Oakhill Woods, LLC, Effingham Managers, LLC, Tax Matters Partner v. Comm., TCM 2020-24
This post is part of our series on recent important tax cases that may be of interest to accounting, tax, and finance professionals. For more like this, see our Federal Tax Update and California Federal Tax Update, which offer a comprehensive analysis of the year’s most pivotal tax developments.
Missing Basis Entry on Form 8283 Means Taxpayer Loses Non-Cash Charity Deduction of $7,949,000 (Oakhill Woods, LLC, Effingham Managers, LLC, Tax Matters Partner v. Comm., TCM 2020-24)
Strict substantiation requirements apply. To deduct non-cash contributions in excess of $5,000, the donor must obtain a qualified appraisal of the contributed property, attach a “fully completed” appraisal summary to the return on which the deduction is first claimed, and maintain records containing specified information (§1.170A-13(c)(2)(i)(A), (B), and (c)). The Form 8283, Non-Cash Charitable Contributions, appraisal summary that Oakhill Woods attached to its 2010 return indicated that it acquired the property by purchase on Aug. 1, 2007, but Oakhill Woods did not enter an amount in the space provided for the “Donor’s cost or other adjusted basis.” With respect to “cost or adjusted basis” Oakhill Woods’ attachment stated:
“A declaration of the taxpayer’s basis in the property is not included in * * * the attached Form 8283 because of the fact that the basis of the property is not taken into consideration when computing the amount of the deduction. Furthermore, the taxpayer has a holding period in the property in excess of 12 months and the property further qualifies as “capital gain property.”
Omission of basis on Form 8283 fatal to deduction. The required appraisal summary must provide, among other things, the adjusted cost or other basis of the donated property (§1.170A-13(c)(4)(ii)(E))[1]. Congress directed the Secretary of Treasury to adopt stricter substantiation requirements for charitable contributions to alert the Commissioner, in advance, of potential overvaluations of contributed property and thereby deter taxpayers from claiming excessive deductions in the hope that they would not be audited (S. Prt. No. 98-169 (Vol. 1), at 444; 1984 Blue Book, at 503-504). Because Oakhill’s omission of its basis in the contributed property from the Form 8283 it attached to its 2010 return prevented the appraisal summary from achieving its intended purpose, Oakhill’s failure to meet the requirement of §1.170A-13(c)(4)(ii)(E) could not be excused by substantial compliance. The charitable deduction was denied in full.
[1] As an exception to the rule, if the donor is “unable” to provide information on its cost basis in the donated property, the donor may substitute an explanatory statement attached to the Form 8283 (§1.170A-13(c)(4)(iv)(C)(1)). Oakhill did attach an explanation, but the attachment did not provide satisfactory excuses for its omission.