2023 Marcum Year-End Tax Guide

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CHARITABLE CONTRIBUTIONS There were several judicial decisions and administrative guidance dealing with the charitable contribution deduction. Several cases dealt with the substantiation rules resulting in a denial of charitable contributions deductions. The Service has programs that ensure compliance with the appropriate substantiation rules, and failure to comply will cause the deduction to fail — even if the Service agrees that the contribution was made and on the likely value of the property contributed. In Bass v. Commissioner, the Tax Court denied a charitable deduction for clothing that the taxpayer donated to several charities over 173 separate trips. While he had contemporaneous written acknowledgment for each donation, the taxpayer needed a qualified appraisal to be eligible for the deduction. IRC sec 170(f)(11) requires that property donations in excess of $5,000 can be disallowed if there is no qualified appraisal of the contributed property. For this purpose, items of like property must be aggregated to determine if the $5,000 threshold is satisfied. While an exception to the qualified appraisal requirement applies

to a “publicly traded security,” the Service concluded in Chief Counsel Advice (CCA) 202302012 that this exception does not apply to a donation of cryptocurrency. While one would think that the reason for the exception is that there is a market that can be referenced to determine the value of a “publicly traded security” and that a comparable market exists to value cryptocurrency, the Service noted that cryptocurrency does not fall with the definition of a “publicly traded security.” Under prior IRS guidance, cryptocurrency is treated like property and falls under similar appraisal requirements. Since cryptocurrency does not fall within this definition, a person contributing more than $5,000 will need to obtain a qualified appraisal. The CCA also addressed the “reasonable cause” exception to the Service’s ability to disallow the deduction for failure to get a qualified appraisal. Reasonable cause was found not to exist since the taxpayer self-prepared the tax return on which the deduction was taken. Most cases that find reasonable cause involve taxpayer reliance on the advice of a qualified professional in taking a position found on the return. The CCA states that the consistent mention of the word “appraisal,” “appraiser,” and

“appraised” on Form 8283 should have provided notice that substantial noncash donations need to be

supported by an appraisal. The Tax Court in Braen v. Commissioner noted that, in determining the amount of a

charitable contribution donation, all consideration received by the donor must be considered. In this case, a charitable deduction for a property transfer to a town at a discount from fair market value was disallowed since the deduction did not consider the settlement of longstanding zoning litigation on donor property. The court held that this was additional consideration received by the donor for the transfer. During the year, there were developments concerning syndicated conservation easements, a popular target for attack by the IRS. • In Green Rock LLC v. Commissioner , the Alabama Federal District Court joined the Sixth Circuit and the Tax Court in holding that the labeling by the Internal Revenue Service of syndicated conservation easement programs as an abusive tax transaction did not violate the notice and comments requirements of the Administrative Procedures Act.

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