In a recent decision, the Tax Court granted the IRS’s motion for partial summary judgement on the basis that the taxpayer’s appraisal for a non-cash charitable contribution did not satisfy the “qualified appraisal” rules. Friedberg v. Comm., TC Memo 2011-238 (Oct 3, 2011). Section 170(f)(11)(C) of the Code denies a charitable deduction for non-cash contributions in excess of $5,000 unless the taxpayer-donor obtains a qualified appraisal of the property and attaches to its return for the tax year of the contribution the information about the property and the appraisal as the IRS requires. Unfortunately, denial of a charitable deduction for a contribution of valuable property to a charity for failure to satisfy the qualified appraisal and other IRS donation substantiation rules is a common occurrence.
There are numerous cases and rulings denying the charitable deduction for failure to precisely comply with the IRS substantiation rules, including the qualified appraisal rules. These cases may seem unfair to individual taxpayers, who are often not represented by a tax professional. However, these rules were adopted to protect against over-inflated deductions and other abuses. Therefore, it is critical to carefully follow these rules.