The Fifth Circuit Court of Appeals sustained the Tax Court’s decision[1] denying a taxpayer a charitable contribution deduction in the case of Izen v. Commissioner,[2] finding that a taxpayer must strictly follow the documentation requirements set out by Congress in the statute to obtain a charitable contribution deduction.

This case was covered back when the Tax Court released its decision in 2017 on our tax update webpage[3] and involved a taxpayer’s attempt to claim a deduction for a donation for an aircraft on an amended income tax return. 

IRC §170(f)(12) reads:

(12) Contributions of used motor vehicles, boats, and airplanes.

(A) In general. In the case of a contribution of a qualified vehicle the claimed value of which exceeds $500--

(i) paragraph (8) shall not apply and no deduction shall be allowed under subsection (a) for such contribution unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization that meets the requirements of subparagraph (B) and includes the acknowledgement with the taxpayer's return of tax which includes the deduction, and

(ii) if the organization sells the vehicle without any significant intervening use or material improvement of such vehicle by the organization, the amount of the deduction allowed under subsection (a) shall not exceed the gross proceeds received from such sale.

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

(i) The name and taxpayer identification number of the donor.

(ii) The vehicle identification number or similar number.

(iii) In the case of a qualified vehicle to which subparagraph (A)(ii) applies--

(I) a certification that the vehicle was sold in an arm's length transaction between unrelated parties,

(II) the gross proceeds from the sale, and

(III) a statement that the deductible amount may not exceed the amount of such gross proceeds.

(iv) In the case of a qualified vehicle to which subparagraph (A)(ii) does not apply--

(I) a certification of the intended use or material improvement of the vehicle and the intended duration of such use, and

(II) a certification that the vehicle would not be transferred in exchange for money, other property, or services before completion of such use or improvement.

(v) Whether the donee organization provided any goods or services in consideration, in whole or in part, for the qualified vehicle.

(vi) A description and good faith estimate of the value of any goods or services referred to in clause (v) or, if such goods or services consist solely of intangible religious benefits (as defined in paragraph (8)(B)), a statement to that effect.

(C) Contemporaneous. For purposes of subparagraph (A), an acknowledgement shall be considered to be contemporaneous if the donee organization provides it within 30 days of--

(i) the sale of the qualified vehicle, or

(ii) in the case of an acknowledgement including a certification described in subparagraph (B)(iv), the contribution of the qualified vehicle.

The simplest way to satisfy these documentation requirements is for the taxpayer to attach a Form 1098-C provided by the charity for the donation of the covered item to the tax return.  The charity is required to provide this document both to the taxpayer and the IRS.[4]

However, in this case that did not take place, so the question became whether other documents the taxpayer did provide fulfilled these requirements.

The Fifth Circuit panel’s decision discussed the documents that Mr. Izen provided, but comes to the same conclusion as the Tax Court that these fell short of meeting the statutory requirements.

Izen did not provide a satisfactory contemporaneous written acknowledgement with his Form 1040X. Izen included a letter dated December 30, 2010 from the Society discussing the donation of the airplane, but the letter was addressed to Philippe Tanguy, not Izen. The letter does not mention Izen and does not provide his taxpayer identification number. The letter cannot substantiate the contribution of the airplane under § 170(f)(12)(B)(i). Izen also included a copy of the donation agreement between him, Tanguy, and the Society, but the agreement fails to satisfy § 170(f)(12)(B)(i) as it lacks Izen’s taxpayer identification number. Finally, Izen attached a Form 8283 to his Form 1040X, but the Form 8283 did not include his taxpayer number.[5]

In footnotes to the above paragraph, the court discusses additional problems with the submitted documentation.  First, they reject the taxpayer’s attempt to have the court look at a different letter that wasn’t submitted with the claim for refund on the Form 1040X:

Izen asks us to also examine a different letter from the Society, addressed to him but not attached to his Form 1040X, the relevant filing for our analysis. Because this alternate letter was not attached to Izen’s Form 1040X, we cannot consider it; even if we could, it similarly lacks his taxpayer identification number.[6]

The panel also finds additional faults with the Form 8283 that was submitted with Mr. Izen’s Form 1040X:

Further, Izen’s Form 8283 was not a contemporaneous written acknowledgment by the donee organization as it was not signed by the Society until 2016, well past thirty days of the donation. Izen argues that a written acknowledgement is contemporaneous if produced within thirty days of the filing, but this argument conflicts with the clear statutory definition. Under 26 U.S.C. § 170(f)(12)(c), an acknowledgment is contemporaneous if it is provided by the donee organization within thirty days of the contribution. Section 170(f)(12)(c) does not reference the timing of the taxpayer’s filing.[7]

The panel agrees with the Tax Court that the doctrine of substantial compliance does not apply in this case, in particular because these requirements were set by Congress in the statute, rather than by Treasury in regulations:

Izen argues that he substantially complied with the requirements and that the documents he provided should be read together with the return to substantiate his claimed deduction. The doctrine of substantial compliance may support a taxpayer's claim where he or she acted in good faith and exercised due diligence but nevertheless failed to meet a regulatory requirement. We cannot accept the argument that substantial compliance satisfies statutory requirements. Congress specifically required the contemporaneous written acknowledgment include the taxpayer identification number, but that is lacking here.[8]

The opinion, in a footnote, specifically cites a 2004 Ninth Circuit decision to support the proposition that substantial compliance does not apply to requirements found in the statute regarding charitable contributions, no matter how minor the fault might appear (such as failing to show the taxpayer’s identification number on the acknowledgement):

See Addis v. Comm’r, 374 F.3d 881, 887 (9th Cir. 2004) (holding that the plain language of 26 U.S.C. § 170(f)(8) required a total denial of a charitable deduction where the taxpayer failed to comply with the statute; § 170(f)(8) is substantially similar to the provisions of § 170(f)(12) at issue here). See also French v. Comm’r of Internal Revenue, 111 T.C.M. (CCH) 1241 (2016) (“The doctrine of substantial compliance does not apply to excuse compliance with the strict substantiation requirements of section 170(f)(8)(B).”).[9]

[1] Izen v. Commissioner, 145 TC No. 5, March 1, 2017

[2] Izen v. Commissioner, CA5, Docket No. 21-60679, June 29, 2022, https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/fifth-circuit-affirms-denial-of-deduction-for-airplane-donation/7dlzl (retrieved June 30, 2022)

[3] Ed Zollars, CPA, “Doctrine of Substantial Compliance Did Not Apply to Taxpayer Who Failed to Meet Documentation Requirements for Donation of Used Airplane,” Current Federal Tax Developments website, March 2, 2017, https://www.currentfederaltaxdevelopments.com/blog/2017/3/2/doctrine-of-substantial-compliance-did-not-apply-to-taxpayer-who-failed-to-meet-documentation-requirements-for-donation-of-used-airplane (retrieved June 30, 2022)

[4] IRC §170(f)(12)(D)

[5] Izen v. Commissioner, CA5, Docket No. 21-60679, June 29, 2022

[6] Izen v. Commissioner, CA5, Docket No. 21-60679, June 29, 2022

[7] Izen v. Commissioner, CA5, Docket No. 21-60679, June 29, 2022

[8] Izen v. Commissioner, CA5, Docket No. 21-60679, June 29, 2022

[9] Izen v. Commissioner, CA5, Docket No. 21-60679, June 29, 2022