United States: Tax Court In Brief | Albrecht v. Commissioner | Charitable Contributions And Contemporaneous Written Acknowledgements

Short Summary: Martha Albrecht donated 120 items of Native American jewelry and artifacts (donation) to the Wheelwright Museum of the American Indian (Museum). Pursuant to the express terms of a "Deed of Gift" (deed), Albrecht transferred all her rights in the property, unless otherwise stated in a separate Gift Agreement. The Gift Agreement was not included with the deed, and the Museum did not provide Albrecht with any further written documentation concerning the donation. Albrecht filed Form 1040, U.S. Individual Income Tax Return, for the year at issue in which she reported the donation on Schedule A, Itemized Deductions, and attached a copy of the deed. The return was examined, and the IRS disallowed the donation on the ground that the requirements of section 170 were not met. Albrecht sought review in the Tax Court.

Key Issue:

• Whether Albrecht, through the deed and the Gift Agreement, satisfied the contemporaneous written acknowledgement requirements of 26 U.S.C. § 170(f)(8)(B) to receive a charitable contribution deduction for the donation to the Museum?

Primary Holdings:

• No. Neither the deed nor the Gift Agreement specified whether the Museum provided any goods or services in return for the donation, and such an acknowledgement is a statutory and regulatory requirement for a taxpayer to receive a tax deduction for a charitable contribution. And, the deed did not indicate it constituted the entire agreement of the parties or that any prior understandings between Albrecht and the Museum were merged into the deed.

Key Points of Law:

• Burden of Proof. The IRS's determinations in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving that the determinations are in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). The taxpayer bears the burden of proving entitlement to any deduction claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). A taxpayer claiming a tax deduction must demonstrate that the deduction is provided for by statute and must maintain records sufficient to enable the IRS to determine the correct tax liability. See 26 U.S.C. § 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a).
• Charitable Contributions. Charitable contributions are deductible, but such deductions are allowable only if the taxpayer satisfies specific substantiation requirements. See 26 U.S.C. § 170(a)(1); Reg. § 1.170A-13.
• Charitable Contribution Acknowledgements. For any contribution of $250 or more, section 170(f)(8)(A) requires that the taxpayer obtain from the donee organization, and maintain, a "contemporaneous written acknowledgement" (CWA). The CWA must include (i) the amount of cash and a description (but not value) of any property other than cash contributed; (ii) whether the donee organization provided any goods or services in consideration, in whole or in part, for any such property; and (iii) a description and good faith estimate of the value of any such goods or services. 26 U.S.C. § 170(f)(8)(B); 15 W. 17th St. LLC v. Commissioner, 147 T.C. 557, 563 (2016); Treas. Reg. § 1.170A-13(f)(2). The taxpayer must receive the CWA from the donee organization on or before the earlier of the date the taxpayer files his or her return or the due date for filing such return. 26 U.S.C. § 170(f)(8)(C). The requirement that a CWA be obtained "is a strict one," and a taxpayer may not deduct the contribution if the donation acknowledgment fails to meet the statutory and regulatory requirements. 15 W. 17th St. LLC, 147 T.C. at 562.
• Gift Deed as a Charitable Acknowledgement. Where a deed does not contain an explicit statement that the donee did not any goods or services in consideration, in whole or in part, for receipt of the property, the Tax Court may review the deed as a whole to determine whether the donee provided goods or services in return for the donation, taking into consideration whether the deed (i) effectively states whether any goods or services were provided in the exchange; (ii) states the donation is an unconditional gift; (iii) recites no consideration received in the exchange; and (iv) contains a provision stating that the deed is the entire agreement of the parties. See, e.g., French v. Commissioner, T.C. Memo. 2016-53, at *10–12; RP Golf, LLC v. Commissioner, T.C. Memo. 2012-282, at *10–11; Averyt v. Commissioner, T.C. Memo. 2012-198, slip op. at 12–13. If the deed leaves open a question about whether the parties had entered into a side agreement that included additional, superseding terms, the instrument fails to meet the strict terms of the CWA requirements—substantial compliance is insufficient.

Insights: To enjoy a deduction for a charitable contribution, the taxpayer must strictly comply with the contemporaneous written acknowledgement requirements of section 170 and the related Treasury Regulations. In Albrecht, the gift deed referenced the Gift Agreement and expressly stated that it superseded the terms of the deed with respect to the donor's rights in the donation. The deed failed to indicate, for example, that "no goods or services were provided by the Museum to Albrecht in exchange for the donation." The deed made reference to a separate Gift Agreement, which was not provided to Albrecht before she filed the tax return in issue and also failed to adequately address the CWA requirements. Thus, the deed, by its terms, provided Albrecht the ability—or possibility—to retain an interest in the donation. These errors in substantiation proved fatal to a charitable contribution deduction. On March 22, 2022, Freeman Law attorney, Cory Halliburton, provided great insight on the tax treatment of charitable contributions. See Joint Committee on Taxation Report on Tax Treatment of Charitable Contributions. If only Martha Albrecht had the benefit of that wise counsel when she made the generous donation to the Wheelwright Museum of the American Indian.

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