WSJ article “California Couple Loses $18.5 Million Charitable Deduction on Technicality”

June 02, 2012 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News

The Wall Street Journal had an article “California Couple Loses $18.5 Million Charitable Deduction on Technicality” which describes how a couple donated $18.5 million to a charitable remainder trust but did not get a ‘qualified appraisal’ of the real estate under the US rules.  Actually the person did their own “appraisal”.  The case under scores the importance of getting an independent valuation when you are donating substantial assets and expecting to get a charitable deduction.

Here is a quote from the judgment:

“We recognize that this result is harsh – a complete denial of charitable deductions to a couple that did not overvalue, and may well have undervalued, their contributions – all reported on forms that even to the Court’s eyes seemed likely to mislead someone who didn’t read the instructions. But the problems of misvalued property are so great that Congress was quite specific about what the charitably inclined have to do to defend their deductions, and we cannot in a single sympathetic case undermine those rules.”

You can read about the long history of misvaluing property and abuse of charitable remainder trusts in the US by doing searches on Google.  In this case there is no allegation of abuse, only the adequacy of the valuations.   

Also one cannot rely on inadequacies in the short tax forms “Although sympathetic to the Mohameds’ cause, we can’t hold the form’s failings against the Commissioner here, because “the authoritative sources of Federal tax law are in the statutes, regulations, and judicial decisions and not in such informal publications.”  Apparently the couple did not look at the accompanying guide even though they made a number of multi-million dollar real estate donations.

You can read the WSJ article at:
“California Couple Loses $18.5 Million Charitable Deduction on Technicality”
http://blogs.wsj.com/totalreturn/2012/05/30/california-couple-loses-18-5-million-charitable-deduction-on-technicality/

JOSEPH MOHAMED, SR. AND SHIRLEY MOHAMED, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
http://www.ustaxcourt.gov/InOpHistoric/MohamedMemo.TCM.WPD.pdf.

In the Canadian context we have rules around issuing receipts and valuations for gifts.  Failure to follow those rules can result in CRA denying the tax credit and in some cases revoking the charity that issued the receipt.  For more information on the Canadian rules see:

http://www.canadiancharitylaw.ca/index.php/blog/category/blog/category/receipting_by_charities/

 

 

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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

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