In a case decided last year, the Tax Court denied Martha Albrecht a $463,676 income tax deduction for about 120 items jewelry she donated to the Wheelwright Museum of the American Indian in Santa Fe, New Mexico.
The case, Martha L. Albrecht v. Commissioner, makes for painful reading. The court did not deny that Albrecht had made the gift, nor did the court challenge the valuation.
Instead, in the words of the Court:
The issue for decision is whether petitioner satisfied the requirements of section 170(f)(8)(B) for a charitable contribution she made during 2014 (year at issue).
The section in question, 170(f), deals with the “Disallowance of deduction in certain cases.”
Section (8)(B) reads:
Content of acknowledgement. An acknowledgement meets the requirements of this subparagraph if it includes the following information: (i) The amount of cash and a description (but not value) of any property other than cash contributed; (ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i). (iii)A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect. For purposes of this subparagraph, the term “intangible religious benefit” means any intangible religious benefit which is provided by an organization organized exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context.
The rules required Albrecht to obtain a “contemporaneous written acknowledgement” and she did. But the Court didn’t like the way the acknowledgement was written. It said the acknowledgement:
“Does not comply with section 170(f)(8)(B) on the grounds that 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 petitioner. Specifically, respondent points 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.”
It seems that the museum’s acknowledgement “does not state whether the Wheelwright Museum provided any goods or services with respect to the donation.” There was no allegation or claim that Albrecht did receive any goods or services. The problem, according to the court, was that although the donation to the museum was “unconditional and irrevocable”, there was also a “Gift Agreement” referred to. And the gift was of “all rights, titles and interests held by the donor in the property are included in the donation unless otherwise stated in the Gift Agreement.” And the Gift Agreement was not included in the original filing, so the court found the absence “leaves open a significant question about whether the parties had entered into a side agreement that included additional, superseding terms.”
Perhaps the most painful part for Albrecht was that the was no allegation that she had not made the contribution in good faith; there was no claim that she had in fact had a “side agreement”; and there was no challenge to the valuation.
The Court seems to have hung its decision to deny the entire deduction on the technicality. The Court admitted that Albrecht had “substantially complied”:
“We appreciate what appears to have been a good faith attempt by petitioner to substantially comply with the Code by executing the deed with the Wheelwright Museum. Substantial compliance, unfortunately for petitioner, does not satisfy the strict requirements of section 170(f)(8)(B).”
The court threw the book at her, apparently as a lesson to others.
That lesson is to make sure that all the i’s are dotted, and t’s crossed when substantiating a charitable deduction.
If you’d like, please request a very brief synopsis of 107 charitable deduction court cases.