Overview: Byzantine is the word that comes to mind. You’ll find numerous and often overlapping rules. But it’s not the IRS’s fault. The rules are the result of abuses by taxpayers who claimed deductions for gifts not made and overvalued gifts that were made.

Treasury’s and IRS’s proposed regulations echo existing rules and flesh them out. The proposed regulations provide "guidance" (meaning requirements) for the substantiation and reporting of cash and noncash charitable contributions to qualify for the IRC §170 income tax charitable deduction. Many of the proposed regulations reflect the charitable provisions of the American Jobs Creation Act of ‘04 and the Pension Protection Act of ‘06. The regulations apply to contributions by individuals, partnerships and corporations.

"Men must turn square corners when they deal with the Government" Supreme Court Justice Oliver Wendell Holmes, Jr. (Rock Island, Arkansas & Louisiana Ry., 254 U.S. 141, 143). The price of cutting corners or turning them properly but one second late: With rare exception, the income tax charitable deduction is lost and there is no second chance. This is so even though the IRS acknowledges the gift was indubitably made by the donor, received by the charity and the valuation was accurate. See the recent Gomez case (page 15), for example.

Bank record or written communication required. No income tax charitable deduction is allowed for a gift in the form of cash, check, or other monetary gift (below) unless the donor substantiates the deduction with a bank record (below) or a written communication (below) from the donee showing the donee’s name, the contribution date, and the gift amount.

Additional substantiation required for contributions of $250 or more—the contemporaneous written acknowledgment. No deduction is allowed for any contribution of $250 or more unless the donor substantiates the contribution with a contemporaneous written acknowledgment from the donee (described in IRC §170(f)(8) and Reg. §1.170A-13(f)).

Contemporaneous acknowledgment—definition. For an acknowledgment to be contemporaneous, the donor must obtain a receipt from the charity "on or before the earlier of: (1) the date on which the taxpayer files a return for the taxable year in which the contribution was made; or (2) the due date (including extensions) for filing such return." Translation. The donor must have the receipt in hand before filing his or her timely income tax return. And be prepared to produce the receipt on audit.

Single document may be used. The above requirements may be met by a single document that contains all the required information if the single document is obtained by the donor no later than the deadline for receipt of substantiation.

Monetary gift includes a transfer of a gift card redeemable for cash, and a payment made by credit card, electronic fund transfer (as described in IRC §5061(e)(2)), an online payment service, or payroll deduction.

Bank record includes a statement from a financial institution, an electronic fund transfer receipt, a canceled check, a scanned image of both sides of a canceled check obtained from a bank website, or a credit card statement.

Written communication includes electronic mail correspondence.

Contributions made by payroll deduction. For a charitable contribution made by payroll deduction, a donor is treated as meeting the substantiation requirements if no later than the date for receipt of substantiation (above) the donor obtains: (1) a pay stub, Form W-2, "Wage and Tax Statement," or other employer-furnished document that sets forth the amount withheld during the taxable year for payment to a donee; and (2) a pledge card or other document prepared by or at the direction of the donee that shows the name of the donee.

Substantiation of out-of-pocket expenses. The general substantiation rules (above) don’t apply to a donor who incurs unreimbursed expenses of less than $250 incident to the rendition of services (within the meaning of Reg. §1.170A-1(g)). For substantiation of unreimbursed out-of-pocket expenses of $250 or more, see Reg. §1.170A-13(f)(10). It provides that a volunteer who has unreimbursed expenditures of $250 or more while providing services to a charity is treated as having obtained a receipt from the charity (i.e., may deduct those expenses) if the volunteer has adequate records (those generally required to substantiate deductions), and obtains an abbreviated receipt from the charity. The receipt must contain: (1) a description of the volunteer’s services; (2) a statement of whether the charity provided any goods or services in exchange for the unreimbursed expenses; and (3) a description and good faith estimate of the value of any goods or services provided. If the goods or services provided consist solely of intangible religious benefits, the receipt must so state. Reminder. If no goods or services were provided, the receipt must so state. The requirement that a charity’s acknowledgment include the date on which the services were performed is eliminated.

Charitable contributions made by partnership or S corporation. If those entities make a charitable contribution, the partnership or S corporation is treated as the donor.

Transfers to charitable remainder trusts. The above substantiation requirements don’t apply to a transfer of cash, check, or other monetary gift to a charitable remainder annuity trust or a charitable remainder unitrust. The requirements do apply, however, to a transfer to a pooled income fund. For contributions of $250 or more, see IRC §170(f)(8) and Reg. §1.170A-13(f)(13).

What about gift annuities? The proposed regulations don’t deal specifically with gift annuities. However, existing regulations do. When the gift portion of a gift annuity or a deferred payment gift annuity is $250 or more, a donor must have an acknowledgment from the charity stating whether any goods or services—in addition to the annuity—were provided to the donor. If no additional goods or services were provided, the acknowledgment must so state. The acknowledgment need not include a good faith estimate of the annuity’s value. Reg. §§1.170A-13(f)(2), (16).

What about charitable remainder gifts in personal residences and farms? The proposed regulations and existing regulations don’t specifically deal with these gifts. But I believe that the $250-or-more substantiation rules apply.

What about grantor charitable lead trusts for which an income tax charitable deduction is allowable? The proposed and existing regulations are silent. Charitable remainder trusts, as stated above, aren’t subject to the substantiation rules. Arguably, charitable lead trusts are also exempt. That being said, I’d nevertheless get a timely receipt meeting the $250-or-more rules.

Substantiation of charitable contributions of less than $250 —individuals, partnerships, and certain corporations required to obtain receipt. Except as provided below (substitution of reliable written records) an income tax charitable deduction isn’t allowed for noncash charitable contributions of less than $250 by an individual, partnership, S corporation, or C corporation that is a personal service corporation or closely held corporation unless the donor maintains for each contribution a receipt from the donee showing: (1) the name and address of the donee; (2) the date of the contribution; (3) a description of the property in sufficient detail under the circumstances (taking into account the value of the property) for a person who is not generally familiar with the type of property to ascertain that the described property is the contributed property; and (4) for securities, the name of the issuer, the type of security and whether the securities are publicly traded securities (within the meaning of Reg. §1.170A-13(c)(7)(xi)).

Substitution of reliable written records. If it is impractical to obtain a receipt (for example, a donor deposits canned food at a donee’s unattended drop site), the donor may satisfy the recordkeeping rules for gifts of less than $250 by maintaining reliable written records for the contributed property.

Reliable written records. The reliability of written records is to be determined on the basis of all of the facts and circumstances of a particular case, including the contemporaneous nature of the writing evidencing the contribution.

Contents of reliable written records. The records must include: (1) the information required for substantiation of charitable gifts of less than $250 (above); (2) the fair market value of the property on the date the contribution was made; (3) the method used in determining the fair market value; and (4) for a contribution of clothing or a household item, the condition of the item.

Additional substantiation rules may apply. See the substantiation rules (below) regarding Form 8283.

Substantiation of charitable contributions of $250 or more but not more than $500. No deduction is allowed for a noncash charitable contribution of $250 or more but not more than $500 unless the donor substantiates the contribution with a contemporaneous written acknowledgment (defined above).

In general. No deduction is allowed for a noncash charitable contribution of more than $500 but not more than $5,000 unless the donor substantiates the contribution with a contemporaneous written acknowledgment and meets the other applicable requirements.

Individuals, partnerships, and certain corporations also required to file Form 8283 (Section A). No deduction is allowed for a noncash charitable contribution of more than $500 but not more than $5,000 by an individual, partnership, S corporation, or C corporation that is a personal service corporation or closely held corporation unless the donor: (1) substantiates the contribution with a contemporaneous written acknowledgment; and (2) completes Form 8283 (Section A), "Noncash Charitable Contributions", or a successor form, and files it with the return on which the deduction is claimed.

Completion of Form 8283 (Section A). A completed Form 8283 (Section A) includes: (1) the donor’s name and taxpayer identification number (social security number if the donor is an individual or employer identification number if the donor is a partnership or corporation); (2) the name and address of the donee; (3) the date of the contribution; and (4) the following information about the contributed property: A description of the property in sufficient detail under the circumstances (taking into account the value of the property) for a person who is not generally familiar with the type of property to ascertain that the described property is the contributed property; in the case of real or personal property, the condition of the property; in the case of securities, the name of the issuer, the type of security, and whether the securities are publicly traded securities within the meaning of Reg. §1.170A-13(c)(7)(xi); and the fair market value of the property on the date the contribution was made and the method used in determining the fair market value.

Still more information on Form 8283 (Section A): The manner of acquisition (for example, by purchase, gift, bequest, inheritance, or exchange), and the approximate date of acquisition of the property by the donor (except that in the case of a contribution of publicly traded securities (defined in Reg. §1.170A-13(c)(7)(xi)), a representation that the donor held the securities for more than one year is sufficient) or, if the property was created, produced, or manufactured by or for the donor, the approximate date the property was substantially completed; the cost or other basis, adjusted as provided by IRC §1016, of the property (except that the cost or basis is not required for contributions of publicly traded securities (as defined in Reg. §1.170A-13(c)(7)(xi)) that if sold on the contribution date would have resulted in long-term capital gain); for tangible personal property, whether the donee has certified it for a use related to the purpose or function constituting the donee’s basis for exemption under IRC §501 (or in the case of a governmental unit, an exclusively public purpose); and any other information required by Form 8283 (Section A) or the instructions to Form 8283 (Section A.)

Additional requirement for motor vehicle gifts. For a contribution of a qualified vehicle (described in IRC §170(f)(12)(A)(ii)) for which an acknowledgment under IRC §170(f)(12)(B)(iii) is provided to the IRS by the donee organization, the donor must attach a copy of the acknowledgment to the Form 8283 (Section A) for the return on which the deduction is claimed.

Additional substantiation rules may apply. See the substantiation rules (below) regarding Form 8283.

Substantiation of charitable contributions of more than $5,000. No income tax charitable deduction is allowed for a noncash charitable contribution of more than $5,000 unless the donor: (1) substantiates the contribution with a contemporaneous written acknowledgment; (2) obtains a qualified appraisal (as defined in Reg. §1.170A-17(a)(1)) prepared by a qualified appraiser (as defined in Reg. §1.170A-17(b)(1)); and (3) completes Form 8283 (Section B), or a successor form, and files it with the return on which the deduction is claimed.

Exception for some noncash contributions. A qualified appraisal is not required, and a completed Form 8283 (Section A) meets the substantiation requirements for contributions of: (1) publicly traded securities as defined in Reg. §1.170A-13(c)(7)(xi); (2) property described in IRC §170(e)(1)(B)(iii) (certain intellectual property); (3) a qualified vehicle described in IRC §170(f)(12)(A)(ii) for which an acknowledgment under IRC §170(f)(12)(B)(iii) is provided to the IRS by the donee organization and attached to the Form 8283 (Section A) by the donor; and (4) property described in IRC §1221(a)(1) (inventory and property held by the donor primarily for sale to customers in the ordinary course of the donor’s trade or business).

Completed Form 8283 (Section B). A completed Form 8283 (Section B) includes: (1) the donor’s name and taxpayer identification number (social security number if the donor is an individual or employer identification number if the donor is a partnership or corporation); (2) the donee’s name, address, taxpayer identification number, and signature, the date signed by the donee, and the date the donee received the property; (3) the appraiser’s name, address, taxpayer identification number, appraiser declaration, signature, and the date signed by the appraiser; (4) the following information about the contributed property: (a) the fair market value on the valuation effective date (as defined in Reg. §1.170A-17(a)(5)(i)); (b) a description in sufficient detail under the circumstances (taking into account the value of the property) for a person who is not generally familiar with the type of property to ascertain that the described property is the contributed property; (c) in the case of real or tangible personal property, the condition of the property; (5) the manner of acquisition (for example, by purchase, gift, bequest, inheritance, or exchange), and the approximate date of acquisition of the property by the donor, or, if the property was created, produced, or manufactured by or for the donor, the approximate date the property was substantially completed; (6) the cost or other basis, adjusted as provided by IRC §1016; (7) a statement explaining whether the charitable contribution was made by means of a bargain sale and, if so, the amount of any consideration received from the donee for the contribution; and (8) any other information required by Form 8283 (Section B) or the instructions to Form 8283 (Section B).

Appraiser declaration. The appraiser declaration must include the following statement: "I understand that my appraisal will be used in connection with a return or claim for refund. I also understand that, if a substantial or gross valuation misstatement of the value of the property claimed on the return or claim for refund results from my appraisal, I may be subject to a penalty under section 6695A of the Internal Revenue Code, as well as other applicable penalties. I affirm that I have not been barred from presenting evidence or testimony before the Department of the Treasury or the Internal Revenue Service pursuant to 31 U.S.C. section 330(c)."

Donee signature—person authorized to sign. The person who signs Form 8283 for the donee must be either an official authorized to sign the tax or information returns of the donee, or a person specifically authorized to sign Form 8283 by that official. In the case of a donee that is a governmental unit, the person who signs Form 8283 for the donee must be an official of the governmental unit.

Effect of donee signature. The signature of the donee on Form 8283 doesn’t represent concurrence in the appraised value of the contributed property. Rather, it represents acknowledgment of receipt of the property described in Form 8283 on the date specified in Form 8283 and that the donee understands the information reporting requirements imposed by IRC §6050L and Reg. §1.6050L-1.

Certain information not required on Form 8283 before donee signs. Before Form 8283 is signed by the donee, Form 8283 must be completed, except that it is not required to contain the following: information about the qualified appraiser or the appraiser declaration; the manner or date of acquisition; the cost or other basis of the property; the appraised fair market value of the contributed property; and the amount claimed as a charitable contribution.

Substantiation of noncash charitable contributions of more than $500,000. Generally, no income tax charitable deduction is allowed for a noncash charitable contribution of more than $500,000 unless the donor: (1) substantiates the contribution with a contemporaneous written acknowledgment (as described in IRC §170(f)(8) and Reg. §1.170A-13(f)); (2) obtains a qualified appraisal (as defined in Reg. §1.170A-17(a)(1)) prepared by a qualified appraiser (as defined in Reg. §1.170A-17(b)(1)); (3) completes Form 8283 (Section B) and files it with the return on which the deduction is claimed; and (4) attaches the qualified appraisal of the property to the return on which the deduction is claimed.

ARTWORK ALERT! Although not covered in the proposed regulations, a long-standing rule requires that the appraisal must also be attached to the return on which the deduction is claimed for artworks and other tangible property gifts valued at over $20,000.

Exception for certain noncash contributions. For contributions of publicly traded securities, certain intellectual property, qualified vehicles and some inventory, a qualified appraisal is not required, and a completed Form 8283 (Section A) meets the substantiation requirements.

• Signed Form 8283 furnished by donor to donee. A donor who presents a Form 8283 to a donee for signature must furnish to the donee a copy of Form 8283 as signed by the donee.

• Number of Forms 8283. For each item of contributed property for which a Form 8283 is required, a donor must attach a separate Form 8283 to the return on which the deduction for the item is claimed.

• Exception for similar items. The donor may attach a single Form 8283 for all similar items of property (as defined in Reg. §1.170A-13(c)(7)(iii)) contributed to the same donee during the donor’s taxable year if the donor includes on Form 8283 the required substantiation information for each item of property.

• SUBSTANTIATION REQUIREMENTS FOR CARRYOVERS OF NONCASH CONTRIBUTION DEDUCTIONS—ALERT! The rules regarding substantiation that must be submitted with a return apply to the return for any carryover year under IRC §170(d).

• Partners and S corporation shareholders—Form 8283 must be provided to partners and S corporation shareholders. If the donor is a partnership or S corporation, the donor must provide a copy of the completed Form 8283 to every partner or shareholder who receives an allocation of a charitable contribution deduction under IRC §170 for the property described in Form 8283.

• Partners and S corporation shareholders must attach Form 8283 to return. A partner of a partnership or shareholder of an S corporation who receives an allocation of a deduction under IRC §170 for a charitable contribution of property must attach a copy of the partnership’s or S corporation’s completed Form 8283 to the return on which the deduction is claimed.

• Similar items of property must be aggregated. Under IRC §170(f)(11)(F), the donor must aggregate the amount claimed as a deduction for all similar items of property (as defined in Reg. §1.170A-13(c)(7)(iii)) contributed during the taxable year. For rules regarding the number of qualified appraisals and Forms 8283 required if similar items of property are contributed, see Reg. §§1.170A-13(c)(3)(iv)(A) and 1.170A-13(c)(4)(iv)(B).

• For contributions of certain inventory and scientific property, excess of amount claimed over cost of goods sold taken into account. In determining the amount of a donor’s contribution of property to which IRC §170(e)(3) or (4) applies, the donor must take into account only the excess of the amount claimed as a deduction over the amount that would have been treated as the cost of goods sold if the donor had sold the contributed property to the donee.

Example. X Corporation makes a contribution to which IRC §170(e)(3) applies of clothing for the care of the needy. The cost of the property to X Corporation is $5,000, and, pursuant to IRC §170(e)(3)(B), X Corporation claims a charitable contribution deduction of $8,000. The amount taken into account for purposes of determining the $5,000 threshold is $3,000 ($8,000-$5,000).

• Failure due to reasonable cause. If a donor fails to meet the substantiation requirements for gifts of more than $500 but not more than $5,000, gifts of more than $5,000, or gifts of more than $500,000, the donor’s deduction will be disallowed unless the donor establishes that the failure was due to reasonable cause and not to willful neglect. The donor may establish that the failure was due to reasonable cause and not to willful neglect only if the donor: (1) submits with the return a detailed explanation that the failure to meet the substantiation requirements was due to reasonable cause and not to willful neglect; (2) obtained a contemporaneous written acknowledgment (as required by IRC §170(f)(8) and Reg. §1.170A-13(f)(3)); and; (3) obtained a qualified appraisal (as defined by IRC §170(f)(11)(E)(i) and Reg. §1.170A-17(a)(1)) prepared by a qualified appraiser (as defined by IRC §170(f)(11)(E)(ii) and Reg. §1.170A-17(b)(1)) within the dates specified in Reg. §1.170A-17(a)(4), if required.

Qualified appraisal—definition. For purposes of IRC §170(f)(11) and Reg. §§1.170A-16(d)(1)(ii) and 1.170A-16(e)(1)(ii), the term qualified appraisal means an appraisal document that is prepared by a qualified appraiser (as defined in the proposed regulations) in accordance with generally accepted appraisal standards (as defined below) and otherwise complies with the qualified appraisal requirements of Reg. §1.170A-17(a).

Generally accepted appraisal standards—defined. The substance and principles of the Uniform Standards of Professional Appraisal Practice, as developed by the Appraisal Standards Board of the Appraisal Foundation are followed.

Contents of qualified appraisal. It must include the following information about the contributed property: a description in sufficient detail under the circumstances (taking into account the value of the property) for a person who is not generally familiar with the type of property to ascertain that the appraised property is the contributed property; for real or tangible personal property, the condition of the property; the valuation effective date; and the fair market value (within the meaning of Reg. §1.170A-1(c)(2)) of the contributed property on the valuation effective date.

• The terms of any agreement or understanding by or on behalf of the donor and donee that relates to the use, sale, or other disposition of the contributed property, including, for example, the terms of any agreement or understanding that: restricts temporarily or permanently a donee’s right to use or dispose of the contributed property; reserves to, or confers upon, anyone (other than a donee or an organization participating with a donee in cooperative fundraising) any right to the income from the contributed property or to the possession of the property, including the right to vote contributed securities, to acquire the property by purchase or otherwise, or to designate the person having income, possession, or right to acquire; or earmarks contributed property for a particular use.

• The date (or expected date) of the contribution to the donee.

• The following information about the appraiser: name, address, and taxpayer identification number; qualifications to value the type of property being valued, including the appraiser’s education and experience; if the appraiser is acting in his or her capacity as a partner in a partnership, an employee of any person (whether an individual, corporation, or partnership), or an independent contractor engaged by a person other than the donor, the name address, and taxpayer identification number of the partnership or the person who employs or engages the qualified appraiser.

• The signature of the appraiser and the date signed by the appraiser (appraisal report date).

• The following declaration by the appraiser must be made: "I understand that my appraisal will be used in connection with a return or claim for refund. I also understand that, if a substantial or gross valuation misstatement of the value of the property claimed on the return or claim for refund results from my appraisal, I may be subject to a penalty under section 6695A of the Internal Revenue Code, as well as other applicable penalties. I affirm that I have not been barred from presenting evidence or testimony before the Department of the Treasury or the Internal Revenue Service pursuant to 31 U.S.C. section 330(c)."

• A statement that the appraisal was prepared for income tax purposes.

• The method of valuation used to determine the fair market value, such as the income approach, the market-data approach, or the replacement-cost-less-depreciation approach.

• The specific basis for the valuation, such as specific comparable sales transactions or statistical sampling, including a justification for using sampling and an explanation of the sampling procedure employed.

Timely appraisal report. A qualified appraisal must be signed and dated by the qualified appraiser no earlier than 60 days before the date of the contribution and no later than: the due date (including extensions) of the return on which the deduction for the contribution is first claimed; for a donor that is a partnership or S corporation, the due date (including extensions) of the return on which the deduction for the contribution is first reported; or in the case of a deduction first claimed on an amended return, the date on which the amended return is filed. Caution: See discussion of contribution deduction claimed on an amended return (page 15).

Valuation effective date—definition. It is the date to which the value opinion applies.

Timely valuation effective date. For an appraisal report dated before the date of the contribution (as described in Reg. §1.170A-1(b)), the valuation effective date must be no earlier than 60 days before the date of the contribution and no later than the date of the contribution. For an appraisal report dated on or after the date of the contribution, the valuation effective date must be the date of the contribution.

Exclusion for donor knowledge of falsity. An appraisal is not a qualified appraisal for a particular contribution even if the requirements for a qualified appraisal are met, if a reasonable person would conclude that the donor failed to disclose or misrepresented facts that would cause the appraiser to overstate the value of the contributed property.

Number of appraisals required. A donor must obtain a separate qualified appraisal for each item of property for which an appraisal is required and that is not included in a group of similar items of property (as defined in Reg. §1.170A-13(c)(7)(iii)). For rules regarding the number of appraisals required if similar items of property are contributed, see Reg. §1.170A-13(c)(3)(iv)(A).

Prohibited appraisal fees. The fee for a qualified appraisal cannot be based to any extent on the appraised value of the property. For example, a fee for an appraisal will be treated as based on the appraised value of the property if any part of the fee depends on the amount of the appraised value that is allowed by the IRS after an examination. Current regulations provide that the prohibition against basing a fee on a percentage of the appraisal value of the property does not apply to a fee paid to a generally recognized association that regulates appraisers. The proposed regulations do not provide for this exception. However, the provision in the proposed regulations that removes various sections of existing regulations does not remove this provision. Until this is clarified, the fee should not be paid to a qualified appraisers’ association. This discussion is of academic interest since it is unlikely that fees would be paid to the appraisers’ association.

Retention of qualified appraisal. The donor must retain the qualified appraisal for so long as it may be relevant in the administration of any internal revenue law (forever?).

Appraisal disregarded pursuant to 31 U.S.C. §330(c). If an appraisal is disregarded pursuant to 31 U.S.C. §330(c), it has no probative effect as to the value of the appraised property and does not satisfy the appraisal requirements, unless the appraisal and Form 8283 include the appraiser’s signature, the date signed by the appraiser, and the appraiser declaration, and the donor had no know-ledge that the signature, date, or declaration was false when the appraisal and Form 8283 were signed by the appraiser.

Partial interest. If the contributed property is a partial interest, the appraisal must be of the partial interest.

Qualified appraiser—definition. For purposes of IRC §170(f)(11) and Reg. §§1.170A-16(d)(1)(ii) and 1.170A-16(e)(1)(ii), the term qualified appraiser means an individual with verifiable education and experience in valuing the relevant type of property for which the appraisal is performed.

Education and experience in valuing relevant type of property. An individual is treated as having education and experience in valuing the relevant type of property, as of the date the individual signs the appraisal, if the individual has: successfully completed (for example, received a passing grade on a final examination) professional or college-level coursework in valuing the relevant type of property, and has two or more years of experience in valuing the relevant type of property; or earned a recognized appraisal designation for the relevant type of property.

Coursework requirements. The coursework must be obtained from: a professional or college-level educational organization described in IRC §170(b)(1)(A)(ii); a generally recognized professional appraisal organization that regularly offers educational programs in the principles of valuation; or an employer as part of an employee apprenticeship or educational program.

Recognized appraisal designation—defined. It’s a designation awarded by a recognized professional appraiser organization on the basis of demonstrated competency. For example, an appraiser who has earned a designation similar to the Member of the Appraisal Institute (MAI), Senior Residential Appraiser (SRA), Senior Real Estate Appraiser (SREA), or Senior Real Property Appraiser (SRPA) membership designation has earned a recognized appraisal designation.

Relevant type of property—defined. The relevant type of property means the category of property customary in the appraisal field for an appraiser to value.

• Example (1)—coursework in valuing relevant type of property. There are very few professional-level courses offered in widget* appraising, and it is customary in the appraisal field for personal property appraiser to appraise widgets. Appraiser A has successfully completed professional-level coursework in valuing personal property generally but has completed no coursework in valuing widgets. The coursework completed by Appraiser A is for the relevant type property.

• Example (2)—experience in valuing relevant type of property. It is customary for professional antique appraisers to appraise antique widgets.** Appraiser A has 2 years of experience in valuing antiques generally and is asked to appraise an antique widget. Appraiser A has obtained experience in valuing the relevant type of property.

• Example (3)—no experience in valuing relevant type of property. It is not customary for professional antique appraisers to appraise new widgets.* Appraiser A has experience in appraising antiques generally but no experience in appraising new widgets. Appraiser A is asked to appraise a new widget. Appraiser A does not have experience in valuing the relevant type of property.

Verifiable. Education and experience in valuing the relevant type of property are verifiable if the appraiser specifies in the appraisal the appraiser’s education and experience in valuing the relevant type of property, and the appraiser makes a declaration in the appraisal that, because of the appraiser’s education and experience, the appraiser is qualified to make appraisals of the relevant type of property being valued.

Individuals who are not qualified appraisers. The following individuals cannot be qualified appraisers for the appraised property: an individual who receives a prohibited fee; the donor of the property; a party to the transaction in which the donor acquired the property (for example, the individual who sold, exchanged, or gave the property to the donor, or any individual who acted as an agent for the transferor or for the donor for the sale, exchange, or gift), unless the property is contributed within 2 months of the date of acquisition and its appraised value does not exceed its acquisition price; the donee of the property; any individual who is either: related (within the meaning of IRC §267(b)) to, or an employee of, any of the foregoing individuals, or married to an individual who is in a relationship described in IRC §267(b) with any of the foregoing individuals; or an independent contractor who is regularly used as an appraiser by any of the foregoing individuals, and who does not perform a majority of his or her appraisals for others during the taxable year; or an individual who is prohibited from practicing before the Internal Revenue Service by the Secretary under 31 U.S.C. section 330(c) at any time during the 3-year period ending on the date the appraisal is signed by the individual.

Contributions of clothing and household items. Except as otherwise provided, no deduction is allowed under IRC §170(a) for a contribution of clothing or a household item unless: the item is in good condition or better at the time of the contribution; and the donor meets the substantiation requirements of Reg §1.170A-16.

Certain contributions of clothing or household items with claimed value of more than $500. The above rule doesn’t apply to a contribution of a single item of clothing or a household item for which a deduction of more than $500 is claimed if the donor submits with the return on which the deduction is claimed a qualified appraisal (as defined in Reg. §1.170A-17(a)(1)) of the property prepared by a qualified appraiser (as defined in Reg. §1.170A-17(b)(1)) and a completed Form 8283 (Section B) (as described in Reg. §1.170A-16(d)(3)).

Definition of household items. The term household items includes furniture, furnishings, electronics, appliances, linens, and other similar items. Food, paintings, antiques, and other objects of art, jewelry, gems, and collections are not household items.

Effective/applicability date. The proposed regulations apply to contributions made after the date they are published as final regulations in the Federal Register. Comment. Until then, you must meet the myriad requirements of existing IRS guidance.

Reminder: Take the existing and proposed (many are the same) reporting and substantiation rules seriously. There’s rarely a second chance to get it right. Miss a deadline and the hard-cheese rule applies. And if a donor can’t comply because a charity neglects to give the donor a required receipt (not the donor’s fault) the income tax charitable deduction will nevertheless be denied.

The penalty for failure to obtain the substantiation statement required by IRC §170(f)(8) for gifts of $250 or over falls, in the first instance, on the contributor. Although charities are involved in issuing the statement, Congress does not impose on charities a penalty for failure to furnish an IRC §170(f)(8) statement. The belief was that where donors of $250 or more could not take a deduction because they were not given properly completed substantiation statements, the donors would punish the charity by not giving to them in the future. Charities on the other hand would see substantiation as an element in good donor relations.

Donor sans receipt and cum lawyer. A donor in the 35% bracket contributes $1 million to charity and the charity doesn’t give him a receipt. The donor loses $350,000 in tax savings. The donor may surely "punish the charity by not giving to them in the future." And the donor may sue the charity for foreseeable loss of the tax benefits—a strong case if the charity’s solicitation materials boasted of charitable deductions.

What happened. In 2005 Daniel and Ruth Gomez wrote 10 checks to their church totaling $6,100 (each over $250). The checks’ memo entries stated "diezmos" (tithes in Spanish). Other checks brought the total deduction for the year up to $6,552. A January 22, 2008 letter from the church stated that the donors contributed a total of $6,552 for 2005 tithes.

The Tax Court upholds the IRS’s disallowance. The IRS didn’t question whether the donors made the gifts to their church during 2005; nor did the IRS question the church’s exempt status. The court found that "It is clear that petitioners wrote 10 checks for tithes to the Apostolic Assembly. Petitioners made donations for ‘special offerings’." The Court also found that the church gave the donors a letter dated January 22, 2008 stating that the church received $6,552 from them during 2005. Despite the fact that the donors made the contributions, the Code and the regulations, said the court, require a contemporaneous written acknowledgment for contributions of $250 or more for a charitable deduction to be allowed. The January 22, 2008 letter from the church was not contemporaneous. It was not received by the earlier of the donors’ filing of the income tax return or the April 17, 2006 due date. Also the letter didn’t state whether the church provided any goods or services in consideration for the contributions. Bottom line: "We are constrained to hold that the donors are entitled to deduct . . . only the $420.50 [the IRS] conceded."

Gomez, T.C. Summ. Op. 2008-93 (No. 13167-07S)

Question 1—In 1995, taxpayer X presented Y Charity with a contribution in the form of a check in the amount of $1,000 for which X neglected to claim a charitable deduction on his Form 1040 for 1995, which he filed on April 15, 1996, because X did not get a receipt from the organization until July 15, 1996. In 1997, X filed an amended return for 1995. Will the 1996 receipt obtained by the taxpayer satisfy the substantiation requirement since it was obtained prior to the date of filing the amended return?

Answer—Section 170(f)(8) requires obtaining the acknowledgment by the due date (including extensions) of a return. Unlike the Service’s granting of an extension to file, the Service’s acceptance of amended returns for a tax year after the due date does not require the Service to recognize the section 170(f)(8) statement obtained after the due date as being timely. In fact, such a recognition would be contrary to the statute.

1994 IRS Exempt Organizations CPE Technical Instruction

Program Textbook: Chapter J: Substantiation and

Disclosure Rules of OBRA’93 (Release date: October 1, 1994)

*The IRS uses widget in its example. But the same can be said about a gizmo, a thingamabob, a thingamajig, a doodad and a dohicky—not to mention a flumadiddle.

**The word widget first appeared in the 1920's. Is that old enough to be an antique?

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