For tax professionals representing clients with significant noncash charitable contributions, the statutory and regulatory substantiation hurdles remain high. A recent decision by the United States Tax Court, Gibson v. Commissioner, T.C. Summary Opinion 2026-1, serves as a stark reminder of the consequences of failing to strictly comply with Internal Revenue Code (I.R.C.) section 170(f)(11) and the associated Treasury Regulations. Although summary opinions are not binding precedent, the Gibson case offers a textbook illustration of how the Court applies the tiered substantiation requirements to high-value property donations.

Factual Background

Luke and Breeana Gibson (Petitioners) filed a joint Form 1040 for the tax year 2019. On Schedule A, they claimed a deduction of $194,273 for gifts to charity. This amount matched the figure reported on their attached Form 8283, Noncash Charitable Contributions.

The controversy centered specifically on a reported donation of "high end cycling EQ apparel." On Form 8283, Petitioners indicated this property was acquired by gift, claiming a "Donor’s cost or adjusted basis" of $251,417 and a fair market value (FMV) of $188,563. While Petitioners listed "Appraisal" as the method used to determine FMV, they failed to attach an appraisal to the filed return.

Following an examination of the return, the IRS issued a Notice of Deficiency disallowing the $188,563 deduction related to the cycling apparel. The IRS explanation stated, "Since the donated property consisted of inventory items, the deduction is limited to your cost," and further noted that the deduction was not allowable "because it has not been established that the total amount was paid during the tax year or that the unallowable items meet the requirements of Section 170".

During the examination phase, Petitioners attempted to rectify the documentation failures by submitting an amended return. This submission included a receipt from the donee organization, Hiway 80 Rescue Mission Ministry, dated March 26, 2019, and an appraisal report by Eugene H. Ruelle dated the same day. The IRS did not accept the amended return and sustained the disallowance.

The Taxpayers’ Request for Relief

Petitioners sought a redetermination of the deficiency in the Tax Court. They argued they were entitled to the $188,563 deduction, relying on the amended documentation provided during the examination. At trial, petitioner Luke Gibson testified regarding the donation, asserting that the items were received as a gift from a family member. When questioned regarding the lack of basis information, Gibson "asserted that it was impossible to get the value of the property in the hands of the family member".

The Court’s Analysis of the Law

Special Trial Judge Leyden began the analysis by reiterating the foundational principle regarding burden of proof. Citing Rule 142(a) and INDOPCO, Inc. v. Commissioner, the Court noted that "[d]eductions are a matter of legislative grace, and a taxpayer bears the burden of proving that he or she is entitled to any deduction claimed".

The Court then outlined the tiered substantiation requirements under I.R.C. § 170 and Treas. Reg. § 1.170A-13, which escalate based on the value of the contribution:

Contributions of $250 or More: Pursuant to I.R.C. § 170(f)(8) and Treas. Reg. § 1.170A-13(f), taxpayers must obtain a contemporaneous written acknowledgment (CWA) from the donee organization. This receipt must show the name of the donee, the date and location of the contribution, and a detailed description of the property.
Contributions Exceeding $500: For property contributions over $500, taxpayers face additional recordkeeping requirements. The Court cited I.R.C. § 170(f)(11)(A)(i) and (B), along with Treas. Reg. § 1.170A-13(b)(3)(i), stating that the taxpayer "must also maintain written records establishing (1) the item’s manner of acquisition as well as either the item’s approximate date of acquisition or the approximate date the property was substantially completed and (2) the cost or other basis, adjusted as provided by section 1016, of property donated by the taxpayer during the taxable year".
Contributions Exceeding $5,000: When the claimed deduction exceeds $5,000, the requirements become even more stringent. The taxpayer is required to "(1) obtain a qualified appraisal of the property, (2) attach a copy of the appraisal summary to the tax return, and (3) maintain records containing the information about the property and contribution". The Court specifically referenced I.R.C. § 170(f)(11)(C) and Treas. Reg. § 1.170A-13(c) regarding these requirements.

Application of Law to Facts

The Court applied these statutory tiers to the Petitioners’ evidence, finding partial compliance but ultimate failure on the material issues.

Regarding the requirement for a contemporaneous written acknowledgment for donations over $250, the Court found in favor of the Petitioners. The receipt from Hiway 80 Rescue Mission Ministry satisfied the requirements of § 170(f)(8).

However, the analysis turned fatal for the taxpayers regarding the rules for contributions exceeding $500. The Court found that Petitioners failed to substantiate the basis and acquisition date of the "over 4,000 items of property". The Court observed: "Petitioner Luke Gibson’s testimony was vague as to whom he received the donated property from as a gift. It was unclear whether he inherited it, or whether the unnamed family member made a gift during their lifetime".

Addressing the taxpayer’s claim that obtaining basis was impossible, the Court was unpersuaded: "Petitioner Luke Gibson asserted that it was impossible to get the value of the property in the hands of the family member; yet when asked by the Court to explain why it would be impossible, he said because it was a gift". The Court ruled that "[t]o claim a deduction for property the value of which exceeds $500 the law requires detailed substantiation of the basis of the property as well as when the property was acquired".

Furthermore, the Petitioners failed to meet the requirements for contributions exceeding $5,000. Although they submitted an appraisal report from Mr. Ruelle during the examination, they failed to establish his credentials. The Court explicitly stated: "Further, the record does not confirm that Mr. Ruelle was a qualified appraiser. Thus, petitioners have failed to meet the requirements under section 170(f)(11)(C) and (E) and Treasury Regulation § 1.170A-13(c)... because they have not proven that Mr. Ruelle was a qualified appraiser".

Conclusion

The Tax Court sustained the IRS’s disallowance of the $188,563 deduction. The decision highlights that possessing a receipt from a charity is insufficient for high-value noncash contributions. The inability to substantiate cost basis—particularly for gifted property—and the failure to verify and prove that an appraiser meets the "qualified appraiser" definition under the regulations will result in the total denial of the deduction. As Judge Leyden concluded, "Petitioners have failed to meet the requirements... namely, they have not explained how petitioner Luke Gibson acquired the over 4,000 items of property, the approximate date of acquisition, or the cost or other basis... of the property donated".

Prepared with assistance from NotebookLM.