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The Fine Print Cost a Widow a $464,000 Tax Deduction

In 2014, a Widow lost big on a $464,000 tax deduction for a gift to a museum due to her tax paperwork lacking a few key words that were needed to validate the deduction. This was decided on in a recent Tax Court decision in Albrecht v. Commissioner and is a good reminder of how tough and rigid the standards for charitable deductions often can be.

Facts about the case

For a long time, Martha Albrecht and her husband accumulated a very large collection of Native American artifacts and jewelry. In late 2014, Martha, who by then was a widow, donated upwards of 100 items to the Wheelwright Museum of the American Indian in Santa Fe, New Mexico, which is a ‘very well-known institution’. Martha claimed a charitable deduction of $463,676, or the value of the items she gifted to the Museum. Her income wasn’t large enough to take the entire lump sum for the 2014 tax year, so the law allowed her to carry over and use the remaining balance for 5 more years.

Along with the return, Martha included a five-page deed detailing the entire donation. She neglected to leave out one thing in the deed which was what the law calls a “contemporaneous written acknowledgement” from the museum explicitly stating whether or not she received goods or services in return for her donation. Even if no goods or services were exchanged, Martha still needed to include this in her return to be eligible for her deduction. This law has been in place since 1994 after Congress enacted it due to people taking advantage of the previous system.

Not having this statement cost Martha her entire deduction, even though the museum later clarified that it provided no goods or services to her in return.

Wrap Up

When it comes to charitable donations, especially larger ones, it is crucial to obey the letters of the law and make sure you have all the required documentation needed to receive your full tax deduction for that tax year. These rules often are extremely complex and the IRS is just waiting for someone to slip up. Contact your trusted financial advisor before trying to file for a charitable donation deduction so you know exactly what information to provide.

 
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