The case of Izen v. Commissioner, 145 TC No. 5 involved the question of whether a taxpayer had complied with the requirements of IRC §170(f)(12) for his donation of his interest in an aircraft to a museum in Houston.
IRC §170(f)(12) was enacted to impose additional substantiation requirements for taxpayers claiming donations of used motor vehicles, boats and airplanes. To be able to claim a deduction for such a used item whose value exceeds $500, the following two requirements must be met.
- The taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization that meets the IRC §170(f)(12)(B) and includes the acknowledgement with the taxpayer’s return of tax which includes the deduction and
- If the organization sells the vehicle without any significant intervening use or material improvement of such vehicle by the organization, the amount of the deduction allowed shall not exceed the gross proceeds received from such sale. [IRC §170(f)(12)(A)]
The acknowledgment must contain:
- The name and taxpayer identification number of the donor.
- The vehicle identification number or similar number.
- In the case of a qualified vehicle which is sold by the organization without any significant intervening use or material improvement—
- A certification that the vehicle was sold in an arm’s length transaction between unrelated parties,
- The gross proceeds from the sale, and
- A statement that the deductible amount may not exceed the amount of such gross proceeds.
- In the case of a qualified vehicle which is not sold by the organization without any significant intervening use or material improvement —
- A certification of the intended use or material improvement of the vehicle and the intended duration of such use, and
- A certification that the vehicle would not be transferred in exchange for money, other property, or services before completion of such use or improvement.
- Whether the donee organization provided any goods or services in consideration, in whole or in part, for the qualified vehicle.
- A description and good faith estimate of the value of any goods or services provided or, if such goods or services consist solely of intangible religious benefits, a statement to that effect. [IRC §170(f)(12)(B)]
To meet the “contemporaneous” requirement the acknowledgment must be provided within 30 days of:
- The date of sale of the item or
- For a vehicle that is not being sold, the date of the contribution. [IRC §170(f)(12)(c)]
Under IRC §170(f)(12)(D) a charitable organization furnishing the contemporary written acknowledgment (referred to as a CWA in the opinion) must provide the information in the acknowledgment to the IRS. The IRS has designated Form 1098-C to be used for this purpose.
The taxpayer in this case was claiming the deduction on an amended return he had filed in response to an IRS examination and attempt to deny him deductions for various expenses reported on this return. As the Court notes:
Petitioner included with this amended return: (1) an acknowledgment letter addressed to Philippe Tanguy, dated December 30, 2010, and signed by Drew Coats as president of the Society; (2) a Form 8283 executed by Amy Rogers, managing director of the Society, and dated April 13, 2016; (3) a copy of an “Aircraft Donation Agreement” allegedly executed on December 31, 2010, by Drew Coats as president of the Society but bearing no other signatures; and (4) an appraisal by Winston McKenzie dated April 7, 2011, opining that the fair market value of petitioner’s 50% interest in the aircraft, as of December 30, 2010, was $338,080.
The IRS argued that the taxpayer had not provided the required acknowledgment under IRC §170(f)(12) and thus could not claim the deduction regardless of any other facts.
One way to satisfy the CWA acknowledgment is for the donor to simply apply the donor’s copy of the Form 1098-C, which the charity is directed to provide to the donor, to his/her return. However, that did not take place in this case.
As the Court notes:
Petitioner did not include that document with his amended 2010 return, apparently because the Society did not complete or file with the IRS a Form 1098-C in connection with his alleged gift. The IRS has no record of having received a Form 1098-C relating to petitioner’s 2010 tax year. The Society’s managing director, who executed the Form 8283 on April 13, 2016, averred that she was “unable to find a copy of a 1098C Form reporting the Hawker Jet Donation in our file.”
So now the question becomes whether any of the documents the taxpayer could, by itself or in combination with the other documents, satisfy the CWA requirements of IRC §170(f)(12).
The Court first considered the letter from the museum and rejected that for the reasons outlined below:
Petitioner included with his amended return a copy of a letter from the Society, dated December 30, 2010, addressed to Philippe Tanguy and thanking him for his “most generous donation of the Hawker [aircraft].” This letter fails to satisfy the requirements of section 170(f)(12)(B) for several reasons. Most obviously, it is not addressed to petitioner and it does not acknowledge a gift by him; of necessity, therefore, it does not include “[t]he name and taxpayer identification number of the donor,” as section 170(f)(12)(B)(i) demands. This letter likewise omits other categories of required information, including a statement as to “[w]hether the donee organization provided any goods or services in consideration * * * for the qualified vehicle.” Sec. 170(f)(12)(B)(v)
The Court then goes on to note that for purposes of the general “contemporaneous acknowledgment” requirements for gifts in excess of $250 that the Tax Court had held that a deed of gift can serve the role of the CWA. While not conceding that the same rule would apply to donation of a used aircraft, the Court noted:
Assuming arguendo that a deed of gift can satisfy the requirements of section 170(f)(12)(B) in an appropriate case, we find that the copy of the Aircraft Donation Agreement included with petitioner’s 2010 amended return does not qualify as a CWA. That document contains some of the information required by section 170(f)(12)(B).5 For three reasons, however, we conclude that it does not meet the statute’s strict requirements.
First, in each of the cases mentioned above, the copy of the deed of gift that was deemed to qualify as a CWA had been fully executed by all parties to the contribution transaction. Here, the copy of the Aircraft Donation Agreement that petitioner attached to his amended 2010 return bears the signature only of the Society’s representative (dated the last day of the year) and is signed by neither of the two donors. A deed of gift can serve as a de facto CWA only if it acknowledges that a completed gift was made before the end of the calendar year, as an actual acknowledgment letter would do. Because the deed of gift was not signed by either donor, it does not establish, on its face, that petitioner made a completed gift to the Society during 2010. We accordingly find that it does not qualify as a “contemporaneous written acknowledgment of the contribution” within the meaning of section 170(f)(12)(A)(i).
Second, the Aircraft Donation Agreement cannot operate as a de facto CWA because it does not contain the “taxpayer identification number of the donor” as required by section 170(f)(12)(B)(i).
The opinion goes on to note that this letter also fails the timeliness requirement, noting:
Under section 170(f)(12)(C)(ii), a CWA is “contemporaneous” only if the donee provides it “within 30 days of * * * the contribution of the qualified vehicle.” Petitioner did not file the amended 2010 return including his TIN until April 2016. He cannot rely on a document created in 2016 to cure defects in a document allegedly created in 2010, because the written acknowledgment as thus perfected would not be “contemporaneous.”
As well, the Court notes the document contained no certification of use of the aircraft, another fatal defect in using that document as the CWA for the aircraft.
Finally, the Court rejects that the doctrine of “substantial compliance” should excuse the shortfall in this case, noting:
Petitioner urges that we excuse these defects on the ground that he “substantially complied” with the statutory requirements. As we have repeatedly held in cases involving section 170(f)(8)(B), however, “[t]he doctrine of substantial compliance does not apply to excuse compliance with the [statute’s] strict substantiation requirements.” French, at *8. In each instance, the Code unambiguously provides that “no deduction shall be allowed” in the absence of a CWA that satisfies the statute’s specific demands. Sec. 170(f)(8)(A), (12)(A)(i).
Since the taxpayer failed to provide anything that could qualify as a CWA, no deduction for the contribution could be allowed on his tax return.