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Taxpayers win again in Tax Court substantiation case

Tax season is underway.  Remember to send contemporaneous written acknowledgement letters for all gifts of $250 or more, including gifts of land and easements.   The Tax Court ruled that a taxpayer claiming a bargain sale of real property to an Ohio state agency was entitled to the deduction despite failing to comply strictly with the appraisal substantiation regulations.  This case suggests that substantial compliance through other documentation may be adequate, but land trusts shouldn’t risk putting their donors through an audit to find out.

In Consolidated Investors Group v. Commissioner, T.C. Memo 2009-290 the Tax Court cited Simmons (and the substantial compliance cases before it) in support of its holding that a taxpayer that failed to comply strictly with the charitable contribution substantiation regulations under Treas. Reg. Section 1.170A-13(c) was nonetheless entitled to a charitable contribution for a bargain sale of real property to the Ohio Turnpike Commission, a state agency.  Although the charitable contribution did not involve a conservation easement contribution, the substantiation regulations discussed in the opinion (with regard to which the taxpayer failed to strictly comply) are also applicable to conservation easement contributions.  In Consolidated, the Tax Court held that the taxpayer was entitled to a charitable contribution despite its failure to comply with the following requirements in the Regulations: (1) the obligation to obtain a timely appraisal (the appraisal was performed more than 60 days before the contribution), (2) the requirement that a taxpayer provide the date that a contribution is made, and (3) the requirement that a taxpayer obtain a statement from the appraiser that the appraisal was prepared for income tax purposes.

Land trusts and landowners continue to struggle with substantiation requirements. Two law firms have each recently published easy to read detailed information on substantiation that can assist land trusts, landowners and attorneys with this troublesome area of law that has landed conservation easements on the IRS Dirty Dozen List.

In Kiva Dunes--Making and Substantiating the Value of Conservation Easements, David M. Wooldridge, Ronald A. Levitt and Gregory P. Rhodes, Volume 111, no. 5, Journal of Taxation; Copyright 2009 © David M. Wooldridge, Ronald A. Levitt and Gregory P. Rhodes give us an in-depth article on substantiation of value.  These are the attorneys who wrote and then defended the Kiva Dunes conservation easement.  The authors dig down into all the substantiation issues in this 10 page article posted with permission.

Miller Chevalier warns tax-exempt organizations not to rely on “substantial compliance” and lists basic steps to take to ensure strict compliance.    They also explain the differences between substantial and strict compliance.  Their list of practical prevention steps includes adequate records and sending the correct letter in a timely manner for all gifts.



Consolidated Investors Group v. Commissioner

Kiva Dunes-Making and Substantiating the Value of Conservation Easements

Substantiating Donations of Conservation Easements: Why Substantial Compliance May Not Be Enough and What Steps Your Organization Should Take to Ensure Compliance

IRS Dirty Dozen List

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