IRS Form 8283 and the Cost Basis—Loube v. Commissioner
Have you decided to deconstruct and donate your real property? Taking your structure apart, piece by piece, and donating to a qualified 501(c)(3) charity can produce a significant tax refund. To ensure you not only get your refund, but also optimize your tax benefit and avoid potentially costly mistakes, you must fill out your IRS Form 8283 correctly. While it is related to charitable giving, the IRS does not offer any leniency for inaccurate filing.
What is IRS Form 8283?
Per the IRS, Form 8283 is used to report information about non-cash charitable contributions, and is attached to your tax return. This form is used when the amount of the deduction for non-cash gifts exceeds $500. Who fills out form 8283? Essentially, anyone making a non-cash charitable contribution of over $500, including individuals, partnerships, and corporations. This form of tax deduction has become especially prized during volatile market conditions, increasingly preferred for their hard-to-value asset (HTVA) status versus more traditional appreciated stock gifts.
Form 8283 Requires Substantial Compliance
Gifts of HTVAs—for example, complex structured instruments such as deconstructed real property, mortgage-backed securities, asset-backed securities, collateralized debt obligations, distressed corporate/public/project finance—require extra scrutiny on behalf of parties filing IRS Form 8283. This is evidenced by the case of Loube v. Commissioner. In this case, it was ruled the tax payer provided insufficient information regarding their appraisal summary—the summary was absent from their file—even though they did indeed attach a full appraisal to their Form 8283 to validate the full value of their charitable donation.
The Tax Court ruled that a full appraisal failed to satisfy the mandate for substantial compliance. One could easily be frustrated by this compliance mandate, as a full appraisal could be used to extract the necessary data from the purchase price and tax information included in the appraisal. However, filing a full appraisal instead of an appraisal summary is essentially asking the IRS to complete additional steps on your behalf, which simply is not feasible.
Congress and the Tax Court have ruled in favor of increased substantiation requirements to help expedite the Tax Commissioner’s process of identifying overvalued properties. Including an appraisal summary, Form 8283 allows for a more efficient process as the Tax Commissioner is able to quickly view valuations from appraisal summaries instead of having to conduct full appraisals. This does, however, benefit tax payers as this rule helps keep the entire process moving forward, serving to lubricate this avenue of taxation and allow tax payers to receive their refunds in a timelier manner.
Accurately Complete Each Section and Requirement for Form 8283
While honest and accurate reporting is a critical component for all tax filing, the most important element of Form 8283 is the strict adherence to the specific requirements. In Loube, the inaccurate valuation method was not the central hub of the ruling. The ruling was based on the tax payer failing to include the cost or adjusted basis of the donated property on Form 8283. This ruling favored the IRS even though the tax payer argued significant compliance with reporting requirements by furnishing the mandated information in other parts of their tax returns.
The strict guidelines for Form 8283 are not intended to punish or deter. Loube is held to facilitate an efficient process for the IRS, which ultimately rewards tax payers for charitable giving.
To speak with a qualified appraiser regarding tax benefits relating to donating your property, contact Green Donation Consultants. Call (800) 870-3965 today!