In Izen v. Commissioner of Internal Revenue, Joe Alfred Izen, Jr. (Izen) petitioned for a redetermination by the Tax Court after the Internal Revenue Service (IRS) determined that Izen had federal income tax deficiencies for the 2009 and 2010 tax years.
Izen subsequently filed an amended 2010 tax return claiming a charitable deduction for an airplane he donated to the Houston Aeronautical Heritage Society (Society). The Commissioner of Internal Revenue (Commissioner) denied this deduction, claiming that Izen failed to meet the substantiation requirements under Section 170(f). The Tax Court ruled in favor of the Commissioner, and Izen appealed to the United States Court of Appeals for the Fifth Circuit (Fifth Circuit).
In 2012, the Commissioner notified Izen that he had deficiencies for the 2009 and 2010 tax years. In response, Izen petitioned for a redetermination by the Tax Court. Later in 2014, Izen filed an amended petition, arguing for the first time that he was entitled to a charitable deduction of $338,080 for the donation of his 50% interest in an airplane to the Society. On January 23, 2016, Izen moved for summary judgment, seeking a declaration that he was entitled to the deduction.
On March 9, 2016, the Tax Court denied Izen’s motion, concluding that material fact issues remained. Izen then moved for leave to file a second amended petition, and he filed an amended tax return for 2010 on IRS Form 1040X with attachments to support his deduction. Attachments included the following documents: (i) a letter addressed to Philippe Tanguy (but not to Izen) dated December 30, 2010, from the Society discussing the donation of the airplane (Letter), (ii) a copy of the donation agreement between Izen, Tanguy, and the Society (Agreement), and (iii) Form 8283, Noncash Charitable Contributions.
On May 27, 2016, the Commissioner responded and moved for partial summary judgment as to the deduction, arguing that Izen failed to comply with Section 170(f). Izen filed a second motion for summary judgment on July 19, 2016, arguing that his Form 1040X established that he was entitled to the deduction.
The Tax Court determined that Izen was not entitled to the deduction, denying his motion for partial summary judgment and granting partial summary judgment to the Commissioner. After stipulations between the parties that resolved the remaining issues, the Tax Court decided that Izen had deficiencies of $13,060 for 2009 and $56 for 2010. Izen appealed to the Fifth Circuit, challenging only the denial of a deduction for donating his interest in the plane.
Izen argued that the Letter, Agreement, and Form 8283 were evidence of the contemporaneous written acknowledgment required to substantiate a charitable deduction for donating his interest in the plane.
To claim a charitable contribution deduction, a taxpayer must substantiate the validity of the donation and its valuation. For a contribution of a qualified vehicle (which includes airplanes) valued over $500, the taxpayer must provide contemporaneous written acknowledgment from the donee organization of the contribution, including the donor’s name and taxpayer identification number (TIN). An acknowledgment is contemporaneous if the donee organization provides to the IRS within thirty days of the contribution. Section 170(f)(12)(A)(i) disallows the deduction unless the requisite contemporaneous written acknowledgment is included in the tax return claiming the deduction.
While Izen did provide the Letter from the Society discussing the donation, it was not addressed to Izen and did not mention or include his TIN. Since the Letter did not mention Izen or provide his TIN, the Fifth Circuit said that the letter could not substantiate the contribution of the airplane under Section 170(f)(12)(B)(i). Izen attempted to use another letter addressed to him from the Society that was not attached to his Form 1040X as evidence, but the Fifth Circuit did not consider it since it was not attached to any filings being analyzed. Nevertheless, the Fifth Circuit noted that, even if the court could have considered it, the letter lacked Izen’s TIN. The Fifth Circuit said that the Agreement failed to satisfy Section 170(f)(12)(B)(i) since it also lacked Izen’s TIN.
The Fifth Circuit concluded that Form 8283 did not substantiate Izen’s charitable deduction because it did not include his TIN. The court also said that Izen’s Form 8283 was not a contemporaneous written acknowledgment by the donee organization since it was not signed by the Society until 2016, well past thirty days after the donation. Izen then argued that a written acknowledgment is contemporaneous if produced within thirty days of the filing. However, the Fifth Circuit determined that the statutory definition was clear and did not reference the timing of the taxpayer’s filing.
Without other proper documentation to offer, Izen argued that he substantially complied with Section 170(f)’s requirements and that the documents he provided should be read together with the return. The Fifth Circuit responded by clarifying that the doctrine of substantial compliance may offer relief for failure to meet a regulatory requirement but not a statutory requirement, as was the case here.
The Tax Court determined that Izen was not entitled to a charitable deduction because he didn’t provide contemporaneous written acknowledgment that satisfied Section 170(f)(12)(B)’s requirements, including its requirement to include a TIN. Since Izen’s Letter, Agreement, and Form 8323 all lacked Izen’s TIN and Form 8323 was not signed contemporaneously, the Fifth Circuit determined that Izen did not provide satisfactory substantiation as required under the statutes.
Despite seeking relief under the substantial compliance doctrine, the Fifth Circuit rejected Izen’s argument and affirmed the Tax Court’s decision to deny the charitable deduction. When Izen attempted to appeal the Fifth Circuit’s decision, the United States Supreme Court denied certiorari.
This article first appeared in the Estate Planning Journal.
Frank Baldino is an estates and trusts attorney who helps people throughout the greater Washington, DC area protect assets for their families and future generations through careful estate tax planning. For more information, contact Frank at (301) 657-0175 or [email protected].