Estimate of donation's fair value must be reasonable

It pays to remember that charitable contribution deductions have fairly strict substantiation requirements.

For a transfer of property to a charitable organization to qualify for a deduction, the charitable, or donee, organization must substantiate a contribution of $250 or more with a contemporaneous written acknowledgment of the contribution.

The acknowledgment must state whether the donee organization provided any goods or services in consideration for the contribution. If so, the acknowledgment generally must include a description and good-faith estimate of the value of any goods or services provided.

You may rely on a contemporaneous written acknowledgment for the fair market value of any goods or services provided by the charitable organization. However, you may not use a charitable organization's estimate of the value of goods or services as the fair market value if you have reason to know that the estimate is unreasonable.

In a recent case involving a complex transaction, the Tax Court denied a $2 million charitable contribution deduction to a partnership, solely because the acknowledgment received from the charitable organization spelled out some, but not all, of the rights the partnership received in exchange for the gift.

The Tax Court was not swayed by the argument that the gift letter included a good-faith estimate of the value of the consideration received by the partnership. Despite the complexities of the arrangement, both the partnership and the charity participated in the negotiations and were aware of the items omitted from the acknowledgment letter.

Failure to include all of the details of the gift was sufficient for the Tax Court to deny the contribution deduction (Marshall Cohan, et ux., et al. v. Commissioner, TC Memo 2012-8, Jan. 10, 2012).

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