We have done a couple of posts on the requirements for reporting charitable donations, whether in cash or non-cash. The penalty for not documenting these donations properly is, in most cases, a complete dis-allowance of the deduction.
Now, we have another Tax Court case showing the folly of a "sophisticated" taxpayer not following the instructions to the tax forms costing them a charitable deduction in excess of $4 million. The taxpayer owned several pieces of property located in the Sacramento, CA area. In 2003, the taxpayers created a charitable remainder trust and donated the property to the trust.
In preparing their income tax return, the taxpayer appears to have prepared the return himself and did not get a qualified appraisal for the property. The IRS audited the return and disallowed the charitable donation claimed. The Tax Court just ruled that the IRS was correct.
The interesting part of this case is that the IRS really did not have an argument with the valuation done by the taxpayer. As a matter of fact, they basically conceded that the value was most likely higher than what the taxpayer claimed.
However, the taxpayer filled out the form, did not read the instructions and had his entire donation amount disallowed. A qualified appraisal would have probably cost the taxpayer about $5-10,000 and having a CPA prepare the return another $2-5,000. This would have allowed the donation and probably saved the taxpayer easily $2 million or more in taxes.
The income tax laws continue to get more complicated and if you have any complexity to your tax return, you must get qualified advice especially on a donation of $18.5 million of property to a CRT.