Lack of Proper Appraisal Results in $18.5mil Charitable Deduction Denied

June 12, 2012

The Tax Court recently denied a taxpayer’s large charitable contribution deduction for donated real estate valued at $18.5 Million.  The Court denied the deduction because the taxpayer did not have the proper substantiation of the value under the tax code rules. The Court acknowledged the taxpayer did make the donation and also stated that the property’s value was probably greater than the amount the taxpayer was claiming.  (TC Memo 2012-152)

In order to take charitable deductions of more than $5,000 worth of noncash property, there are very strict substantiation rules that must be followed.  Among the rules is the requirement for the taxpayer to obtain a qualified appraisal for any noncash single item or grouping of items donated and valued by the taxpayer at over $5,000.

If you are a nonprofit 501(c)(3) receiving noncash donations, or a taxpayer who wishes to donate such items and take the charitable deduction applicable, we strongly advise you talk to your nonprofit tax specialist early in the process to make sure the taxpayer meets all the substantiation requirements so the desired tax deduction can be taken.