The Tax Court Denies Yet Another Multi-Million Dollar Deduction for Failure to Strictly Comply With Substantiation Requirements

If the IRS and the Tax Court have told us once, they’ve told us a thousand times, no charitable deduction will be allowed if the requirements of Section 170(f) aren’t met to the letter. In IQ Holdings v. Commissioner, TC Memo 2024-104, the taxpayer failed to include the required language in its receipt that “no goods or services were provided in exchange for the donation.” The Tax Court denied the entire deduction stating:

As we have said many times, an Acknowledgment must explicitly state whether consideration was provided for the contributed property even if the donor did not actually receive any consideration. No deduction will be allowed if the Acknowledgment does not include this mandatory statement. (citations omitted)

As is typical in these cases, the taxpayer tried to argue substantial compliance with the law and that the use of the term “donation” in the receipt implied that there was no consideration given in exchange for the property, but the arguments failed as they always do. The Tax Court’s piece de resistance of ruthlessness in granting summary judgement in favor of the IRS being a quote from Addis v. Commissioner, 374 F.3d 881 (9th Cir. 2004), where the Ninth Circuit Court of Appeals said:

The deterrence value of [a total denial of a deduction in the case of an improper Acknowledgment] comports with the effective administration of a self-assessment and self-reporting system.

Taxpayers, consider yourselves deterred.

To see our previous posts on Section 170 substantiation requirements click here.