Did you make a non-cash charitable contribution last year in excess of $5,000? If you did, you should be aware of a recent U.S. Tax Court case, Hewitt v. Commissioner, 109 T.C. No. 12 (1997). In Hewitt, the Tax Court held that a couple's charitable deduction of non-publicly traded stock was limited to the stock's basis (and not the stock's fair market value) because the couple failed to obtain a timely qualified appraisal.
Generally, taxpayers are allowed to deduct the fair market value of charitable contributions on the date of the contribution. However, in the case of a non-cash contribution exceeding $5,000, the taxpayer must obtain an appraisal for the contribution, and include Section B of Form 8283 (Appraisal Summary) with the taxpayer's income tax return. In Hewitt, although the couple completed Form 8283 (albeit lacking significant information) and attached it to their return, the increased deduction was denied because they failed to obtain a qualified appraisal before their return was filed. Thus, the couple's deduction was substantially reduced.
Hewitt deals with only one of the many relatively rigid rules governing charitable deductions. For example, the Internal Revenue Code now requires that a contribution of $250 or more must be substantiated by a contemporaneous written acknowledgment form given to the donor by the charity. This acknowledgment form must be in the hands of the taxpayer (donor) before the earlier of the date the taxpayer files his or her income tax return, or the due date (including extensions) for filing the taxpayer's return. If the acknowledgment form is not received within this time frame, the deduction will be lost. This rule applies to private foundations as well as public charities. Generally, the acknowledgment must include the amount of cash, a description of non-cash contributions, and a good faith estimate of the value of the goods or services (if any) received by the donor from the charity. We have a "sample acknowledgment form" which we can provide to you upon request.
