The Gift Must Be Complete

Unlike Sam Goldwyn, who invented the “definite maybe”, Tax Court is unimpressed by uncompleted gifts. And Judge Laro waves the play “incomplete” in E. Bruce and Denise A. Agness Didonato, 2011 T.C. Mem. 153, filed 6/29/11.

E. Bruce and Denise A. gave the New Jersey Green Acres Fund of Mercer County what they claimed was a $1,870,000 green acres easement, divesting themselves of development rights on property adjacent to a public park. To prove the gift, E. Bruce and Denise A. introduced a settlement agreement from a State-court lawsuit they brought against the County and the New Jersey Department of Environmental Protection (NJDEP) over an easement on the parkland, as proof of the donation, claiming it satisfied the contemporaneous acknowledgment of receipt requirements of Section 170(f)(8).

Judge Laro says it didn’t.  The effectiveness of the settlement agreement was contingent upon public hearings before the NJDEP, and various other acts, which weren’t finally completed until two years after E. Bruce and Denise A. supposedly made the gift.

E. Bruce and Denise A. then proffered a letter from the County thanking them for the donation, but it was dated two years after the tax year in which E. Bruce and Denise A. claimed they made the gift, and didn’t estimate the value of the donation.

E. Bruce and Denise A. filed a Form 8283 with their 1040, but the 8283 wasn’t signed by the appraiser whose report accompanied their 1040. Although IRS said nothing about the appraisal, Judge Laro found plenty of fault with the appraisal:  “Although respondent does not allege any defect in the appraisal…, we express concern over the validity and credibility of that appraisal. First, we observe that the appraisal includes in the value of the donated property the development rights on three parcels of property when the deed of restriction concerned development rights on only the two parcels making up the [donated] parcel.  Second, the appraisal uses market value and not fair market value as a standard of value. In that regard, the definition of market value in the appraisal embodies selective elements of fair market value but does not encompass the definition of fair market value required by sec.20.2031-1(b), Estate Tax Regs.” [citations omitted], 2011 T.C. Mem. 153, footnote 8, at p. 10. Appraisers beware!

So the letter acknowledgment, if acknowledgment it was, was not contemporaneous. And the settlement agreement could not be an acknowledgment, as there was no completed gift when the settlement agreement was signed, the contingencies enumerated therein not having yet been satisfied.

And of course neither the settlement agreement nor the letter stated that E. Bruce and Denise A. didn’t receive anything of value from the County.

Takeaway- A gift must be completed–no loose ends. And the tests of Section 170(f)(8) must be met contemporaneously with delivery of gift: description of gift and good faith estimate of value, and statement that nothing of value was paid to donor.