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Taxpayers Substantially Complied with Requirements for Charitable Donation

(Parker Tax Publishing September 2020)

The Tax Court held that a couple was entitled to the charitable contribution deductions they reported on their tax returns for land donated to a town in Massachusetts. The court found that the couple substantially complied with the qualified appraisal requirements and the contributions were not part of a quid pro quo exchange, as the IRS had argued. Emanouil v. Comm'r, T.C. Memo. 2020-120.


Peter Emanouil is a real estate developer. In 1999, he purchased 197 acres of undeveloped property in Westford, Massachusetts. The property was purchased through GHE LLC. Over the next several years, Mr. Emanouil made various attempts to either develop or sell the 197 acres. Ultimately, he obtained approval for an affordable housing project (AHP) including 164 units on 104 of the 197 acres. Throughout the approval process, Mr. Emanouil made various concessions to mitigate the Westford Town's concerns regarding the size of the development (including the number of units and the acreage), potential impacts on Westford (including traffic and other impacts), potential environmental concerns, and also proposed donating land to the town. In December 2008, as the approval of the project was coming to its conclusion, Mr. Emanouil donated 16 acres of his remaining property to Westford Town. Before making the donation, he had the property appraised, and the value was determined to be $1.5 million.

In February of 2009, Westford Town approved the AHP. In November 2009, Mr. Emanouil donated an additional 71 acres to Westford Town. Before making the donation, he had the property appraised, and the value was determined to be $2.5 million.

On their 2008 Form 1040, Mr. Emanouil and his wife reported a $1.5 million gift to charity and included a Form 8283, Noncash Charitable Contributions. However, because of limitations on claiming charitable contribution deductions, the couple claimed only about $700,000 and carried the remainder forward to be claimed on returns for subsequent years. Likewise, on their Form 1040 for 2009, the Emanouils reported a $2.5 million gift to charity and included a Form 8283 but could claim only about $660,000 and carried the rest forward. On their Forms 1040 for 2010 through 2012, the couple claimed deductions for the remaining amounts.

The IRS audited the couple's 2010, 2011, and 2012 returns and issued a statutory notice of deficiency (SNOD) disallowing the carryover charitable contribution deductions and determining an accuracy-related penalty for each of those years. The SNOD stated the grounds for disallowing the deductions was the failure by the couple to substantiate the reported values of properties transferred and failure to show that the properties were transferred with charitable intent. According to the IRS, Mr. Emanouil used the proposed donations as a "bargaining chip," or a quid pro quo, to induce the town to approve a comprehensive permit for the project and that once the donations had been proposed, they could not be separated from the negotiations.

The Emanouils timely challenged the determinations in the Tax Court. The Tax Court was asked to decide: (1) whether the Emanouils complied with the qualified appraisal requirements of Code Sec. 170(f)(11)(C); (2) whether the couple's contributions were part of a quid pro quo exchange rather than a charitable gift; (3) what the fair market values were of the properties that the couple contributed; and (4) whether accuracy-related penalties applied.

Code Sec. 170(f)(11)(C) provides that, if the total deduction for all noncash contributions for the year is over $5,000, the taxpayer must complete Section B of Form 8283, Noncash Charitable Contributions, for each item or group of items for which the taxpayer claims a deduction of over $5,000 and attach it to the Form 1040. In addition, the taxpayer must obtain a qualified appraisal of such property. The IRS argued that the Emanouils failed to properly substantiate their contributions because the appraisals attached to their returns for the years of the contributions did not identify the dates (or expected dates) of the contributions and did not contain statements that the appraisals were prepared for income tax purposes and, thus, were not qualified appraisals. The Emanouils acknowledged that they did not strictly comply with the requirements - since neither of their appraisals stated the date of contribution or stated that it was prepared for income tax purposes - but they argued that they substantially complied with the qualified appraisal requirements.

Courts have implemented a quid pro quo principle under which, if a transaction is structured in a way in which it is understood that the taxpayer's money will not pass to the charitable organization unless the taxpayer receives a specific benefit in return, then the transaction does not qualify for a charitable contribution deduction.


The Tax Court held that the Emanouils were entitled to the charitable contribution deductions they took on their returns because they substantially complied with the qualified appraisal requirements and the contributions were not part of a quid pro quo exchange. With respect to the qualified appraisal requirement, the court noted that because this was not a case where the taxpayers furnished practically none of the information required, the substantial compliance doctrine applied. To that end, the court considered whether the Emanouils provided most of the information required, which the court found they did, and whether the defects in their appraisals were so significant that they failed to establish the substance or essence of a qualified appraisal, which the court found that they were not.

In determining if there was a quid pro quo, the court looked at the Supreme Court's holding in Hernandez v. Comm'r, 490 U.S. 680 (1989), where the court stated that the most weight is given to the external features of the transaction, avoiding imprecise inquiries into the taxpayers' subjective motivations. Having heard the testimony of the witnesses, the court concluded that the donations were given with donative intent, were received as gifts, and were not an inducement for the Town's permit approvals. Rather, Mr. Emanouil had acquired the 197 acres in order to do as big and profitable a development as he could; and when the reasonable prospect proved to be not 197 acres but only 104 acres, he then needed to decide what to do with the excess. The court noted that no prospects to sell the property panned out, and Mr. Emanouil rationally considered the possibility of making a charitable donation of the property and receiving a tax benefit. It was natural that he thought of the town as a donee, the court said, not because he could get a benefit from the town but because the town was a known, nearby entity that could receive a tax-deductible contribution and might want the property.

Finally, the court held that the fair market value of the property that the Emanouils contributed in 2008 was $1.5 million, as they reported and the fair market value of the property that they contributed in 2009 was $2.5 million, as they reported. As a result, the court concluded that the accuracy-related penalties did not apply.

For a discussion of the qualified appraisal requirements for charitable contributions, see Parker Tax ¶84,198. For a discussion of quid pro quo exchanges, see Parker Tax ¶84,110.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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