William P. Wells and Ruth E. Wells v. Commissioner of Internal Revenue, T.C. Memo. 2026-49, June 10, 2026

The Internal Revenue Service (IRS) issued a Notice of Deficiency to William P. and Ruth E. Wells, disallowing carryover noncash charitable contribution deductions claimed for the 2019, 2020, and 2021 tax years. The deductions originated from a 2016 donation of real property, consisting of land and structures in Claiborne County, Mississippi, which had formerly operated as Chamberlain-Hunt Academy (CHA). Chamberlain, LLC, an entity in which Mr. Wells held a 50 percent interest, had previously purchased the property from French Camp Academy for $200,000 in 2013. On December 30, 2016, Chamberlain transferred the property back to CHA via a quitclaim deed that was drafted and signed by Mr. Wells. Simultaneously, Mr. Wells sent a donation letter to the president of CHA, asserting the value of the property was $4.42 million.

In June 2017, the taxpayers' accountant of thirty years, Dennis Long, provided instructions to secure a contemporaneous written acknowledgment (CWA) from CHA's president. Mr. Long advised that the president merely needed to write a letter on CHA letterhead thanking them for the gift and acknowledging the appraised value. The resulting acknowledgment letter thanked Chamberlain for the gift and noted the $4.42 million value, but it was undated and omitted specific required disclosures regarding goods and services. Chamberlain claimed a $4.42 million deduction on its 2016 Form 1065, which flowed through to Mr. Wells' individual return and was carried forward into the tax years at issue.

Taxpayers' Request for Relief

The taxpayers petitioned the United States Tax Court to challenge the disallowed carryovers and the accuracy-related penalties assessed under Internal Revenue Code (I.R.C.) section 6662. The taxpayers initially argued that the burden of proof should shift to the Commissioner under Tax Court Rule 142(a)(1) and I.R.C. section 7491, alleging the IRS introduced a "new matter" due to an initially incomplete explanation in the Notice of Deficiency. Substantively, the taxpayers requested relief by asserting that their CWA requirements were met by reading a series of documents together, including the donation letter, the quitclaim deed, the Form 8283, and the acknowledgment letter. Furthermore, they contended that because the claimed deduction precisely equaled the property's claimed value, it inherently demonstrated that the donee organization provided no goods or services in consideration for the contribution.

Court's Analysis of the Law

The court first dispensed with the burden of proof dispute, citing Knudsen v. Commissioner, 131 T.C. 185, 189 (2008), to hold that where the preponderance of the evidence favors one party on a primary legal issue, the case may be decided on the weight of the evidence rather than formally allocating the burden of proof.

Turning to the substantive tax law, the court emphasized the strict substantiation requirements of I.R.C. section 170(f)(8). The court noted that under I.R.C. section 170(f)(8)(A), "[n]o deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a [CWA] of the contribution by the donee organization". Citing Addis v. Commissioner, 118 T.C. 528 (2002), the court explained that the CWA must state the amount of cash and a description of any property contributed, whether the donee provided any goods or services in consideration, and a good-faith estimate of the value of any such goods or services.

The court underscored the absolute necessity of these requirements, citing Izen v. Commissioner, 148 T.C. 71, 77 (2017), to explicitly state that "A taxpayer’s failure to supply a satisfactory CWA bars a charitable contribution deduction". Importantly, the court affirmed that "The doctrine of substantial compliance does not apply in this context". Furthermore, relying on Irby v. Commissioner, 139 T.C. 371, 387-88 (2012), the court highlighted the strict nature of the disclosures: "If the donee organization provides no goods or services to the taxpayer in consideration of the taxpayer’s contribution, the written substantiation must include a statement to that effect".

Addressing the taxpayers' "series of documents" argument, the court acknowledged its prior holding in Irby that a CWA may be comprised of multiple documents. However, the court established a vital limitation on this rule: "we can examine multiple documents to determine whether the CWA requirements are satisfied, but those documents must be acknowledged by the donee".

Application of the Law to the Facts

When applying these legal principles, the court found the taxpayers' documentation fatally flawed. Out of the four documents the taxpayers presented to constitute the CWA, only the acknowledgment letter and the Form 8283 were actually acknowledged by CHA. The donation letter and the quitclaim deed were signed by Mr. Wells on behalf of the donor. The court rejected the argument that Mr. Wells' dual role on both sides of the transaction mitigated this requirement, noting that a proper CWA must come from the donee regardless of the parties' relationships. Furthermore, the court specifically noted that a deed can serve as a CWA, but only if executed or acknowledged by the donee, which was not the case here.

Consequently, the court restricted its review to the acknowledgment letter and the Form 8283. While the acknowledgment letter noted the gift and its value, and the Form 8283 provided a description of the property, neither document stated whether CHA provided any goods or services in exchange for the donation. Relying on Cade v. Commissioner, T.C. Memo. 2025-20, the judge ruled, "Congress has required that a CWA must include a statement of '[w]hether the donee organization provided any goods or services in consideration' for the gift". Because the taxpayers' documents lacked this specific statement, they could not serve as a valid CWA.

The court also summarily dismissed the taxpayers' argument that the financial equivalence of the deduction and the appraised value proved no goods or services were exchanged. Citing Brooks v. Commissioner, T.C. Memo. 2022-122, the court declared that "Proving the facts that should have been included in the CWA cannot replace the strict substantiation requirements of section 170(f)(8)".

Analysis of Accuracy-Related Penalties

While the IRS sought to impose a 20 percent accuracy-related penalty for negligence or substantial understatement of income tax under I.R.C. section 6662, the taxpayers raised a reasonable cause defense under I.R.C. section 6664(c)(1). The court noted that "The determination of whether a taxpayer acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all pertinent facts and circumstances". Reliance on a tax professional constitutes reasonable cause if the adviser was competent, the taxpayer provided necessary information, and the taxpayer actually relied in good faith on the adviser's judgment, citing Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000).

The court determined that the taxpayers acted reasonably by retaining their CPA of 30 years to assist with the I.R.C. section 170 compliance. Mr. Wells exercised diligence, explicitly emailed his accountant seeking clarification on the CWA requirements, and ensured that the acknowledgment letter included everything his accountant mistakenly advised was required. Therefore, the court held the taxpayers acted with reasonable cause and in good faith.

Conclusions

The Tax Court concluded that the taxpayers entirely failed to satisfy the strict CWA requirements prescribed by I.R.C. section 170(f)(8). Consequently, the court sustained the IRS's disallowance of the noncash charitable contribution carryovers as a matter of law. Because the deduction failed on substantiation grounds, the court deemed it unnecessary to address the actual fair market value of the contributed property. However, based on the taxpayers' documented, good-faith reliance on their long-time CPA, the court overruled the IRS's imposition of the accuracy-related penalties.

Prepared with assistance from NotebookLM.