For Want Of A Nail… Lessons From Besaw V. Commissioner On Charitable Deductions

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FORBES- For want of a properly completed form 8283 a deduction for non-cash charitable donations is lost and penalties incurred in the Besaw case. Here is a checklist to help avoid this result.

Charitable giving often involves the donation of non-cash items, whether art, collectibles, intellectual property or even real estate. When making such a donation, taxpayers expect a tax deduction equal to the value of the donation, but that is not always the case. The recent Appellate Court case of Besaw v. Commissioner reminds us, good intentions are not enough. Without proper documentation, even legitimate gifts can lead to disallowed deductions and costly penalties.

The Besaw Case

In Besaw v. Commissioner (695 Fed. Appx. 276, 9th Cir. 2017), John Henry Besaw appealed a Tax Court ruling that upheld IRS findings of tax deficiencies and penalties. Besaw had claimed charitable deductions but failed to produce adequate evidence to substantiate them. The Ninth Circuit affirmed, emphasizing two key principles:

1. The taxpayer bears the burden of proving entitlement to deductions.

2. Failure to meet substantiation requirements results in both lost deductions and penalties.

The court cited Sparkman v. Commissioner (509 F.3d 1149, 2007) as precedent, reinforcing that deductions are a matter of legislative grace, not an automatic entitlement. In addition to disallowing the deductions, the court upheld penalties for substantial understatement of income tax under 26 U.S.C. § 6662(a). Besaw’s procedural argument that the burden of proof should have shifted to the Commissioner was flatly rejected.

A History of Similar Cases

Besaw is not an outlier. Courts have consistently ruled that failure to comply with substantiation rules leads to disallowance, no matter how genuine the donation. For example:

1. In Sparkman v. Commissioner (2007), the court stressed that taxpayers must carry the evidentiary burden for deductions.

2. In Durden v. Commissioner (2012), a taxpayer lost a deduction because the charitable acknowledgment failed to state whether goods or services were received in return, a seemingly minor omission that proved fatal.

3. In Hewitt v. Commissioner (2021), the Eleventh Circuit addressed compliance with charitable deduction regulations tied to conservation easements, again underscoring the unforgiving nature of the substantiation rules.

These cases illustrate that courts do not hesitate to penalize even honest mistakes when statutory requirements are not followed.

The Role of Form 8283

The IRS enforces these requirements through Form 8283: Non-cash Charitable Contributions, which must be filed when the value of noncash donations exceeds $500. This form documents what was given, to whom, when, and how the donor determined fair market value. For gifts over $5,000, a qualified appraisal and acknowledgment by the donee organization are required. For donations exceeding $500,000, the full appraisal must be attached to the tax return.

Checklist for Preparing Form 8283

To minimize the risk of a Besaw-style outcome, taxpayers should ensure they:

1. Maintain detailed records of the donated property, including description, condition, acquisition date, and method of valuation.

2. Document fair market value (FMV) using appropriate methods such as appraisal, comparable sales, or recognized valuation guides.

3. Obtain a written acknowledgment from the charity for contributions of $250 or more

   1. The acknowledgment must describe the donation and state whether any goods or services were provided to the donor in return for making the donation.

   2. It must be obtained no later than the earlier of the date you file your tax return, or the tax return’s due date (including extensions).

   3. Best practice: request it at the time of the donation to avoid delays or errors.

4. File Form 8283 for all non-cash contributions exceeding $500.

5. Secure a qualified appraisal for donations of property worth more than $5,000, conducted no more than 60 days before the contribution.

6. Ensure donee acknowledgment on Form 8283 for donations exceeding $5,000, even though the charity does not confirm valuation.

7. Attach the full appraisal to the return when contributions exceed $500,000.

8. Confirm the organization’s status as a qualified charity under section 501(c)(3).

9. Retain all supporting documents—acknowledgments, appraisals, valuation workpapers—in case of IRS inquiry or audit.

Conclusion

For high-net-worth families and collectors, charitable giving can be a powerful estate and tax planning strategy. But as Besaw and similar cases make clear, failure to follow the rules can convert generosity into liability. The IRS and the courts demand precision, and Form 8283 is the roadmap. For want of a properly filled out and documented Form 8283, you will lose your charitable deduction for non-cash donations.