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Tax Court Upholds Substantial Compliance Test for Gift Letters

In recent months, we've shared news of several cases in which courts have sided with the IRS' strict interpretation of the requirements that conservation donors obtain a letter describing their donation and declaring that no goods or services were provided in return.  Land trusts should continue to send gift substantiation letters going forward, but charities that have not sent these letters in the past might find encouragement by a recent case in the US Tax Court for the DC District.  In Simmons v. Commissioner, the court found that substantial compliance with the gift substantiation rules was sufficient, sharply contrasting with the strict compliance standard applied in the Bruzewicz and Gomez decisions.

The US Tax Court in the DC district found that substantial compliance with the gift and appraisal substantiation rules ws sufficient to satisfy the statute and regulations in Simmons v. Commissioner.  This question of substantial (where all the important information is included in one form or another taken as a whole and with reasonable inferences) or strict (where the absolute and exact letter of all the rules, regulations and statute are fully complied with) 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 Buzewicz 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.  This particular track in tax court is for small cases; decisions may not be appealed and do not create Tax Court precedent.  Donors, land trusts and their attorneys should be aware that Tax Court rules permit the judges to disregard District Court opinions.  These rules allowed the judge in Simmons to arrive at a different conclusion.  The Simmons decision did not cite the Gomez decision at all.

The Simmons decision seems to indicate that, taken together, the form 8283, easement language and other written communications between the land trust and donor may be sufficient.  However, this issue is still very much in contention with the IRS, so land trusts should continue to send gift substantiation letters that fully comply with the IRS guidelines.  Read more information and view examples of letters and copies of the other decisions.

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