California Entrepreneur Fills Out Form Himself-- Loses $18.5 Million Charitable Deduction

In what can be considered one of the harshest Tax Court cases of the year, the Tax Court denied a gigantic charitable deduction because admittedly "confusing" IRS forms were not filled out properly.

A prominent Sacramento real estate broker, certified real estate appraiser, and entrepreneur, donated six properties worth at least $18.5 million to a charitable remainder trust in 2003 and 2004, but failed to read and ultimately follow the instructions to Form 8283 (Noncash Charitable Contributions).  Although the Tax Court acknowledged that "the property was quite likely more valuable than the [broker] reported on [his] tax returns," the Tax Court denied the claimed charitable deduction for failure to comply with the substantiation requirements.  Ouch. Mohamed v. Commissioner, T.C. Memo. 2012-152 (May 29, 2012):

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.

The lesson here is that any time a person seeks a charitable deduction for real estate, a competent adviser should actually prepare the Form 8283 and ensure that any attached appraisal meets IRS requirements. 

(See more from Tax Prof)