By Kenneth H. Bridges, CPA, PFS July 2019
Form 8283 (form for reporting noncash charitable donations) provides a space for the cost of the property you are donating to charity. Since your deduction is generally based on the property’s fair market value and not your cost basis, does it really matter whether you provide the cost basis amount? As discussed in the September 2017 issue of our newsletter, the Tax Court ruled in RERI Holdings I that failure to provide this information constitutes a failure to comply with the substantiation requirements and means forfeiture of the deduction. The DC Circuit Court (Blau) has recently upheld the Tax Court’s decision.
It appears that the IRS plans to use the case as a basis for disallowance of conservation easement deductions in situations where the cost basis was not provided. Whether the IRS will take this position more broadly to apply to all noncash donations where the substantiation rules apply is yet to be seen. It should be noted that in the RERI Holdings/Blau case the taxpayers were claiming a deduction of over $33,000,000 for property acquired less than two years earlier for less than $3,000,000.
In addition to disclosing a cost basis, it is also critical that you attach to your return a copy of any required appraisals. In 2016, the Tax Court ruled (Gemperle) that the taxpayers forfeited the charitable donation deduction and incurred penalty where they failed to attach a copy of the appraisal. Also, you must have a written acknowledgment from the donee organization (even if the donee signed the Form 8283), and the appraisal must be attached not only to the return for the year of the donation but also to the return for any carryover years.
Kenneth H. Bridges, CPA, PFS is a partner with Bridges & Dunn-Rankin, LLP, an Atlanta-based CPA firm.
This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice. The article provides only a very general summary of complex rules. For advice on how these rules may apply to your specific situation, contact a professional tax advisor.