This interesting Wall Street Journal came to me from ISA appraisers Carol Wamble, ISA CAPP and Sarah Drury, ISA AM. The article references a US Tax court case where an $18.5 million deduction was denied because of a failure to obtain and attach an appraisal. The case is based on a real estate deduction, but the ruling is clear, tax payers must follow the proper guidelines and form instructions in order to claim a deduction, and certainly could apply to personal property.
Now you would think if you were donating $18 million worth of property you would read and follow the instructions, or have your "people" do it and not just come up with a figure, even if it was low-balled.
The Wall Street Journal reports
If you intend to take a deduction for a charitable gift, pay attention to the letter of the law.
With regret, a U.S. Tax Court judge denied a wealthy Sacramento, Calif., couple a deduction for $18.5 million they took after donating valuable properties to charity because they didn’t attach a proper appraisal to the donation form.
Joseph Mohamed is a real-estate broker, certified real-estate appraiser and prominent Sacramento entrepreneur, according to the decision, which was released May 29. In 1998 he and his wife Shirley set up a charitable remainder trust; such trusts typically pay income for life to the donors and after death give the remaining assets to one or more charities. (The Mohameds’ charities included the Shriners Hospitals for Children, the Sacramento Food Bank & Family Services and the Pacific Legal Foundation.)
In 2003 and 2004 the Mohameds donated more than half a dozen properties worth millions of dollars to their trust. Mohamed filled out the tax returns himself and later admitted he did not read the instructions, according to the decision. (The judge conceded that the instructions were confusing, and the Internal Revenue Service has since altered the form.)
As a result, Mohamed didn’t attach qualified appraisals of the donated properties to his tax returns, although he did note that he underestimated their value because he didn’t want to risk claiming too large a deduction – a point the judge agreed with.
When the IRS challenged the Mohameds’ self-appraisals, they hired an independent appraiser. His assessment of the properties’ value: $20.3 million, vs. the $18.5 million the Mohameds deducted.
The case turned on whether the couple lost their right to the deduction because they didn’t submit the correct paperwork at the time they submitted their return. Judge Mark V. Holmes sided with the IRS because he felt the law left him no room to do otherwise. He concluded:
We recognize that this result is harsh – a complete denial of charitable deductions to a couple that did not overvalue, and may well have undervalued, their contributions – all reported on forms that even to the Court’s eyes seemed likely to mislead someone who didn’t read the instructions. But the problems of misvalued property are so great that Congress was quite specific about what the charitably inclined have to do to defend their deductions, and we cannot in a single sympathetic case undermine those rules.
To read the complete decision, see
http://www.ustaxcourt.gov/InOpHistoric/MohamedMemo.TCM.WPD.pdf
Source: The Wall Street Journal
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