Wills and Trusts

Wyatt, Tarrant & Combs, LLP

Conditional Gifts and the Income Tax Charitable Deduction

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In Lawrence G. Graev v. Commissioner, 140 T.C. No. 17 (2013), the taxpayer contributed a façade easement and cash to the National Architectural Trust which promised to refund the cash and remove the easement if the contribution was not deductible.  The Tax Court held that was a conditional gift and was non-deductible.  The taxpayer tried to argue that the side letter agreement was not enforceable but the court held that did not matter:

The event that might defeat the contribution to NAT is the “removal” of the easement and the return of the cash pursuant to NAT’s side letter. Even if, as a matter of law, the side letter was not enforceable for any of the reasons the Graevs advance, the question would remain whether, as a matter of fact, in December 2004 there was a non-negligible possibility that the IRS would disallow the Graevs’ contribution deduction and NAT would voluntarily remove the easement. We have found that there was. Mr. Graev evidently concluded that NAT’s promise should be believed; he took deliberate steps to obtain its promise; and his conclusion is evidence of what was likely. NAT made such promises to Mr. Graev and others precisely because it was soliciting contributions from within a community of potential donors, and the ability of such an organization to obtain solicitations might well be undermined if it got a reputation for failing to keep its promises. To decide that there was no non-negligible possibility that NAT would voluntarily extinguish the easement and return the cash would require us to find that, in order to induce Mr. Graev to make his contribution, NAT made cynical promises that it fully intended to break. Our record will not support such a finding; the stipulated evidence simply shows a non-profit organization going about accomplishing its purpose. If we speculate (without evidence) that NAT might have reneged on its promise, or even if we assume that NAT probably would have reneged on its promise, that still leaves us with at least a non-negligible possibility that NAT would have done what it said it would do. That possibility is fatal to the Graevs’ contribution deductions.

Turney P. Berry
Louisville, Kentucky

Author: robmalinesq

I am an estate planning and probate attorney in Memphis, Tennessee.

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