Court Denies Clothing Donations to Goodwill and the Salvation Army
IRS Form 8283 (Noncash Charitable Donations) is used when you donate property valued at more than $500. If your deduction is greater than $5,000 (except for publicly traded securities), you generally must obtain a qualified appraisal and meet specific appraisal rules. It's amazing how many people don't realize this.
The Facts
Duncan Bass worked hard. He worked one full-time W-2 job for about 53 hours a week and a second, concurrent W-2 job for about 15 hours a week. In addition to his W-2 jobs, Mr. Bass operated a landscaping business, a janitorial business, and a used clothing store business.
His landscaping and janitorial clients gave Mr. Bass men’s, women’s, and children’s clothing. He donated the better clothing to Goodwill and the Salvation Army, claiming clothing tax deductions of $13,852 and $11,594 for the two years before the court. Mr. Bass did not donate the lesser-quality clothing items he received from his clients. Instead, he sold them through his used clothing store.
Mr. Bass' Donation
Mr. Bass testified before the court that he visited Goodwill and the Salvation Army 173 times. He did this to ensure that every donation receipt he completed showed a market value below $250, so he wouldn’t need appraisals.
A Donation Gone Wrong
IRS Form 8283 and its instructions, along with tax code Section 170(f)(11)(F) and IRS Regulation Section 1.170A13(c), mandate grouping similar items of property (such as clothing) for purposes of the $5,000 rule that requires appraisals.
How the Court Ruled
The court ruled that since no appraisals were attached to his tax return, Mr. Bass could not deduct any of his clothing donations to Goodwill and the Salvation Army.
Summary
When an Appraisal Is Required
- Donations of $500 or less – No appraisal required. Basic records should be retained.
- Donations over $500 but not more than $5,000 – No appraisal required, but Section A of Form 8283 must be completed with descriptive information about the contributed property.
- Donations over $5,000 – A qualified appraisal is required. Section B of Form 8283 must be completed, and the charitable organization must sign Part IV.
- Donations over $500,000 – A qualified appraisal is required and a copy of the full appraisal must be attached to the tax return.
Qualified Appraisal Requirements
The appraisal must:
- Be conducted by a qualified appraiser (see definition below).
- Be dated no earlier than 60 days before the contribution and no later than the due date (including extensions) of the donor’s return.
Contain the following details:
- Detailed description of the property and its condition
- Appraiser’s name, qualifications, and signature
- Valuation method and specific basis for the value
- Date of contribution and appraised fair market value
Qualified Appraiser Definition
A “qualified appraiser” is defined by the IRS as an individual who:
- Holds an appraisal designation from a recognized professional organization, or meets minimum education and experience requirements for valuing the type of property involved.
- Regularly prepares appraisals for compensation.
- Is independent of the donor and the donee (i.e., not the taxpayer, recipient organization, or a related party)
Documentation and Attachments
- Section B of Form 8283 must be signed by both the qualified appraiser and the donee charity.
- For contributions exceeding $500,000, the complete appraisal report must be attached to the donor’s tax return.
- Donors should maintain a copy of the appraisal and all supporting records in their files.
For charitable contributions of property, the IRS places significant emphasis on independent, professional valuations. Failure to meet the appraisal requirements can result in the disallowance of deductions, even if the donation itself is valid. I recommend consulting with a qualified appraiser before finalizing large property contributions and ensuring that all required documentation, including Form 8283, is properly completed and signed.
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