By: Pete Kennedy, CPA, Director

It honestly hurts to read this recent decision from Tax Court.

The above link is to the case summary which is not long but I’ll further summarize it very briefly; a large donation of American Indian artifacts to an established museum was disallowed because the Contemporaneous Written Acknowledgement (“CWA”) did not definitively state that no goods or services were received in exchange for the donation.

Two things have become abundantly clear in observing IRS activity in recent years:

  1. The IRS feels that donors are abusing non-cash contributions
  2. Where non-cash contributions are concerned, no technicality is too trivial for the IRS to use in attempting to get the donation deductions tossed out

In the case summary, a 5-page “deed of gift” was apparently intended to be accompanied by a “gift agreement”, but the gift agreement was never completed.  We can only surmise that the gift agreement would have covered all the bases of a standard CWA.  Without it the donor’s attorneys were forced to try to argue that the deed of gift checked all the appropriate boxes.  Tax court found that it wasn’t enough, primarily because it lacked a specific “no goods or services” statement.  Ouch.

This must have made for some awkward moments at the museum since the donor was also a member of the board of directors.

A CWA is required for any contribution of $250 or more.  The IRS-required elements are not complex – they are listed in the link but also here for emphasis:

  • The date and amount of cash donated and / or a description of the property donated (without a value assigned to the property – unless it is a publicly-traded security)
  • Whether any goods or services were received in exchange for the contribution
  • If any goods or services were received, a description and good faith estimate of the value of such goods or services
  • CWA must be received by the date the return claiming the deduction is filed or the due date for filing that return

So, not hard but very strictly enforced.

Most organizations include statements to the effect that they are recognized by the IRS as a publicly supported 501(c)(3), that donations are deductible to the extent allowed by law, and the ubiquitous “Consult your tax advisor.”

The IRS’ primary concern is of course the valuation of non-cash gifts – there have been many, many examples of abusive transactions.  However; as the above case makes clear, even when the valuation is not being challenged, the IRS will go after non-cash contributions any way they can.