Skip to main content
Woman standing and looking at Lago di Carezza in Dolomites

A Look at Non-Cash Charitable Contributions in Excess of $5,000

Taxpayers should know requirements for deductions on non-cash charitable contributions over $5,000.
banner background

Whoever coined the phrase “No good deed goes unpunished” likely was not a tax practitioner. However, perhaps they could have been when considering non-cash charitable contributions. Section 170 of the Internal Revenue Code (IRC) allows deductions for charitable contributions only if verified under regulations prescribed by the secretary of the Treasury.1 In fulfillment of this prophecy, the IRS has promulgated over a dozen regulations, meticulously detailing verification requirements of taxpayers and their related income tax deductions for charitable contributions. While monetary contributions do have toilsome substantiation requirements, non-cash contributions, especially those in excess of $5,000, have particularly onerous requirements and have been subject to consistent scrutiny by the IRS.

The Deficit Reduction Act of 1984 (DEFRA) directed the secretary to prescribe regulations under §170(a)(1). The Joint Committee on Taxation, in its explanation of the provisions of the act, stated:

“Congress recognized that in recent years, opportunities to offset income through inflated valuations of donated property have been increasingly exploited by tax shelter promoters … The Congress was aware that in various instances, the Internal Revenue Service had succeeded in challenging overvaluations claimed by donors, and had initiated a special audit program to combat charitable contribution tax shelters. However, it is not possible to detect all or even most instances of excessive deductions by relying solely on the audit process. Because valuation of some types of property cannot be determined by reference to readily available and accepted valuation tables, taxpayers may continue to play the ‘audit lottery’ and claim excessive charitable deductions … Because of these concerns, the Congress concluded that stronger substantiation requirements and tighter overvaluation penalties should apply to charitable contributions of property.”2

In turn, the secretary added substantiation requirements to §1.170A-13. After enacting the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006, which implemented changes to the substantiation and reporting rules under §170, the IRS proposed regulations for such changes. In 2018, the proposed regulations were adopted final as §1.170A-16.3

Substantiation and reporting requirements for non-cash charitable contributions of more than $5,000 are described in §1.170A-16(d):

  • Substantiate the contribution with a contemporaneous written acknowledgment, as described in §170(f)(8) and §1.170A-13(f);
  • Obtain a qualified appraisal, as defined in §1.170A-17(a)(1), prepared by a qualified appraiser as defined in §1.170A-17(b)(1); and
  • Complete Form 8283 (Section B), as provided in paragraph (d)(3) of this section, or a successor form, and file it with the return on which the deduction is claimed.

Supplementing this article is a checklist to assist tax preparers in determining if the charitable contribution deduction claimed meets these substantiation and reporting requirements as prescribed by the secretary. It is important to note that every item in the checklist is crucial, as learned in a number of court cases:

  • In Estate of Harvey Evenchik v. Commissioner, approximately 15,000 shares in a corporation valued at more than $1 million were donated to charity, subject to the qualified appraisal substantiation requirements. Rather than attaching an appraisal of the shares, appraisals of the corporation’s only assets, two apartment buildings, were attached to the return to support the approximate $1 million valuation. The ruling states, “The Evenchiks have made [a] mistake, and had the wrong asset appraised … appraising the wrong asset was far from the only error in the appraisals that the Evenchiks submitted: The appraisals also didn’t state the date or expected date of the contribution or the fair market value on those dates, didn’t provide a statement that the appraisal was prepared for income-tax purposes, and didn’t include the terms of any agreement or understanding entered into by [the petitioner] or [the charitable organization] relating to the use of the donated property.” It was determined that the Evenchiks were not entitled to the deduction.
  • In RERI Holdings I, LLC v. Commissioner, the petitioner assigned a remainder interest of property to a university, claiming a deduction under §170(a)(1) of approximately $33 million. Form 8283 was attached to the return and otherwise substantially complete but for an omission of the donor’s cost or other adjusted basis. The court held that the petitioner’s omission violated substantiation requirements and denied in full the claimed deduction.
  • In Mark R. Ohde v. Commissioner, the court denied charitable contribution amounts for non-cash property for lack of proper substantiation. The court noted that while Forms 8283 were attached to the return, required appraisals were not obtained and the forms were not executed by the donee or appraiser, as required for contributions in excess of $5,000.

On the forefront of IRS scrutiny stands conservation easement contributions. In general, deductions for charitable contributions of a partial interest in property are not allowed with a few exceptions, including a qualified conservation contribution (QCC).4 A QCC is the contribution of qualified real property interest to a qualified organization exclusively for conservation purposes.5 In fall 2023, a Senate Committee on Finance hearing occurred, considering the nomination of Marjorie Rollinson to be chief counsel for the IRS. Sen. Bill Cassidy (R-LA) asked a couple of poignant questions:

“In recent years, the term ‘syndicated conservation easement’ has become somewhat synonymous with ‘bad’ transactions. This is problematic, in part because virtually all commercial real estate transactions are syndicated. If confirmed, what will you do to ensure that, consistent with Congressional intent, legitimate donations to protect historic structures are given a fair review?”

“It is rumored that the IRS counsel’s office has a directive to never settle and instead litigate 100% of conservation easement cases. If this is true, conservation easement cases have the potential to completely overwhelm the Tax Court for the next decade, with a reported volume of cases upwards of 1,000. In the past, the IRS has engaged in settlement initiatives with taxpayers, even over issues where there are high levels of controversy or disagreement. If confirmed, will you reconsider this 100% litigation strategy on conservation easements, if it is, in fact, true? If confirmed, will you report back to the Committee regarding updates on the situation?”

As the senator’s questions suggest, conservation easements are of particular interest to IRS auditors, so much so that syndicated conservation easement transactions6 are the most recent addition to the IRS’ list of listed transactions requiring additional disclosure as a presumed abusive tax shelter and subject to increased penalties pursuant to §6662A.

The IRS issued Notice 2017-10, which identified syndicated conservation easements as listed transactions and stated:

“The Treasury Department and the IRS have become aware that some promoters are syndicating conservation easement transactions that purport to give investors the opportunity to claim charitable contribution deductions in amounts that significantly exceed the amount invested. In such a syndicated conservation easement transaction, a promoter offers prospective investors in a partnership or other pass-through entity the possibility of a charitable contribution deduction for donation of a conservation easement.”

In 2022, the U.S. Tax Court held that the notice was invalid, and improperly issued by the IRS without notice and comment as required by the Administrative Procedures Act (APA).7 The Sixth Circuit of the U.S. Court of Appeals ruled similarly in another case concerning notice and comment requirements by the APA.8 While the IRS disagrees with the rulings, it has issued proposed regulations (and fully intends to issue final regulations) in compliance with the APA to identify certain syndicated conservation easement transactions as listed transactions.9

Substantiation and reporting requirements for non-cash charitable contributions of more than $5,000 are described in §1.170A-16(d) and also are applicable to qualified conservation contributions. Section 1.170A-14 directly applies to qualified conservation contributions and provides additional definitional requirements. Furthermore, §170(h)(7) was added by the Consolidated Appropriations Act, 2023 concerning qualified conservation contributions made by pass-through entities, and the IRS has released proposed regulations related thereto.10

See another checklist accompanying this article for help in navigating additional requirements related to qualified conservation contributions. If you have questions or need assistance, please reach out to a professional at FORVIS.

  • 1IRC §170(a)(1).
  • 2Staff of the Joint Committee on Taxation, General Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984.
  • 3TD 9836, Charitable contribution deductions-substantiation and reporting requirements, Code Section 170, July 30, 2018.
  • 4§170(f)(3).
  • 5§1.170A-14(a).
  • 6e.g., land is acquired in an LLC, interests in the LLC are then syndicated (sold to investors), and the LLC then contributes a conservation easement on the land to obtain a charitable contribution deduction for the LLC interest holders. Abuse typically occurs when the interests in the LLC are sold for well below the appraised value of the charitable contribution.
  • 7Green Valley Investors, LLC v. Commissioner, 159 T.C. No. 5 (2022).
  • 8Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022).
  • 9Announcement 2022-28; REG-106134-22.
  • 10REG-112916-23.

Related FORsights

Like what you see?
Subscribe to receive tailored insights directly to your inbox.