Taxpayers making contributions to charities that seek a charitable deduction have a myriad of reporting and receipt requirements to comply with. Code §170(f)(12) imposes additional requirements as to contributions of motor vehicles, boats, and airplanes. These various requirements are a major trap for taxpayers, as the IRS will often assert the most harmless errors or omissions in compliance as grounds for denying the deduction.
In a recent Tax Court case, a taxpayer lost a $338,080 charitable deduction for the contribution of an aircraft. One of the failures of the taxpayer was the failure to obtain a required contemporaneous written acknowledgment (CWA) from the donee that included all of the following required information:
(1) the name and taxpayer identification number of the donor;
(2) the vehicle identification number or similar number;
(3) a certification of the intended use or material improvement of the vehicle and the intended duration of such use;
(4) a certification that the item would not be transferred in exchange for money, property, or services before completion of such use or improvement;
(5) whether the donee organization provided any goods or services in exchange for the vehicle; and, if so,
(6) a description and good-faith estimate of the value of such goods or services.
The taxpayer also failed to meet the requirement of submitting a copy of the CWA to the IRS with his tax return. Note that the donee organization is also required to submit the CWA to the IRS (using Form1098-C).
The Tax Court declined to allow the taxpayer to apply the substantial compliance doctrine in regard to the CWA failure, based on case law that such doctrine does not apply to Code §170(f)(8) requirements, quoting other case law to the effect “The doctrine of substantial compliance does not apply to excuse the failure to obtain a CWA meeting the statutory requirements. . .The deterrence value of section 170(f)(8)'s total denial of a deduction comports with the effective administration of a self-assessment and self-reporting system.” It similarly did not allow the use of an Aircraft Donation Agreement to meet the CWA requirements when that agreement did not have all the required disclosures listed above and was unsigned.
A big problem with CWAs for vehicles is that the taxpayer must receive the CWA from the donee organization within 30 days of the contribution. So, if the taxpayer makes the contribution, and then his accountant advises him of the need for a CWA when preparing the income tax return for the contribution year, it will most likely be TOO LATE to obtain the CWA in a timely manner. This is a big trap, and an unfair one - taxpayers should be allowed time to obtain the CWA at least through the return due date.
Joe A. Izen, Jr. v. Commissioner, 148 T.C. No. 5, 03/1/2017