A recent opinion from the US Court of Appeals for the 10th Circuit, Presley v. IRS, (No. 18-9008 October 25, 2019) reminds us religion is no excuse when it comes to sloppy charitable giving, particularly when it comes to non-cash donations. The Court upheld the decision of the United States Tax Court affirming the IRS’s assessments against the taxpayers, including penalties, related to charitable deductions claimed.
Dr. Richard and Mrs. Martine Presley hosted Bible studies at their home in Oklahoma. In 1997, they formed Presley Family Ministries, Inc. ("PFM"), a non-profit Oklahoma entity which the IRS granted tax-exempt status. The Presleys operated PFM from their home. Dr. Presley, an optometrist, served as lead pastor. The Presleys funded all of PFM's activities and never received a salary, housing allowance, or other benefits from PFM.
In 2008, the Presleys leased some farmland from PFM. How PFM came to own the land is unclear. In 2009, the Presleys paid $119,182 for land improvements beyond the acreage covered by the lease. In 2010, the Presleys claimed charitable deductions on their tax return for those land-improvements as well as for a tractor which they had donated to PFM. The tax return did not include the required disclosure for non-cash contributions on Form 8283 which itself required the donation to be supported with a “qualified appraisal.” An employee of the Presleys, a CPA, prepared the tax return and had access to all of the Presley’s financial information.
In 2012, the Presleys donated their home to PFM, as they continued to use the home as a parsonage, rent-free but paid the utility bills. Their 2012 tax return claimed a charitable deduction of $235,422 for the donation of the residence to PFM along with a partially completed Form 8283 but no “qualified appraisal” which the Presleys obtained after filing the tax return. A different CPA prepared the 2012 return.
In 2016, after an audit, the IRS disallowed the 2010 and 2012 charitable contributions and assessed 20% accuracy-related penalties for both years. The United States Tax Court upheld the assessments. The Court of Appeals affirmed. First, the Court noted the Presleys ‘donated’ the land improvements in 2009 when they incurred the expenses, not 2010, if at all. Second, the Presleys did not heed professional advice regarding the required disclosures on the tax returns regarding the land, tractor and residence donations, including the need for “qualified appraisals.” In upholding the assessments, the Court noted the returns did not “substantially comply” with disclosure requirements and the Presleys had no “reasonable cause” for not doing so given they had been advised to obtain a qualified appraisal, at least for the 2012 donation. Further, the Court affirmed the 20% accuracy-related penalty, finding no “clear error” had been made in making or upholding the assessment.
The Presley case serves as a reminder. When it comes to non-cash donations to tax-exempt entities (registered charities in Canada), proper and timely compliance with all documentation requirements, including a qualified appraisal, cannot be overlooked just because a religious organization is the recipient.