Sharon Kreider, CPA
The taxpayers in Wells v. Commissioner obtained an appraisal, filed Form 8283, and obtained a signed letter from the charity's president confirming the gift and its $4.42 million value. They nevertheless lost the entire deduction because none of the documents stated whether the charity provided anything in return. The court also declined to impose penalties, making Wells a useful lesson on both CWA requirements and reasonable cause.
The property was the former Chamberlain-Hunt Academy (CHA) campus in Port Gibson, Mississippi. Chamberlain, LLC, 50% owned by Mr. Wells, purchased it for $200,000 in 2013. On December 30, 2016, Chamberlain transferred it to CHA by quitclaim deed drafted and signed by Mr. Wells. That day, Mr. Wells also sent CHA a donation letter prepared by his accountant, stating that an appraisal valued the property at $4.42 million. Chamberlain claimed the $4.42 million deduction on its 2016 Form 1065, with $2.21 million passing through to the Wellses. They later claimed carryovers of $168,936 in 2019, $620,192 in 2020, and $374,561 in 2021. In 2017, CPA Dennis Long, who had prepared Mr. Wells's returns for 30 years, told him he needed an acknowledgment from CHA's president. Long instructed the president to thank Chamberlain for the gift and confirm the $4.42 million appraised value. The resulting undated letter said nothing about goods or services. The IRS disallowed the carryovers and asserted deficiencies of $45,458, $224,368, and $132,882, plus approximately $80,000 in §6662 penalties.
Section 170(f)(8) requires a taxpayer claiming a deduction of $250 or more to obtain a contemporaneous written acknowledgment (CWA) from the donee. The CWA must describe the property and state whether the donee provided goods or services in exchange for the contribution and, if so, their value. The taxpayer must have the acknowledgment by the earlier of the return's filing date or due date.
Citing Irby v. Commissioner, 139 T.C. 371 (2012), the Wellses argued that the donation letter, deed, Form 8283, and acknowledgment letter could be read together. The court agreed that multiple documents can constitute a CWA, but the relevant documents must be acknowledged by the donee. Here, the donation letter and deed were prepared and signed by Mr. Wells for the donor. Although a deed can serve as a CWA, Averyt v. Commissioner, T.C. Memo. 2012-198, and Simmons v. Commissioner, T.C. Memo. 2009-208, this deed did not because the donee did not execute or acknowledge it. That left the acknowledgment letter and Form 8283, neither of which stated whether CHA provided goods or services. The court held that omission was fatal. Cade v. Commissioner, T.C. Memo. 2025-20. The Wellses argued that the property's appraised value showed nothing was received in return, but the court rejected that argument: the CWA itself must affirmatively state that no consideration was provided. Brooks v. Commissioner, T.C. Memo. 2022-122, aff'd, 109 F.4th 205 (4th Cir. 2024). Substantial compliance does not apply to §170(f)(8). Izen v. Commissioner, 148 T.C. 71 (2017), aff'd, 38 F.4th 459 (5th Cir. 2022). The entire deduction was therefore disallowed.
The Commissioner sought the 20% §6662 penalty. Under §6664(c)(1), however, reasonable cause and good faith can defeat the penalty. Under Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43 (2000), aff'd, 299 F.3d 221 (3d Cir. 2002), reliance on a professional adviser requires a competent adviser, complete and accurate information from the taxpayer, and good-faith reliance. The Wellses satisfied all three. Long was an experienced CPA; Mr. Wells provided the requested documentation; and he sought Long's advice about the CWA and followed it. The court therefore eliminated the penalties in full.
One month earlier, the Tax Court reached a similar result in Stephen Martin and Amanda Martin v. Commissioner, T.C. Memo. 2026-39, and Clint L. Martin and Jenifer Martin v. Commissioner, T.C. Memo. 2026-40. The cases involved a 13.33-acre Utah parcel donated to Highland City and appraised at $665,000. The Martins' warranty deed conveyed the property to the city but stated it was transferred for “$10.00, and other good and valuable consideration.” The deed contained no merger clause. Unlike Wells, the deed involved the donee and therefore could potentially serve as the CWA. But the court held that a deed must affirmatively indicate that no consideration was provided. 310 Retail, LLC v. Commissioner, T.C. Memo. 2017-164. A merger clause can satisfy that requirement; compare Big River Development, L.P. v. Commissioner, T.C. Memo. 2017-166. Without one, the Martins' nominal consideration language was insufficient. The court also rejected the Martins' attempt to combine the deed with a separate letter and a City Council agenda. The agenda predated the City's acceptance of the gift and therefore could not acknowledge receipt of property the city had not yet received. Bruce v. Commissioner, T.C. Memo. 2011-153. Summary judgment was entered for the Commissioner, with penalties reserved for trial.
Together, Wells and Martin illustrate two ways a deed can fail as a CWA. In Wells, the deed and donation letter did not qualify because the donor drafted and signed them. In Martin, the deed came from the donee side but recited nominal consideration without a merger clause. In both cases, the deductions were disallowed in full. Both taxpayers also relied on Irby and asked the court to consider multiple documents together. Irby permits that approach only when the documents are acknowledged by the donee and collectively contain the required statement. Substantial compliance is unavailable, and proving after the fact that no goods or services changed hands does not cure the CWA's omission. Izen v. Commissioner Neither case required the court to resolve valuation. Wells turned on the acknowledgment, while Martin was decided on the CWA without determining whether the appraisal was qualified. In both cases, the deductions failed at the substantiation stage. The cases also distinguish reasonable cause from deduction substantiation. The Wellses avoided the §6662 penalty because they reasonably and in good faith relied on their longtime CPA, but that reliance did not save the deduction.
For planning:
Confirm the acknowledgment comes from the donee. Documents drafted and signed by the donor do not qualify.
Include an express goods-or-services statement. For example: “No goods or services were provided in exchange for this contribution.”
If a deed serves as the CWA, use a merger clause. Avoid uncured nominal-consideration language such as “$10 and other good and valuable consideration.”
Date the acknowledgment and obtain it before filing. Section 170(f)(8)(C) requires the CWA by the earlier of the filing date or due date.
Build these requirements into the donation checklist. A large noncash contribution can fail before valuation is ever considered because of a defective acknowledgment.
The key lesson from Wells and Martin is that the CWA is a critical substantiation requirement. A missing goods-or-services statement, improper donor acknowledgment, or defective deed can eliminate the deduction even when the underlying gift and valuation are otherwise well documented.
