In U.S. Tax Court Memo 2013-34 issued February 4, 2013 in the matter of the Estate of Evenchik v. Commissioner of Internal Revenue, the taxpayer was denied a charitable deduction for federal income tax purposes of shares of stock in a closely-held corporation which were transferred to a charitable organization.
The taxpayer executed an Assignment of Stock by Gift transferring the shares in the corporation to the charitable organization, and then obtained an appraisal of the underlying assets held by the corporation.
The gift amount claimed on the taxpayer’s Federal Income Tax Return (IRS Form 1040) was $1,045,289.30, and the taxpayer submitted a copy of the appraisal with the Return.
The Commissioner issued a Notice of Deficiency disallowing the entire charitable deduction. The sole question before the U.S. Tax Court was whether the appraisal submitted by the taxpayer was a “qualified appraisal.”
Charitable gifts of property in excess of $5,000 are required to be substantiated by qualified appraisal.
The U.S. Tax Court found that the appraisal did not meet the requirements of the Internal Revenue Code relating to qualified appraisals and rejected the taxpayer’s argument of substantial compliance primarily because the appraisal submitted to the IRS was for the underlying assets held by the corporation, while the gift itself was of shares of stock in the corporation.
The U.S. Tax Court, therefore, held that the appraisal was of the wrong asset.
The U.S. Tax Court further found that the appraisal failed to state the date or expected date of the gift, the terms of the agreement entered into by the taxpayer and the charitable organization, that the appraisal was prepared for income tax purposes, and the date used to value the assets.
The U.S. Tax Court, therefore, held that the taxpayer was not entitled to the deduction.
If you are considering making a significant gift to charity, it is important that you receive professional advice to avoid costly mistakes such as these.
The attorneys of Thomas N. Silverman, P.A. are admitted to practice before the U.S. Tax Court and are knowledgeable and experienced in the requirements and planning associated with charitable giving.
We can also assist you in integrating charitable giving as part of your overall estate plan.