On May 25, 2022, Judge Greaves of the Tax Court issued a Memorandum Decision in the case of Martha L. Albrecht v. Commissioner T.C. Memo 2022-53 which shows why a well written thank you letter, even from a public charity, is so important.
Martha L. Albrecht gave a large collection of Native American jewelry and artifacts to the Wheelwright Museum of the American Indian late in 2014. The Museum and Mrs. Albrecht executed a Deed of Gift which recited the terms of donation and the items being donated and referred to a “Gift Agreement,” but no such agreement was provided by the Museum. Mrs. Albrecht listed the fair market value of the donated jewelry and artifacts as a charitable income tax deduction on her 2014 Form 1040. The IRS denied the deduction on the basis that the high level of substantiation requirements on charitable gifts, and the Tax Court upheld the denial. This denial is a result of the Museum not writing a good enough “contemporaneous written acknowledgement” (CWA) to substantiate the gift. In other words, the museum did not write a proper thank you letter.
There is no standardized form for a CWA, but there are strict requirements of what must be included in a CWA. These include the amount of cash donated, a description (but not valuation) of the non-cash property donated, a written statement whether the charity provided the donor any goods or services in return for the donation, and a description and estimated value of those goods and services (if any). A Deed of Gift has been held, previously, to be sufficient to meet the substantiation requirements of a CWA.
The problem with the Deed of Gift in this case is that, though the Deed did specify the terms of the donation and the jewelry and artifacts donated, the Deed did not specify what, if any, goods and services were provided to Mrs. Albrecht and their estimated value. Additionally, the Deed makes a gift of all of the rights to the donation, except as stated in the Gift Agreement. This Gift agreement was not included with the Deed of Gift and none was provided to Mrs. Albrecht before the date when she filed her 2014 tax return.
Because the substantiation requirements are quite exacting, Judge Greaves upheld the IRS decision to deny the deduction. The Court is not able to “read between the lines” in the absence of either a reference to goods or services, or the actual Gift Agreement in the Deed of Gift, to infer that the Deed did actually comply with the requirements; nor could any subsequent fact or document after the date the tax return was filed cure this omission. Judge Greaves does not blame Mrs. Albrecht, who made a good faith effort to comply with the substantiation requirements of the Internal Revenue Code; and, it seems empathizes with her on this unfortunate result.
So, the lesson here is what we were all told as children – it is important write a prompt thank you letter for any gifts received, even that eye-searing sweater you hide in the back of your closet. This is doubly important for charities who receive a donation.
Donors should check whether the documents from the charity acknowledging their donation includes the amount of cash donated, a description of non-cash donations, whether there are any goods and services provided in return for the donation, and what the estimated value of those goods and services might be. Also, if there is any reference to any other document, such as the Gift Agreement, make sure you get a copy of the document acknowledged by the charity.