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Contemporaneous Substantiation Letters Required

July 2008; updated June 2011

Easement Deductions Denied for Landowners' Failure to Secure Contemporaneous Written Acknowledgment Letter from Land Trusts

The IRS has denied several conservation easement deductions where the donors failed to secure a contemporaneous written acknowledgment and substantiation letter from the land trusts. In three recent cases, Simmons, Gomez, Schrimsher and Bruzewicz, courts have reviewed the gift substantiation requirements for charitable contribution of $250 or more, including conservation easements, land and bargain sales. In Schrimsher, Gomez and Bruzewicz, the Courts agreed with the IRS that donors must have a separate acknowledgment letter that strictly complies with the regulations despite the existence of other written records such as a Form 8283 or canceled checks. In Simmons, however, the Court found that substantial compliance with gift and appraisal substantiation requirements was sufficient.

To help landowners avoid audits on this point, the safest approach for land trusts is to send each donor of a conservation easement (including bargain sales) a separate letter or postcard acknowledging the gift and specifying if the donor received any goods or services in return. The IRS might consider an e-mail as adequate for this purpose. The donor must keep this communication - and the land trust should also keep a copy.

Substantiation Requirements | If You Haven’t Sent Letters | Key Resources


Substantiation Requirements

The Treasury Regulations [see link below to §1.170A–13] specify:

"...No deduction under section 170 shall be allowed with respect to a charitable contribution to which this paragraph applies unless the substantiation requirements described in paragraph (c)(2) of this section are met." ... (§1.170A-13(c), emphasis added)

"A letter or other written communication from the donee acknowledging receipt of the contribution, showing the date of the contribution, and containing the required description of the property contributed constitutes a receipt for purposes of this paragraph. ..." (§1.179A-13(b)(iii), emphasis added)

That written acknowledgement must provide "A statement of whether or not the donee organization provides any goods or services in consideration, in whole or in part, for any of the cash or other property transferred to the donee organization;" (§1.170A-13(f)(2)(ii), emphasis added)

IRS publication 1771 is a helpful booklet that describes these requirements. "Charitable Contributions: Substantiation and Disclosure Requirements."


Additional Safeguards

In addition, IRS Notice 2004-41 suggests that a clause in the conservation easement is not a replacement for a separate written acknowledgment. Some practitioners and attorneys, however, recommend also including an acknowledgment clause in the conservation easement deed itself. Pat Pregmon (Pennsylvania) and Allan Beezley (Colorado), both experienced conservation attorneys, suggest the following sample language:

Except for such monetary consideration (if any) as is set forth in this Article, Holder acknowledges that no goods or services were received in consideration of the grant of this Conservation Easement.

This clause is NOT a replacement for the required separate contemporaneous acknowledgment and substantiation letter. The clause is back-up confirmation that no quid pro quo existed as part of the transaction. Both Allan and Pat emphasize that a land trust should also send a separate letter.

IRS Notice 2004-41 also suggests that signing the Form 8283 is not a replacement for the separate contemporaneous written acknowledgment and substantiation letter. Some attorneys in Colorado had some success prevailing upon the IRS to accept the 8283 as “substantial compliance” during the many audits there in the last few years. This approach, however, is not a guaranteed solution.

Some experts believe IRS Notice 2004-41 does not require a separate substantiation letter, as long as the necessary information is in timely writings given to the donor. So if the necessary information is in the conservation easement and on Form 8283, some experts believe that should suffice. However, this argument should only have to be made retrospectively. Substantiation letters should be provided for all future conservation easement donations to avoid an audit dispute with the IRS on this point.

Some land trusts decide to add the consideration language to their conservation easements because it does no harm. Together with the Form 8283, those land trusts view this confirmation as adequate substantiation to meet the IRS requirements, in the event a separate written substantiation letter is not sent contemporaneously.

Separate Substantiation Letters Required by Law

By law, donors must have written substantiation of gifts with a value of $250 or more in order to qualify for a charitable deduction. While this requirement is placed on the donor, not the done, as a practical matter, land trusts should provide donors with written documentation of their gifts, including conservation easements, and inform them that they must retain this documentation to qualify for a deduction. The failure of a donor to have this documentation is now a routine audit point the IRS can be expected to raise whenever it looks at an easement donation.

Land trusts can save money, time and anxiety by creating a simple system to send out these letters contemporaneously with each land or easement closing. It also gives the land trust another opportunity to say thank you to its donors and paves the way for good landowner relationships. Land trusts often do not treat or think of donations of land or easements in the same way as financial contributions, but it would be prudent to start thinking of them similarly. Remember the adage: an ounce of prevention is worth 10 pounds of cure (in this case).

Here are links to some sample letters with the necessary language.


As evidenced by the Colorado experience, the audit process is protracted, expensive, paper intensive and repetitive -- in a word, painful. It is not a judicial process to determine equity; rather, the IRS is charged with maximizing federal income. Understanding this fact is critical for land trusts so that they can help donors avoid an audit by complying with the law. With the heightened scrutiny of all land trust practices, it is wiser for land trusts to send a contemporaneous acknowledgment letter than give the IRS an additional opportunity for criticism.

Looking backward, donors vulnerable now may not just those who donated in 2008, 2007, and 2006 (and filed the following year), but if a donor filed for a carry-over deduction, then those who donated in 2001, filed in April, 2002, and filed for a carried over deduction in 2007 may also be vulnerable. Obviously these are complex issues and land trusts and their donors must consult tax counsel for advice.

What do you do if you have not been sending these letters?

The IRS considers a written acknowledgment contemporaneous with the contribution if the donor receives the written acknowledgment letter by the earlier of: the date on which the donor actually files his or her individual federal income tax return for the year of the donation; or the due date (including extensions) of the donor’s return. Your land trust has until then to send letters for closings that occurred during the last tax year. For earlier tax years, it is now too late. If it is past the above contemporaneous date for the immediate past tax year, then it is also too late to send a contemporaneous letter.

Your land trust, in consultation with its tax attorney and board, might still consider whether it is a good idea to send the letters anyway, just in case any of your donors are audited. A tardy substantiation letter might be better than no documentation at all. Some issues to consider include how you would present the tardy letter to the donor, how each donor may react upon receipt of the letter, the value of each deduction, whether the statute of limitation for audit of the donation has passed and the potential risk of audit.

The US Tax Court in the DC district found that substantial compliance with the gift and appraisal substantiation rules was sufficient to satisfy the statute and regulations in Simmons v. Commissioner. This question of substantial or strict compliance is wide open; however, land trusts should continue to send gift substantiation letters. The substantial compliance argument should be reserved only for those past situations where the gift letter was not given. The Simmons decision sharply contrasts with the Bruzewicz and Gomez decisions. Bruzewicz was decided in the US District Court in Illinois and Gomez is a Tax Court case from Texas heard on the “S” track. Donors, land trusts and their attorneys should be aware that Tax Court rules permit the judges to disregard District Court opinions. Additionally, “S” track cases do not create Tax Court precedent. These rules allowed the judge in Simmons to arrive at a different conclusion than Gomez and Bruzewicz. The Simmons opinion did not cite the Gomez decision.

The Gomez case suggests that receipt of a tardy letter after notice of an audit or litigation is also insufficient. Whether receipt of a tardy letter well before any suspicion of an audit or potential litigation might in some circumstances be considered substantial compliance is unknown, but has occasionally been successful. Some attorneys in Colorado in particular have reported some success with this approach as well as one case in New York. The Bruzewicz case suggests that only strict compliance will be sufficient but now the Simmons case suggests that substantial compliance might be sufficient even for tardy letters.

This issue is still very much in contention with the IRS, however, so land trusts should continue to send gift substantiation letters that fully comply with the IRS guidelines.

The best approach for your land trust is to avoid this situation entirely by issuing substantiation letters in a timely manner.

For more information or to discuss the issue, call or write:

Leslie Ratley-Beach
Conservation Defense Director
Land Trust Alliance
44 Deerfield Drive
Montpelier, VT 05602
802-262-6051 phone and fax


Key Resources

Charitable Contributions: Substantiation and Disclosure Requirements IRS publication 1771

26 CFR section 170h, last updated July 2, 2008

26 CFR section 170a-13

Internal Revenue Code section 170(f)(8)

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