August 21, 2003 | Read Time: 2 minutes
A new tax-court decision suggests that the Internal Revenue Service continues to keep a sharp watch on taxpayers who claim large charitable deductions on their income-tax returns.
In the case, the U.S. Tax Court reduced by thousands of dollars a couple’s charitable deductions for gifts of land and a boat.
The couple, Gabe W. Stewart Jr. and Doris R. Stewart, had said that the Auburndale Community Church, in Florida, agreed to pay them $200,000 for an acre of land they owned in Winter Haven, Fla. The property contained a building, although court documents do not specify what kind.
The Stewarts then consulted their accountant and decided to make a gift of part of the property and sell the church the remaining portion. The church paid the Stewarts $100,000 for part of the land and the Stewarts donated the remainder, claiming a $100,000 charitable deduction on their income-tax return. The pastor of the church signed the return as the appraiser of the property.
Separately, the couple donated a 1982 21-foot motorboat and trailer to the Salvation Army, without an appraisal. The Salvation Army gave them a receipt saying the boat was in “good” condition, but then took the boat to a local appraiser, who determined that it had sunk at some time in the past and was badly damaged. The Salvation Army sold the boat and trailer for $500. The couple claimed a $10,000 charitable deduction for the boat on their income-tax return.
The Internal Revenue Service challenged both deductions, saying the property was worth only $155,000 and the boat $500. At trial, the two sides agreed on a value of $183,000 for the property.
The tax court concluded that the Stewarts had overstated their deductions by a total of $26,500.
The court imposed a 20-percent penalty on the erroneous boat deduction, but it ruled that the Stewarts did not have to pay a fine on the land gift because they had relied on their accountant’s advice when claiming that deduction (Gabe W. Stewart, Jr. and Doris R. Stewart v. Commissioner of Internal Revenue, T.C. Summary Opinion 2003-101).
