Three examples demonstrate how to substantiate donations of land and buildings in accordance with tax law.
This article is the first of a two-part series on substantiating noncash gifts. Part two, which will appear in the September issue, will focus on the special rules related to donations of noncash “personal property” — such as clothing, cars, boats, household items and stock.
By Bobby Ross Jr. | For Church Finance Today
A U.S. Tax Court judge disallowed a deduction — albeit reluctantly — of $18.5 million for donations of real estate. The donors, Joseph and Shirley Mohamed, a philanthropic couple whose charitable causes included Shriners Hospitals for Children and the Sacramento Food Bank, had donated real estate worth $20.3 million several years before. They had claimed an $18.5 million deduction on their federal tax return.
The Mohameds failed to get the required appraisals for their property at the time of donation. And they lacked the mandated documentation at the time of filing. (Joseph Mohamed said he self-prepared the couple’s taxes and had failed to read instructions.)
Judge Mark Holmes stated:
We recognize that this result is harsh — a complete denial of charitable deductions to a couple that did not overvalue, and may well have undervalued, their contributions — all reported on forms that even to the Court’s eyes seemed likely to mislead someone who didn’t read the instructions. But the problems of misvalued property are so great that Congress was quite specific about what the charitably inclined have to do to defend their deductions, and we cannot in a single sympathetic case undermine those rules.
This case is an example of how good intentions don’t supersede tax law, said Ted Batson, a certified public accountant and licensed attorney with national nonprofit consulting firm CapinCrouse.
This article appears on the August 2018 cover of Church Finance Today, a publication of Christianity Today.