The IRS again succeeded in showing that a taxpayer had failed to timely obtain a contemporaneous written acknowledgement (CWA) required by IRC §170(f)(8) related to a charitable contribution in the case of Brooks v. Commissioner, TC Memo 2022-122.[1]

While there are two other issues the IRS and the Tax Court find fault with for the taxpayer, note that the Court yet again states a failure to comply with the CWA provisions of IRC §170(f)(8) results by itself in an entire denial of the charitable contribution deduction.

Requirements for a Contemporaneous Written Acknowledgement

IRC §170(f)(8) provides:

(8) Substantiation requirement for certain contributions.

(A) General rule. No deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B).

(B) Content of acknowledgement. An acknowledgement meets the requirements of this subparagraph if it includes the following information:

(i) The amount of cash and a description (but not value) of any property other than cash contributed.

(ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i).

(iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.

For purposes of this subparagraph, the term "intangible religious benefit" means any intangible religious benefit which is provided by an organization organized exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context.

(C) Contemporaneous. For purposes of subparagraph (A), an acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of--

(i) the date on which the taxpayer files a return for the taxable year in which the contribution was made, or

(ii) the due date (including extensions) for filing such return.

Not only are there three specific requirements that must be met, the document in question must be in the taxpayers’ hands no later than the earlier of the date they file their return or the due date of the return.  That is, you can’t later go obtain the acknowledgement if you discover an issue after the return has been filed.

The Deed in This Case

For this donation, the taxpayers attempted to rely upon a deed that had been issued for the donation to satisfy the CWA requirements.  The deed had been issued well before the return was filed, but the IRS argued it failed to provide that no goods or services had been provided to the taxpayers in exchange for the donation of the easement.

The Court analyzed the Deed to determine if, in fact, it contained language that satisfied this requirement.  The Court begins by noting:

The Easement Deed states that the easement was made “for and in consideration of the sum of ten dollars ($10.00) and other good and valuable consideration and in consideration of the covenants, mutual agreements, conditions and promises herein contained.” The Court and the parties agree that such text is tantamount to boilerplate, which can be ignored.8 See, e.g., RP Golf, LLC v. Commissioner, T.C. Memo. 2012- 282, at *10 n.7.[2]

The opinion next moves on to note that the deed lacks a clause indicating that it constitutes the entire agreement between the parties:

The Easement Deed also lacks a merger or entire agreement clause, which is often the provision establishing that a deed constitutes the entire agreement between the parties. See, e.g., Big River Dev., T.C. Memo. 2017-166, at *11 (“The deed explicitly stated that ‘[t]his Deed reflects the entire agreement of [donor] and [donee]’ and that ‘[a]ny prior or simultaneous correspondence, understandings, agreements, and representations are null and void upon execution hereof, unless set out in this instrument.’ The deed of easement thus negated the provision or receipt of any consideration not stated therein.”); 310 Retail, LLC, T.C. Memo. 2017-164, at *16–17 (“The deed explicitly stated that it represented the parties’ ‘entire agreement’ and that ‘[a]ny prior or simultaneous correspondence, understandings, agreements, and representations are null and void upon execution hereof unless set out in this instrument.’ It thus negated the provision or receipt of any consideration not stated therein.”); RP Golf, LLC, T.C. Memo. 2012-282, at *10–11 (“[T]he agreement states that it constitutes the entire agreement between the parties regarding the contribution of the conservation easement. The Court therefore holds that the agreement, taken as a whole, states that no goods or services were received in exchange for the contribution.”); Averyt v. Commissioner, T.C. Memo. 2012-198, 2012 WL 2891077, at *5 (“Additionally, the conservation deed in the instant case . . . stipulates that the conservation deed constitutes the entire agreement between the parties with respect to the contribution of the conservation easement. Accordingly, the conservation deed, taken as a whole, provides that no goods or services were received in exchange for the contribution.”).[3]

As the opinion noted via the cases it cites, if that had been in the Deed that would have documented that no goods or services were received by the donors—but that clause did not exist in this Deed.

The taxpayers attempted to argue that even though that clause was missing, other language in the Deed would serve the same purpose.  The Deed stated:

The deed granting the easement (Easement Deed) provides that Grantor, for and in consideration of the sum of ten dollars ($10.00) and other good and valuable consideration and in consideration of the covenants, mutual agreements, conditions and promises herein contained, does hereby grant unto the Grantee, its successors and assigns, forever a conservation easement as defined in O.C.G.A. §§ 44-10-1 et seq. in perpetuity, over the Protected Property of the nature and character and to the extent herein set forth.[4]

The opinion summarizes the taxpayers’ argument that this language by itself is sufficient to show no goods or services were received:

Petitioners contend that although the Easement Deed lacks a merger or entire agreement clause, when taken as a whole it nevertheless qualifies its terms as the entire agreement. Specifically, petitioners point to the use of the word “donation” and to two references that the terms of the donation are set forth “herein.”[5]

Unfortunately for the taxpayers, the Court did not agree:

We do not find that use of the word “donation” necessarily implies that there was no consideration given, in whole or in part. Neither do we read “herein” to necessarily mean “exclusively herein.” Even when taken together, these provisions do not qualify the terms of the Easement Deed as the exclusive and entire agreement.[6]

Finally, the taxpayers argued that since there were no additional agreements, they should be allowed the deduction even if there wasn’t an explicit acknowledgement that there were no goods or services received by them in consideration for this contribution.  But the Court notes:

Such contentions are irrelevant, however, to determining compliance with the CWA requirement. Proving the facts that should have been included in the CWA cannot replace the strict substantiation requirements of section 170(f)(8). The entire deduction must be disallowed. See § 170(f)(8)(A); Addis v. Commissioner, 374 F.3d 881, 887 (9th Cir. 2004) (“The deterrence value of section 170(f)(8)’s total denial of a deduction comports with the effective administration of a self-assessment and self-reporting system.”), aff’g 118 T.C. 528 (2002).[7]

Thus, the opinion concludes that the lack of a proper CWA requires the deduction to be disallowed in full:

The Easement Deed does not meet the requirements of section 170(f)(8) and, consequently, cannot serve as the CWA required by the statute. Petitioners do not contend, and we do not find, that any other documents in the record would satisfy the CWA requirement. Petitioners therefore do not satisfy the requirements of section 170(f)(8), and the deductions claimed for the contribution of the conservation easement must be disallowed as a matter of law.[8]

[1] Brooks v. Commissioner, TC Memo 2022-122, December 19, 2022

[2] Brooks v. Commissioner, TC Memo 2022-122

[3] Brooks v. Commissioner, TC Memo 2022-122

[4] Brooks v. Commissioner, TC Memo 2022-122

[5] Brooks v. Commissioner, TC Memo 2022-122

[6] Brooks v. Commissioner, TC Memo 2022-122

[7] Brooks v. Commissioner, TC Memo 2022-122

[8] Brooks v. Commissioner, TC Memo 2022-122