man-readingIn a tax court matter decided earlier this year, (2013,) a man wanted to assist low income individuals and their families with obtaining affordable housing. To that ends, he donated approximately 70% of a privately held entity to a qualified non-profit entity. Included in this gift were many apartments, and on his tax return, the donor claimed a charitable gift of over $1 million.

The value was supported by an appraisal for each of the buildings, but surprisingly, the IRS denied the deduction, not on the valuation, but because the donor lacked a “qualified appraisal.” The court concluded and agreed with the IRS that neither of the appraisals had the correct assets appraised value. Instead of the valuation of the stock being valued, the donor provided appraisals of the apartment buildings themselves.

Unfortunately for the taxpayer, the IRS was correct, and the court held that the appraisals were, “…short of meeting all of those requirements,” as promulgated by the IRS.

One might think that, although the appraisals were not in strict compliance with the internal revenue code, the man substantially complied with what was required in order to take a charitable deduction. The court rejected the man’s argument that he had substantially complied with the IRS’s requirements and said that the details must be complied with or the deductions will not be granted.

Unfortunately for this man, he had made a gift to a non-profit in an attempt to help people, and was then denied the deduction. Although it seems quite unfair, the valuable lesson learned is that one must not only think they are complying with regulations, but must be sure that he is complying when making gifts or taking charitable deductions.

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