The taxpayers in Wells v. Comm. did nearly everything a careful donor is coached to do. They commissioned an appraisal. They filed Form 8283, Noncash Charitable Contributions. They collected a signed thank-you letter from the charity’s president confirming the gift and its value. And they still lost every dollar of a $4.42 million charitable contribution deduction, because not one of those documents said whether the charity had given them anything in return.
The reversal is instructive on its own, but the case has a second act worth your attention. The same court that disallowed the deduction declined to impose a single dollar of penalty. For anyone who signs returns claiming large noncash gifts, or who advises clients who make them, Wells is a compact lesson in how a contemporaneous written acknowledgment (CWA) fails, and in how far a reasonable-cause defense will and will not carry a client.
How the Gift Came Together
The property was the former Chamberlain-Hunt Academy (CHA) campus in Port Gibson, Mississippi. Chamberlain, LLC, in which Mr. Wells held a 50% interest, having bought it in 2013 for $200,000. On December 30, 2016, Chamberlain transferred the campus to CHA by quitclaim deed that Mr. Wells drafted and signed on the donor’s behalf. The same day, he signed and sent a donation letter, drafted by his accountant, to CHA’s president, stating that the property was worth $4.42 million per an appraisal. Chamberlain claimed a $4.42 million noncash contribution deduction on its 2016 Form 1065, U.S. Return of Partnership Income, and a proportionate share flowed through to Mr. Wells. On their 2016 joint return the Wellses reported a $2.21 million contribution and carried it forward, deducting $168,936, $620,192, and $374,561 in 2019, 2020, and 2021, respectively.
The acknowledgment casually came later. In mid-2017, the accountant, Dennis Long, a CPA who had prepared Mr. Wells’s returns for 30 years, told him he still needed a letter from CHA’s president acknowledging the gift. Long instructed the president to write a note on CHA letterhead thanking Chamberlain for the gift and stating that he understood the appraised value was $4.42 million. “That is all that it needs,” Long wrote. The president obliged, handwriting an undated letter that thanked the donor and repeated the $4.42 million figure. It said nothing else.
The IRS issued a Notice of Deficiency (NOD) in June 2024, disallowing the carryovers and asserting deficiencies of $45,458, $224,368, and $132,882, along with §6662 accuracy-related penalties totaling roughly $80,000 across the three years.
Why the Deduction Failed
Section 170(f)(8)(A) denies any deduction for a contribution of $250 or more unless the taxpayer substantiates it with a CWA from the donee. Under §170(f)(8)(B), the acknowledgment must state three things:
- A description (though not the value) of any noncash property contributed
- Whether the donee provided any goods or services in consideration for the gift
- And, if it did, a description and good-faith estimate of the value of those goods or services.
Under §170(f)(8)(C), the taxpayer must have the CWA in hand by the earlier of the return’s filing date or its due date.
The Wellses' Lead Argument
Citing Irby v. Commissioner, 139 T.C. 371 (2012), they urged the court to read their documents together: the donation letter, the quitclaim deed, the Form 8283, and the acknowledgment letter. Read as a set, they argued, the documents supplied everything §170(f)(8) demands. The court agreed that a CWA can be assembled from a series of documents; Irby says exactly that. But it flagged the flaw the taxpayers glossed over. In Irby, every document in the set had been acknowledged by the donee. Here, only two of the four had been. The donation letter and the quitclaim deed were both created and signed by Mr. Wells for Chamberlain, the donor side of the transaction. A CWA has to come from the donee, and the court held that Mr. Wells’s presence on both sides of the deal did not relax that requirement.
The taxpayers could not rescue the deduction with the deed, either. A deed can serve as a CWA; the court said as much, citing Averyt v. Commissioner, T.C. Memo. 2012-198, and Simmons v. Commissioner, T.C. Memo. 2009-208. But a deed counts only when it is executed or acknowledged by the donee, and this one was signed solely by Mr. Wells for the donor. That left the court with just two donee-acknowledged documents: the acknowledgment letter and the Form 8283.
And here is the sentence that decided the case. Neither the acknowledgment letter nor the Form 8283 said whether CHA had provided any goods or services in exchange for the gift. That statement is not optional. Quoting Cade v. Commissioner, T.C. Memo. 2025-20, the court repeated that Congress requires a CWA to state whether the donee provided goods or services in consideration for the gift. Without that line, the documents could not function as a CWA.
The Wellses had a plausible-sounding fallback: the deduction they claimed was exactly equal to the appraised value, which, they argued, showed on its face that nothing was received in return. The court was unmoved. Even if no consideration passed, the CWA still has to say so. Echoing Brooks v. Commissioner, T.C. Memo. 2022-122, aff’d, 109 F.4th 205 (4th Cir. 2024), the court explained that proving the facts that should have been in the CWA cannot substitute for the acknowledgment itself. The doctrine of substantial compliance does not apply to §170(f)(8). See Izen v. Commissioner, 148 T.C. 71 (2017), aff’d, 38 F.4th 459 (5th Cir. 2022). The entire carryover was disallowed as a matter of law.
Why the Penalties Did Not Stick
The Commissioner sought the 20% accuracy-related penalty under §6662 on either substantial-understatement or negligence grounds. Those penalties fall away, though, when the taxpayer shows reasonable cause and good faith under §6664(c)(1). Reliance on a professional adviser is one recognized route, and it turns on the three-part test from Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002): the adviser was a competent professional with sufficient expertise to justify reliance; the taxpayer supplied complete and accurate information; and the taxpayer relied in good faith on the adviser’s judgment.
The Wellses cleared all three. Mr. Long was a CPA with the education and experience to justify reliance. The email record showed Mr. Wells running down every document Long asked for, including the appraisal for Form 8283. And when Mr. Wells was unsure about the CWA, he emailed Long for clarification, then drafted the acknowledgment letter to include precisely what Long said it needed. The court found reasonable cause and good faith and overruled the penalties in full.
A Familiar Failure, One Month Earlier
If Wells looked like an outlier, it was not. A month before it came down, the Tax Court disposed of two companion cases on the very same defect. In Stephen Martin and Amanda Martin v. Commissioner, T.C. Memo. 2026-39, and , both filed May 14, 2026, two cousins lost the entire deduction for a gift of Utah land to a municipality, again because their paperwork never affirmatively stated that the donee gave nothing in return.
In 2014, Clint Martin bought 13.33 acres in Highland City, Utah, for $22,000, using Litefoot Investments, LLC, an entity he owned with his cousin Stephen, and later deeded the land into their joint names. In 2018 the cousins offered the parcel to Highland City, and the City Council voted to accept it on December 4, 2018. They documented the gift with a joint letter signed by the cousins and the mayor, a warranty deed recorded in late December 2018, and an appraisal valuing the land at $665,000. The IRS disallowed the noncash deductions in full and, in Clint’s case, asserted a $16,516 accuracy-related penalty under §6662(a) and (b)(2).
Unlike the Wells documents, the Martins’ warranty deed did involve the donee; it conveyed the land to the city. So, the court reached a question Wells never did: can the deed itself serve as the CWA? A deed can, but only if, taken as a whole, it carries what the court calls an “affirmative indication” that the donee provided no consideration. See 310 Retail, LLC v. Commissioner, T.C. Memo. 2017-164. In practice, the court has treated the presence of a merger clause as satisfying §170(f)(8)(B)(ii) and its absence as failing it. Compare Big River Development, L.P. v. Commissioner, T.C. Memo. 2017-166 (merger clause saved a deed that recited nominal consideration), with Brooks (the same recitation, no merger clause, no deduction). The Martins’ deed recited that the land was conveyed “for and in consideration of the sum of Ten and no/100 Dollars ($10.00), and other good and valuable consideration,” and it contained no merger clause. That recital, left uncured, was fatal.
The cousins tried two escapes, and the court closed both. First, they argued that under Utah law the joint letter and the deed should be read together as a single, complete agreement carrying the effect of a merger clause. The court declined to look outside the four corners of the deed, noting that reading a merger clause into a deed to satisfy a federal substantiation statute would contradict the statute’s express terms. Second, Stephen pointed to a City Council agenda stating there would be no expenditure to accept the donation. But the agenda predated the Council’s vote to accept the gift, so it could not acknowledge the receipt of something the city did not yet have. See Bruce v. Commissioner, T.C. Memo. 2011-153. Summary judgment for the Commissioner followed, with the penalties reserved for trial.
Tax Practitioner Planning
Read together, Wells and Martin illustrate the two ways a deed fails as a contemporaneous written acknowledgment. In Wells, the deed and the donation letter never counted at all, because the donor drafted and signed them; a CWA has to come from the donee. In Martin, the deed did come from the donee side, but it recited nominal consideration without a merger clause, so it never affirmatively said that nothing was received. Different defects, identical result: the entire deduction gone, as a matter of law, with no partial credit for a taxpayer who plainly made a real gift.
Both sets of taxpayers reached for the same lifeline, and neither caught it. Citing Irby v. Commissioner, 139 T.C. 371 (2012), each asked the court to read a stack of documents together and find the missing element somewhere in the pile. Irby permits that, but only among documents the donee actually acknowledged, and only when the required statement is genuinely there to be found. Substantial compliance is not available. Proving after the fact that no goods or services changed hands does not excuse the statement’s absence from the acknowledgment itself. See Izen v. Commissioner, 148 T.C. 71 (2017), aff’d, 38 F.4th 459 (5th Cir. 2022).
Notice what the courts did not have to decide. Neither opinion reached valuation. Wells turned entirely on the acknowledgment, and the Martin court granted summary judgment on the CWA without ever resolving whether the appraisal was qualified. In each case a six- or seven-figure deduction collapsed at the substantiation threshold, long before anyone argued about what the property was worth. The CWA is the chokepoint, and it is the cheapest place to lose.
There is one bright line between the cases worth holding onto. The Wellses escaped the §6662 penalty because they relied in good faith on a CPA who had prepared their returns for 30 years, and that reliance satisfied the Neonatology test even though the very advice they relied on is what sank the deduction. That is the uncomfortable symmetry of Wells: reasonable cause is a backstop against penalties, never against disallowance. It did not save the Wellses’ deduction, and it will not save your client’s.
For planning, the fixes are cheap and entirely within the practitioner’s control. Build these into the client file before the return goes out:
- Confirm the acknowledgment comes from the donee, not the donor. Documents that the donor drafts and signs do not count, even when the same person sits on both sides of the transaction. That alone decided Wells.
- Insist on the goods-or-services statement, in words. “No goods or services were provided in exchange for this contribution” is one sentence, and its absence is fatal on its own. Boilerplate language that a gift is “deductible to the full extent of the law” does not do the job.
- If a deed is doing the work of the acknowledgment, put a merger clause in it, and do not let it recite nominal consideration uncured. A deed conveying property for “$10 and other good and valuable consideration” with no merger clause is the exact language that sank Martin.
- Date the acknowledgment and secure it before filing. 170(f)(8)(C) sets the deadline at the earlier of the filing date or the due date. An undated letter, as in Wells, invites the dispute.
Wells and Martin are not hard cases. They are a reminder that the cheapest, most avoidable point of failure in a large noncash gift is the one sentence the donee forgets to write, or the merger clause the deed forgets to include. Build both into your donation checklist, and you should never have to litigate this.
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