Martha Albrecht v. Comm., TCM 2022-53

Martha Albrecht and her late husband acquired a large collection of Native American jewelry and artifacts during their marriage. In December 2014, Ms. Albrecht donated 120 items from this collection to the Wheelwright Museum of the American Indian. In connection with the donation, the Wheelwright Museum and Ms. Albrecht executed a “Deed of Gift” dated Dec. 19, 2014, that consisted of five pages. The first page stated that Ms. Albrecht “hereby donates the material described below to the Wheelwright Museum of the American Indian under the terms stated in the Conditions Governing Gifts to the Wheelwright Museum of the American Indian.”

The second page of the deed was titled “Conditions Governing Gifts to the Wheelwright Museum of the American Indian” and specified conditions governing gifts to the museum. One of these conditions stipulated in relevant part that “the donation is unconditional and irrevocable; that all rights, titles and interests held by the donor in the property are included in the donation, unless otherwise stated in the Gift Agreement.” Despite “the Gift Agreement” reference on the second page of the deed, no such agreement was included with the deed, and the Wheelwright Museum did not provide Ms. Albrecht with any further written documentation concerning the donation.

Contemporaneous written acknowledgement must include “no goods or service” statement. For any contribution of $250 or more, §170(f)(8)(A) requires that the taxpayer obtain from the donee organization, and maintain in her files, a “contemporaneous written acknowledgement” (CWA). The CWA must include (i) the amount of cash and a description (but not value) of any property other than cash contributed; (ii) whether the donee organization provided any goods or services in consideration, in whole or in part, for any such property; and (iii) a description and good faith estimate of the value of any such goods or services. §170(f)(8)(B). Furthermore, the taxpayer must receive the CWA from the donee organization on or before the earlier of the date the taxpayer files his return or the due date for filing such return (§170(f)(8)(C)).

The gift deed was not good enough to save the deduction. The deed did not state whether the Wheelwright Museum provided any goods or services with respect to the donation. The terms of the deed were subject to a separate agreement, but the Wheelwright Museum did not provide Ms. Albrecht with this document before the return was filed or with any other suitable receipt for the gift.

When is a gift deed good enough for proper substantiation? Where a deed does not contain such an explicit statement, courts have previously looked to the deed as a whole to determine whether the donee provided goods or services in return for the donation. Specifically, the courts have considered whether the deed (i) effectively states whether any goods or services were provided in the exchange; (ii) states the donation is an unconditional gift; (iii) recites no consideration received in the exchange; and (iv) contains a provision stating that the deed is the entire agreement of the parties. Although the deed in this case provides that the donation was “unconditional and irrevocable,” it continues that “all rights, titles and interests held by the donor in the property are included in the donation, unless otherwise stated in the Gift Agreement.” 

Whose mistake is this? Ms. Albrecht lost the entire charitable deduction because of a technicality as there seems to have been no issue regarding the value of items donated. Should the taxpayer know the substantiation rules? No, she hired people to help her make and make this gift. So, who is to blame?

• The attorney. Since there were legal documents drawn up, it seems Ms. Albrecht would have retained a lawyer to help her. The lawyer should have known the substantiation rules and protected her charitable deduction. Did the lawyer notice that a “gift agreement” was missing?
• The museum. A charity should absolutely know the substantiation requirements. After all, the law and regulations have been publicized and enforced for decades.
• The tax preparer. The tax preparer should have been the last line of defense. The preparer knows the rules and should have asked to see the “no goods and services” receipt from the Museum. We can guess that the preparer thought the deed was good enough, but this case demonstrates that the return preparer (us too) should also have asked for a traditional receipt from the charity to put in his file this, or any, big donation.

Tax practitioner planning. In our Federal Tax Update classes, we regularly discuss establishing an office policy on when to ask for a receipt to check for “the goods and services” statement. What dollar amount is big enough to “require” the client to provide a receipt? $1,000, $5,000, $10,000? Your decision.