Tax News

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations concerning substantiation and reporting requirements for cash and noncash charitable contributions under Code Sec. 170. The regulations reflect the enactment of Code Sec. 170(f)(11) by the American Jobs Creation Act of 2004 (AJCA) (P.L. 109-357), which requires taxpayers to obtain a qualified appraisal for donated property if the taxpayer is claiming more than a $5,000 deduction, or attach to the tax return a qualified appraisal for contributions of property for which a deduction of more than $500,000 is claimed (Code Secs. 170(f)(11)(C) and (D)). The regulations also reflect the amendment of Code Sec. 170(f)(11)(E) by the Pension Protection Act of 2006 (PPA) (P.L. 109-280), which provides statutory definitions of the terms "qualified appraisal" and "qualified appraiser".
Notice 2006-96
Notice 2006-96, I.R.B. 2006-46, 902, provided transitional safe harbor definitions for the terms "qualified appraisal" "generally accepted appraisal standards," "appraisal designation," "education and experience in valuing the type of property," and "minimum education and experience." Those definitions apply to contributions of property for which a deduction of more than $5,000 is claimed on returns filed after August 17, 2006. All comments received regarding the definitions of the terms were considered in drafting these proposed regulations.
Monetary Gifts
Proposed Reg. §1.170A-15 would implement the requirements of Code Sec. 170(f)(17), as added by the PPA, and provide that a deduction is only allowed for any contributions of cash, check or other monetary gifts where the donor maintains a record of the contribution. This record can be in the form of a bank record or written communication from the donee; the record must show the name of the donee and the date and amount of the contribution. Where a bank statement does not include the name of the donee, a monthly bank statement and a photocopy or image obtained from the bank of the front of the check indicating the name of the donee is satisfactory. However, an exception to the substantiation requirement is provided by the proposed regulations for unreimbursed expenses of less than $250 incurred incident to the rendition of services to a charitable organization.
Revised Requirements
As under the present rules, the proposed regulations provide that donors who claim deductions for noncash contributions of less than $250 are required to obtain a receipt from the donee or keep reliable records. The proposed regulations provide that donors who make contributions over $250 but not more than $500 are only required to obtain a contemporaneous, written acknowledgment, under Code Sec. 170(f)(8) and Reg. §1.170A-13(f), and are not required to obtain any other written records.
For claimed contributions over $500 but not more than $5,000, the donor must obtain a contemporaneous written acknowledgment and file a completed Form 8283 with the return on which the deduction is claimed. For claimed contributions of more than $5,000, in addition to a contemporaneous written acknowledgment, a qualified appraisal is generally required, and either Section A or Section B of Form 8283, depending upon the type of property contributed, must be completed and filed with the return on which the deduction is claimed. For claimed contributions of more than $500,000, the donor must attach a copy of the qualified appraisal to the return. In addition, the substantiation requirements also apply to the return for any carryover year under Code Sec. 170(d).
Reasonable Cause Exception
An exception in Code Sec. 170(f)(11)(A)(ii)(II) overrules the above-stated noncash substantiation requirements. To apply, the donor must show that the failure to meet these requirements is due to reasonable cause and not willful neglect. Under the proposed regulations, to satisfy the exception, the donor must submit a detailed explanation with his or her return, stating why the failure to comply was due to reasonable cause and not willful neglect, and he or she must have timely obtained a contemporaneous, written acknowledgment and a qualified appraisal, if applicable. Consistent with congressional intent of reducing valuation abuses, the "reasonable cause" exception will most likely be strictly construed. In addition, the "good-faith omission" provision found inReg. §1.170A-13(c)(4)(H) has been superseded.
New Requirements
The proposed regulations are similar to the guidance provided in Notice 2006-96, except that they require compliance with the substance and principles of the Uniform Standards of Professional Appraisal Practice (USPAP). Section 3.02(2) of the notice merely requires an appraisal that is "consistent" with USPAP. The proposed regulations also would clarify the current rules. For example, the current regulations require an appraisal to be made no earlier than 60 days before the contribution date. Under the proposed rules, the valuation effective date, which is the date to which the value opinion applies, generally must be the date of the contribution. Where the appraisal is prepared before the contribution date, the valuation effective date must be no earlier than 60 days before and no later than the contribution date.
Qualified Appraiser
Many of the requirements from the current regulations have been incorporated into the proposed regulations. However, the required appraiser declarations have been modified. In addition, believing it sufficient for an appraiser to satisfy the more stringent requirement of verifiable education and experience, the proposed regulations provide that an appraiser has verifiable education and experience if he or she has successfully completed professional or college-level coursework in valuing the relevant type of property, and has two or more years of experience in valuing that type of property.
Clothing, Household Items
Proposed Reg. §1.170A-18 provides that no deduction is allowed for any contribution of clothing or a household item unless it is in good used condition or better, thus ensuring that donated clothing and household items are "of meaningful use to charitable organizations," as set forth in the Joint Committee on Taxation Technical Explanation of the PPA (JCX-38-06). However, this rule does not apply to a contribution of a single item of clothing or a household item for which a donor claims a deduction of more than $500, provided the donor submits a qualified appraisal with the return on which the deduction is claimed.
Effective Date
These proposed regulations are proposed to apply to contributions occurring after the date regulations are published as final in the Federal Register.
Comments, Public Hearing
Written or electronic comments and requests for a public hearing must be received by November 5, 2008. Send submissions to: CCA:LPDR (REG-140029-07), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C., 20044, or they may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m., Courier's Desk, Internal Revenue Service, 1111 Constitution Ave. NW., Washington, D.C. 20224, or sent electronically via the Federal eRulemaking Portal at www.regulations.gov.
Proposed Regulations, NPRM REG-140029-07, 2008FED ¶49,827
Other References:
Code Sec. 170
CCH Reference - 2008FED ¶11,602C
CCH Reference - 2008FED ¶11,606C
CCH Reference - 2008FED ¶11,686C
CCH Reference - 2008FED ¶11,715
CCH Reference - 2008FED ¶11,720
CCH Reference - 2008FED ¶11,725
CCH Reference - 2008FED ¶11,730
Tax Research Consultant
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