Charitable deductions can be confusing and mistakes can be expensive. Recently, a California couple found this out the hard way. On May 29, 2012, a case from the U.S. Tax Court denied the couple an $18.5 million charitable deduction because of a technicality on the deduction form. The couple donated a valuable piece of real estate to charity, but did not follow the Commissioner’s exact directions on how to document the deduction. Josef Mohamed is a real-estate broker and a certified real-estate appraiser, so he believed he knew how to properly set up a charitable remainder trust and file the tax returns himself. Mr. Mohamed even went so far as to intentionally under value the property by nearly $2 million to minimize the risk of claiming too large a deduction. Unfortunately, Mr. Mohamed did not read the instructions properly and did not attach the qualified appraisals to his tax returns. Although the judge expressed sympathy towards the complexity of the forms and noted the couples under-valuation of the property; he denied the charitable deduction nonetheless.
Do not fall victim to the complexities of the IRS and the ever changing tax code (the charitable deduction form has changed since the Mohamed’s donation). This case demonstrates that good intentions will not garner mercy from the IRS, even when the fault lies in a seemingly minuscule technicality. Get the full value of your charitable deductions by using Hoffman & Associates and avoid the Mohamed’s costly headache.
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