One Missing Sentence Cost Two Donors a $665,000 Tax Deduction

Two cousins, Clint and Stephen Martin, donated more than 13 acres of land to Highland City, Utah. They got an appraisal, filed the right IRS forms, and obtained a letter signed by the mayor. The Tax Court still threw out their $665,000 deduction. What was missing: a single sentence stating that the city gave them nothing in return. The property deed made things worse by including standard template language referencing "ten dollars and other good and valuable consideration," which looked like they had received something. The court's standard is strict compliance. Close is not enough.

The same trap catches ordinary cash donors. In a 2012 Tax Court case, David and Veronda Durden lost more than $22,000 in church donation deductions because their receipt left out the required statement. The church issued a corrected letter after the fact. The court said too late: the acknowledgment has to be in hand before the return is filed.

For any charitable gift of $250 or more, the IRS requires a written acknowledgment from the charity confirming whether the donor received anything in return. A canceled check does not satisfy that requirement. Get the letter before you file.

A U.S. Tax Court case decided earlier this year threw out a $665,000 charitable deduction for two cousins, Clint and Stephen Martin, who donated more than 13 acres of land to Highland City, Utah. They had an appraisal, completed the required IRS forms, and had a letter signed by the mayor — but none of their documents included the specific statement that the city had given them nothing in return. The property deed made things worse by using standard template language saying the land was exchanged for "ten dollars and other good and valuable consideration," which created the impression that something was received. The court ruled that the documentation requirement demands strict compliance: being close is not enough, and the entire deduction was disallowed.

The same rule applies to ordinary donations. A 2012 Tax Court case disallowed more than $22,000 in church donations from a couple named David and Veronda Durden because their receipt lacked the required statement. The church later issued a corrected letter, but the court ruled it came too late — the return had already been filed. For any charitable gift of $250 or more, the IRS requires a written acknowledgment from the charity stating whether the donor received anything in return, and that acknowledgment must be in hand before the tax return is filed. A canceled check alone does not satisfy this requirement.