Separate Contemporaneous Letter Required by Tax Court for Valid Deduction
A July 2008 federal tax court case validated the IRS position that donors must obtain a separate acknowledgment letter for any charitable contribution of $250 or more, despite the existence of other written records such as a Form 8283 or canceled checks. Land Trusts should be providing such letters to their donors of land, easements or cash. While technically the donor has the legal responsibility to obtain this letter, land trusts can assist donors by promptly and correctly issuing it.
The letter must contain the statement that no goods or services were exchanged for the gift, or a statement of the amount and type of goods and services if any were exchanged. Preparation of the baseline and other transactional related work are not considered providing goods and services.
The case of Daniel Gomez et ux. v. Commissioner; (T.C. Summ. Op. 2008-93; No. 13167-07S) pertains to a series of donations for which the donor had cancelled checks. The church that was the donee issued a late acknowledgement letter just prior to trial. Nonetheless, the tax court applied a strict compliance test to requirement for a contemporaneous separate substantiation letter.
The donors’ charitable intent and their gifts were stipulated to by the Service in this case as was the legitimate charitable status of the church. Nonetheless the Service demanded and the Tax Court supported application of the strict letter of the Treasury Regulations requiring a separate letter from the donee to the donor at the time of the gift. The donee church in this case issued a letter just prior to trial, but the Court held that it was not contemporaneous and did not satisfy the requirements. For details on what constitutes a contemporaneous letter, click here.
More recently, a Federal District Court ruled in an historic preservation easement deduction case, Bruzewicz v. USA, that the taxpayer failed to obtain the necessary contemporaneous charitable substantiation 170(f)(8) gift letter and that therefore the deduction was appropriately denied by the IRS. The judge also addressed substantial concerns about the quality and methodology of the valuation appraisal. Read more about the Bruzewicz decision.
Rulings on gift letters have varied between the District Courts (strict compliance) and Tax Courts (substantial compliance).
Learn more about the background of this issue, including Treasury Regulations, Sample Letters, What do you do if you haven't been sending these letters, Contacts, and Supporting Documents.