Paul L. Caron

Monday, July 25, 2022

WSJ: The Fine Print Cost A Widow A $464,000 Charitable Tax Deduction

Wall Street Journal Tax Report, The Fine Print Cost a Widow a $464,000 Tax Deduction:

Charitable donors, beware: A widow has lost a $464,000 tax deduction for a gift to a museum because her tax paperwork lacked a few key words.

The recent Tax Court decision in Albrecht v. Commissioner [T.C. Memo. 2022-53 (May 25, 2022)] is a fresh reminder of how rigid the standards for charitable deductions often are.

Here are the facts in the case. Over the years Martha Albrecht and her husband amassed a large collection of Native American jewelry and artifacts. In late 2014 Ms. Albrecht, by then a widow, donated about 120 items to the Wheelwright Museum of the American Indian in Santa Fe, N.M., a well-known institution.

On her 2014 tax return, Ms. Albrecht claimed a charitable-donation deduction of $463,676 for her gift. Although her income wasn’t large enough to take the entire deduction for 2014, the law allowed her to carry over and use the remainder for five more years. Attached to her return was a five-page Deed of Gift detailing the donation.

Among other things, the deed said the gift was irrevocable and unconditional. However, Ms. Albrecht didn’t have what the law calls a “contemporaneous written acknowledgment” from the museum explicitly saying whether or not she received goods or services in return for her donation.

Bryan Camp, a professor at Texas Tech University’s law school and a noted tax blogger, calls this “the magic language requirement,” although the wording can vary. Even if no goods or services were provided to Ms. Albrecht by the Wheelwright, she needed this statement in hand before filing her tax return to be eligible for a deduction. This requirement has been in the law since 1994, after Congress enacted it to crack down on padded and dubious deductions.

Not having this statement cost Ms. Albrecht her entire deduction, even though the museum later clarified that it provided no goods or services in return for her donation.

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