Analysis of IRS Deduction Disallowance for Charitable Contributions

This report provides a legal analysis of a case concerning a charitable contribution of real property and the subsequent disallowance of the deduction by the IRS due to the failure to attach a qualified appraisal to the tax return. The client donated real property to a charity, had the property appraised, and claimed a deduction. However, because the appraisal was not attached to the return, the IRS proposed to disallow the deduction and impose penalties. The analysis examines the relevant tax laws, specifically focusing on the requirements for substantiating noncash charitable contributions, the use of Form 8283, and the necessity of attaching appraisals for contributions exceeding a certain value. The report discusses the implications of the client's error in reporting the contribution, specifically the failure to attach an appraisal and the potential for penalties. It assesses whether the client's actions constitute negligence and whether the omission was due to reasonable cause. The report concludes that the IRS can disallow the deduction if the necessary conditions for claiming it were not met, and that the client's failure to attach an appraisal is a critical factor. The report also considers the possibility of the IRS overlooking the errors made by the client and the imposition of penalties based on the circumstances of the case and the intent of the client. The report cites relevant legal authorities, including IRS notices, regulations, and court cases, to support its analysis and conclusions.

To: Senior Partner
From: [student name]
Date: July 28, 2019
Re: Appraisal for Qualified Conservation Contribution
Issue and Conclusion
This is in response to your request for a considered opinion regarding the disallowance of
the charitable deduction and the imposition of penalties on our client by the IRS. My opinion is
that the IRS can disallow the entire deduction if it establishes that necessary conditions for
making such a deduction claim were not met. Our client failed to meet a critical condition by
failing to attach an appraisal to the tax return.
Facts
The clients made a contribution of real property to her favorite charity in 2018. She
purchased the property in 2002 for $900,000 and, because it was personal use property, has
claimed no depreciation deductions. She had an appraisal of the property performed by a
professional who is accredited by the state agency that regulates appraisers in the client’s home
state, and who is authorized to practice before the IRS. The appraisal was conducted according
the generally-accepted standards for appraisals. The appraisal valued the property at $2,500,000.
On the 2018 return, the client claimed a deduction for the full amount because it was less than
any of the applicable limitations on charitable contribution deductions.
The client reported the property in Section A of the form 8283, rather than in Section B,
and so missed the requirement to attach an appraisal and did not attach it. Also, because the

property was personal use and not depreciated, the client did not think it was necessary to enter
the cost basis of the property in box g of Section A, and left that box blank.
Analysis
The client is entitled to claim a deduction on charitable contributions made to a
qualifying organization (Donald W. Nicholas et ux. v. Commissioner). Form 8232 is used to
report noncash charitable contributions. The form should be attached to the tax return if the total
deduction that is being claimed exceeds $500. The form has two sections: Section A and Section
B (I.R.S. Notice 2004-7). The first step that one should take before filling the form is to figure
out the amount of contribution deduction that one intends to claim. This will determine which
section of the form the tax payer should fill. Section A is filled by tax payers seeking to deduct
charitable contributions of property of $5,000 or less. If the value of a single item or group of
items of donated property exceeds $5,000, then the tax payer should fill Section B of Form 8232
and attach an appraisal to the form. The tax payer must also provide a signature from the
recipient charitable organization acknowledging the receipt of the donated property.
The client filled section A of for 8283 which essentially limits the maximum amount of
deduction that the client can claim to $5,000. The IRS’ justification for disallowing the deduction
however suggests that it is willing to overlook the error made by the client in filling Section A of
Form 8283 instead of Section B. Specifically, the IRS is proposing to disallow the deduction
because the client did not attach an appraisal (Herbert V. Kohler, Jr. et al. v. Commissioner). As
stated, a taxpayer is required to attach an appraisal when claiming a deduction of property whose
value exceeds $500,000. The IRS seems to have overlooked the error made by the client in
filling Section A as it has an expectation that an appraisal should have been attached.

The fact that an appraisal is not attached and that a declaration of the appraiser is not
provided in Form 8283 is in my opinion a significant factor for the IRS in determining the fate of
the client’s deduction. The necessary conditions for making a charitable contribution claim for a
noncash contribution exceeding $5,000 have simply not been met.
A 20% penalty may be imposed for negligence or disregard of the tax law (Colinvaux,
2016). The circumstances surrounding the filling of Form 8283 and the claim made by the client
suggest the client was negligent. The reason for this is that there are adequate instructions and
explanation on Form 8283 that should guide a tax payer to fill out the form correctly. The error
made by the client could only be the result of negligence.
A further consideration made by the IRS in considering whether to impose a penalty is
whether the mistake made was willful and intended to unfairly reduce the taxpayer’s liability. In
order to determine whether there was willful intent to deceive the IRS and to pay less than one’s
fair share of taxes, all the facts of the case will have to be put into consideration (Bruno and
Torgler, 2017). The IRS will for instance seek to establish what the tax payable would be if the
client complied with all the requirements that should have been complied with including filling
the correct section of Form 8283 and attaching the appraisal. If the difference in the deduction
would have been insignificant if all requirements were met compared to the deduction claim
made by the client, then there is no evidence of willful intent to deceive the IRS (MacBean,
2015). The fact that the appraiser is accredited and authorized to practice and that the appraisal
was carried out according to generally accepted standards for appraisal suggest that the value of
the property is valid. As such, the error made by the client would not significantly affect her tax
payable. The errors made are therefore likely to be excused or overlooked by the IRS on

condition that the client fills the appropriate section of Form 8283 and attaches an appraisal
((Woo, 2017).
Authorities
Bruno, F. and Torgler, B. (2017). Tax morale and conditional cooperation. Journal of
Comparative Economics Vol. 136, No. 1.
Colinvaux, R. (2016). Charitable contributions of property: A broken system re-imagined.
Harvard Journal on Legislation. Vol. 50, No. 1.
Donald W. Nicholas et ux. v. Commissioner; T.C. Summ. p. 2008-155; No. 18199-07S (15 Dec
2008)
Herbert V. Kohler, Jr. et al. v. Commissioner; T. C. Memo. 2006 152; Nos. 4621-03, 4622-03,
4646-03, 4649-03
I.R.S. Notice 2004-7, 2004-3 I.R.B. 310.
MacBean, D. (2015). Better to give than to receive: Evaluating the recent IP donation policy
changes. Duke Law and Technology Review, No 19. S
Woo, J. (2017). Prevent overvaluation of charitable property donations or incentivize such
donations? University of Pennsylvania Journal of Business Law.