One Missing Sentence: Why a Land Donation Appraised at $665,000 Did Not Earn a Tax Deduction
Section 170 of the Internal Revenue Code generally allows a deduction for charitable contributions. To claim a charitable contribution deduction, a taxpayer must satisfy certain substantiation requirements, including, for a donation of $250 or more, obtaining a contemporaneous written acknowledgment (“CWA”) from the charitable organization. Among other things, the CWA must say whether the charity gave you anything in return.
So, what happens when the paperwork does not say whether the charity gave you anything in return? In two companion memorandum opinions (Martin v. Commissioner, T.C. Memo. 2026-39 (Stephen and Amanda Martin) and T.C. Memo. 2026-40 (Clint and Jenifer Martin)), both decided on May 14, 2026, the Tax Court answered: the entire deduction for the land is lost.
Background and the Missing Sentence
In 2018, two cousins, Clint Martin and Stephen Martin, donated 13.33 acres of land to Highland City, Utah. An appraiser valued the land at $665,000, and each cousin’s joint tax return claimed a deduction of $332,500 for his 50% share. The IRS issued each cousin a notice of deficiency disallowing the deduction. The cousins timely petitioned the Tax Court for redetermination.
The cousins pointed to several documents as proof that they received nothing in return from Highland City, including their Form 8283 (the IRS form for reporting noncash gifts), a letter signed by both cousins and the Mayor of Highland City, and the recorded deed transferring the land. The Tax Court agreed that the documents described the land well enough. The problem was that none of the documents clearly stated that Highland City gave the two cousins nothing in return for the land.
- The tax form said nothing on the subject.
- The letter called the transfer a “donation” and a “gift,” but the Tax Court said those words do not settle whether Highland City gave anything back to the cousins.
- The deed said that Highland City paid $10 “and other good and valuable consideration” for the land. This is standard legal boilerplate, but it reads as though Highland City gave something in return. The Tax Court would not overlook it. A deed with this language can still pass if it contains a “merger clause,” a statement that the deed is the parties’ complete agreement, which rules out any side deal in which the city gave something else in exchange. The deed had no merger clause.
- A city council report (in Stephen’s case) said Highland City would spend nothing to accept the gift. But it was written before the council voted to accept the land, and the Tax Court would not treat it as Highland City’s confirmation of a gift it had not yet received.
Substantial Compliance Does Not Count
The cousins argued that their paperwork was close enough. The Tax Court disagreed, explaining that the “substantial compliance” doctrine does not apply to excuse a failure to obtain a CWA that meets the statutory requirements. Missing the requirement means losing the whole deduction, not just part of it.
What This Means for You
We have seen this theme before. In my earlier post, “No Shortcut on Cryptocurrency Donations,” I discussed Chief Counsel Advice Memorandum 202302012, released January 13, 2023, in which the IRS disallowed a $10,000 deduction for a cryptocurrency donation because the donor relied on an exchange price instead of obtaining a qualified appraisal. That deduction was lost for failing a different Section 170 substantiation requirement, the qualified appraisal rule for noncash gifts over $5,000. The lessons are the same: the substantiation rules are applied strictly, and a taxpayer cannot substitute a method of their own choosing.
If you plan to donate land or other valuable property to a charity, do not assume that a thank-you letter, a deed, or an appraisal is enough. Before you file, check that the charity’s written acknowledgment plainly says whether you received anything in return, and if you did not, that it says so in so many words. Be careful with standard deed language about “other good and valuable consideration.” It can work against you.
Our firm can review your donation paperwork and work with the charity to get it right before you file. Please contact us to discuss your situation.
This post is for general informational purposes only and does not constitute legal advice. Please consult with an attorney regarding your specific circumstances.
