June 27, 2025 / Newsletters, Publications
Taxpayer’s Failure to Obtain a Qualified Appraisal Results in Disallowance of Charitable Deduction
Section 170 of the Internal Revenue Code creates a series of substantiation requirements for charitable contributions, which vary depending on the value of a taxpayer’s gift and the type of property donated. If these requirements are not met, the income tax charitable deduction may be disallowed entirely. These substantiation requirements were at issue in a recent case, Cade v. Commissioner of Internal Revenue, T.C. Memo 2025-20, filed on March 10, 2025, in which the Tax Court, faced with a comically bad set of facts, considered the taxpayers’ failure to substantiate a charitable deduction of $284,553.
Case Summary
In Cade, husband and wife taxpayers filed a joint federal income tax return for 2019 showing an income tax liability of approximately $294,000. The taxpayers submitted a partial payment and left a balance due of approximately $90,000. They later filed an amended return on which they claimed a charitable deduction equal to $284,553 for certain donations of tangible personal property to a local church, which they claimed had been “overlooked” on their original return. The taxpayers contended that allowance of this deduction would eliminate the remaining $90,000 tax liability and entitle them to a refund.
The contributions for which the deduction was claimed consisted of “surplus items” from the taxpayers’ real estate business, including:
(i) 2,253 “spring jackets” and 1,212 “short sleeve coveralls” valued at $146,043, which had been acquired in 2015 for a total cost of $2,250;
(ii) 16,200 granite cobblestones valued at $146,043, which had been acquired in 2013 for a total cost of $1,000; and
(iii) Vinyl tile and floor-tile adhesive valued at $49,410, which had been acquired in 2016 for a total cost of $1,080.
To substantiate their deduction, taxpayers attached an IRS Form 8283, Noncash Charitable Contributions, to their amended return for each category of donated property. The “Declaration of Appraiser” in each Form 8283 was signed by an individual who was not an appraiser (one of whom also happened to be the son of the taxpayers’ attorney). The taxpayers never obtained appraisals of any of the donated items. During examination, the IRS focused on the following two substantiation requirements:
- Contemporaneous Written Acknowledgment
For any contribution of cash or property with a value equal to $250 or more, the taxpayer must obtain a contemporaneous written acknowledgment (“CWA”) from the donee organization. There is no “reasonable cause” exception to the CWA requirement, and as a result, the failure to obtain a CWA renders a contribution entirely nondeductible.
Among other requirements, the CWA must state: (a) the amount of cash contributed and/or a description of any property contributed, and (b) whether the donee organization provided any goods or services in consideration for the contribution and, if so, a description and good-faith estimate of the value of those goods or services. The CWA is not required to be attached to the return, but must be kept in the taxpayer’s records and provided to the IRS upon request.
In Cade, the Tax Court rejected the taxpayers’ argument that the Form 8283 attached to the amended return constituted a CWA. Later in the examination proceeding, the taxpayers produced what purported to be a receipt from the church for their donations. The Tax Court commented on the suspicious timing of this document, as well as certain discrepancies that made its authenticity questionable.
- Qualified Appraisal from a Qualified Appraiser
With certain exceptions, for any noncash contribution of more than $5,000, the taxpayer must obtain a “qualified appraisal” of the donated property from a “qualified appraiser.” The appraisal report does not need to be attached to the return unless the taxpayer is claiming a deduction of more than $500,000 for a noncash contribution, but must be maintained in the taxpayer’s records and provided to the IRS upon request.
(a) A “Qualified Appraisal” must be made no earlier than 60 days before the date of contribution and must contain certain information, including: (i) a detailed description of the property and its physical condition; (ii) the date (or expected date) of contribution and the date of valuation; (iii) the terms of any agreement or understanding relating to the sale or disposition of the property; (iv) identifying information for the appraiser and a statement of the appraiser’s qualifications; and (v) a description of the valuation method used and the specific basis for the valuation.
(b) A “Qualified Appraiser” is an appraiser who has earned an appraisal designation from a recognized professional appraiser organization or met certain minimum education and experience requirements, including a minimum of two years’ experience in valuing the type of property subject to appraisal. Certain individuals are excluded from acting as qualified appraisers with respect to a contribution, including the donor, the donee, a party to the transaction in which the donor acquired the property, and certain related parties.
In Cade, the individuals who valued the donated items on the taxpayers’ Forms 8283 described themselves as a retired owner of an army store, a project supervisor for a commercial stonework company, and an operations supervisor at a discount flooring store. None of them met the relevant education and experience requirements. On that basis alone, the Tax Court agreed with the IRS that the taxpayers had failed to obtain a qualified appraisal from a qualified appraiser.
Planning Considerations
Setting aside the bad facts involved in Cade, this case does provide important reminders regarding the need to substantiate both cash and noncash charitable contributions and the potentially harsh consequences of failing to comply with these substantiation requirements. Taxpayers should keep the following general guidelines in mind and should consult with their income tax advisors regarding the substantiation requirements applicable to their specific contributions:
- For cash contributions of less than $250, the taxpayer should keep a bank record or a receipt from the charity to substantiate the contribution.
- For noncash contributions of less than $250, the taxpayer should obtain a receipt from the charity.
- For (i) cash contributions of $250 or more, and (ii) noncash contributions between $250 and $500 in value, a CWA should be obtained from the charity.
- For noncash contributions over $500, but not exceeding $5,000, the taxpayer should obtain a CWA and file Form 8283 (completing Section A).
- For noncash contributions over $5,000, the taxpayer should obtain a CWA, file Form 8283 (completing Section B), and obtain a qualified appraisal of the donated property from a qualified appraiser.
Taxpayers should consult with their income tax advisors before making any significant noncash contributions, in order to confirm the applicable substantiation requirements and to make sure they will have sufficient time to obtain any necessary appraisals.