Page 24 —
COLORADO REAL ESTATE JOURNAL
— March 2-March 15, 2016
Law & Accounting
H
aving written numer-
ous times on the
subject of charitable
deductions for federal income
tax purposes, I would have
thought that the number of
cases, articles and IRS notices
would have alerted taxpay-
ers (and certainly their repre-
sentatives) to properly follow
the Internal Revenue Code and
related regulations to assure the
donor of the tax benefit of a
charitable deduction when con-
tributing real estate to a quali-
fied charitable recipient. (For a
collection of many of these arti-
cles, cases and IRS pronounce-
ments on this topic of charitable
gifts and the requirements for
claiming such deductions, see,
for example, Levine, Mark Lee
and Segev, Libbi Levine, Real
Estate Transactions, Tax Plan-
ning and Consequences [Thom-
son/Reuters, 2016].)
But, alas, notwithstanding the
numerous authorities that have
addressed this fundamental area
of prerequisites for claiming
charitable deductions, another
recent case was issued that illus-
trated, again, that taxpayers and
their representatives continue to
either ignore or fail to research
the requirements that must be
achieved to support a federal
income tax deduction for gifts to
charities.
This recent case, David
R. Gemperle and Kathryn D.
Gemperle, Petitioners v. Com-
missioner of Internal Revenue
Service, TC Memo 2016-1, made
it very clear that if taxpayers do
not follow the code and related
regulations, they may well find
not only a denial of the chari-
table deduction, but also that
they are also liable for penal-
ties for improperly claiming the
deduction.
■
Summary of the charita-
ble deduction rules.
The code
clearly states in Code Section 170
that, “There shall be allowed as a
deduction any charitable contri-
bution … which is made within
the taxable year.”
And the code further states
what the requirements are for
such deduction. Of course, and
not in issue in the Gemperle
case, there is a requirement
to make a qualified gift to the
qualified recipient (the charity).
However, the requirements for
the deduction do not end with
simply these
items. And
the taxpayers
in Gemperle
learned this
lesson
the
p r o v e r b i a l
“hard way”
by losing the
c h a r i t a b l e
d e d u c t i o n
and
being
penalized by
the court for
the failure to
comply with
the regs.
W i t h o u t
belaboring all of the Code Sec-
tion 170 requirements for the
deduction, it suffices to say, as
to this Gemperle case, that one
of the absolute requirements to
the type of deduction sought
by the taxpayers was to attach
to the tax return of the taxpay-
ers a qualified appraisal as the
same is defined in the regs as to
Code Section 170. Of course, as
one might suppose, the taxpay-
ers and the representative failed
to attach the appraisal to the
return. This defect, the inaction,
is noted in more depth below,
in a summary of the Gemperle
case.
■
Gemperle case: No quali-
fied appraisal.
The actions by
the Gemperle taxpayers took
place in connection with a chari-
table contribution they made in
2007. The contribution was for a
qualified, done façade easement
in connection with their historic
Chicago residence, a certified
historic structure. See Code Sec-
tion 170(f)(3)(B).
The IRS on audit of the Gem-
perle return for 2007 asserted
the position that the taxpay-
ers did not comply with the
requirements for such deduc-
tion. Thus, the IRS argued that
there should be no deduction
AND there should be imposed
against the taxpayers a 40 per-
cent penalty under Code Section
6662, because of the taxpayers’
overstatement of the deduction
to an excessive amount. (The
IRS argued that the value of the
easement, if any, should be no
more than $35,000; but, the tax-
payers claimed the value to be
$108,000. In such instance, if the
IRS is successful, the penalty is
40 percent!)
Without examining in detail
all of the facts of the case, the
crucial point, as determined by
the court, was that the taxpay-
ers, as argued by the IRS, did
not attach a qualified appraisal
to the taxpayers’ return. Thus,
this was a violation of the regs
and should result in a denial of
the deduction.
OK, so what did the court say
on these points?
First, the court said that there
was no argument that the
appraisal was not attached to
the return. And, there was no
testimony by any appraiser to
support the alleged value of the
claimed deduction, even if one
did not consider the mistake of
failing to attach the appraisal to
the return.
The court stated in its opin-
ion: “The taxpayer donor
must
include with the return for
the contribution year a quali-
fied appraisal.” (Emphasis was
added by author.) See also Regs.
Section 1.170A-13(c)(2)(i).
The court, relative to the fail-
ure to include the appraisal,
addressed the issue as to wheth-
er the taxpayers could still claim
the deduction, even without
attaching the appraisal to the
return. The court said: “Because
we find that petitioners (taxpay-
ers) failed to include a copy of a
qualified appraisal with the 2007
return as required by Section
170(h)(4)(B)(iii)(I), we will sus-
tain respondent’s (IRS) adjust-
ments to the 2007 and 2008
returns denying them any chari-
table contribution deduction.”
And, if there was any doubt
as to the court’s position, the
court added: “While it appears
on the face of Section 170(h)(4)
(B) that the failure to include
the necessary appraisal with the
return for the contribution year
is fatal, the deduction (denial
of the same) … is confirmed in
the Staff of the Joint Committee
on Taxation.” The court thus
held that under the language of
the code and under the reports
as to the legislative history for
the code section, attaching the
appraisal is a
sine qua non
to
claim the deduction.
The court noted that the
taxpayers stated: “We admit
that the full appraisal was not
included with the return.”
And, for failing in this regard,
Mark Lee Levine,
CRE, CCIM, MAI,
PhD, JD, LLM
Professor, University
of Denver, Levine
Segev LLC, Denver
