayers did not comply with the noncash charitable contribution reporting requirements.

This was the issue in a recent tax court case, Pankratz v. Commissioner.  The IRS denied Dr. Duane Pankratz’s charitable contribution deductions for failing to include a qualified appraisal with his tax return. Dr. Pankratz donated his interests in oil and gas fields and a conference center (the building and surrounding land) to religious charities. Dr. Pankratz valued the donation at $2 million. But he did not obtain qualified appraisals of the donated property. The Tax Court agreed with the IRS’s denial of the deduction.

The penalty for failing to meet the reporting and substantiation requirements for noncash charitable contributions is harsh. Be sure that you are aware of the details of these rules as you make your charitable giving plans.

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