Charitable Deductions Lost, on Appeal, Due to Partial Interest Gift and Faulty Appraisals

Date01 March 2021
Published date01 March 2021
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
years, the examination classification and case delivery
units within these various functions identified and
prepared approximately 15,000 cases for examination
annually. It became, given limited resources, increasingly
difficult to maintain quality, meet requirements, and
create consistent processes. An evaluation commenced
in 2015 to identify potential efficiencies by standardizing
the processes for the five TE/GE functions.
The creation of the CP&C function centralized
how noncompliance issues are identified, developed,
approved, classified, and monitored for these five func-
tions. The report observes that the establishment of this
unit “altered the organizational structure of the TE/GE
Division, especially the examination units within each
CP&C Function
The CP&G function includes three units, one of which
is Issue Identification and Special Review. Issue identifi-
cation specialists interact with various TE/GE functions
to develop compliance strategy proposals. This group
conducts research to identify compliance gaps and pat-
terns in data that reveal opportunities for improvement.
This unit performs qualify reviews of randomly selected
exempt organization closed examination cases.
The Planning and Monitoring unit develops work
plans using ongoing projects and programs and newly
identified issues from the Issue Identification unit. The
P&M function closes completed examinations on a case
management system and develops automated manage-
ment reports for all TE/GE Division examination units to
ensure consistency and accuracy. The P&M unit monitors
closing results and shares findings with the Issue Identi-
fication unit and the TE/GE leadership.
The Classification and Case Assignment unit includes
employees responsible for (1) performing congressionally
mandated reviews of tax-exempt hospitals; (2) pro-
cessing, classifying, and maintaining incoming referrals
(complaints), whistleblower cases, claims for refunds or
abatements, and other types of work; and (3) replen-
ishing unassigned inventory on the TE/GE Division case
management system.
TIGTA Recommendations
TIGTA made six recommendations, one being that
the Director, CP&C, should develop performance and
explore process improvements for validating identified
cases to ensure that they included the identified issues
prior to assignment. Also, TIGTA recommended that the
TE/GE Commissioner should determine the feasibility
of reassigning resources from compliance functions to
improve the efficiency of identifying, classifying, and
monitoring productive examination workloads. Division
management agreed or partially agreed with five of
these recommendations, disagreeing as to exploration of
process improvements.
Division Management’s Response
The Acting Commissioner of the TE/GE Division
pointed out that that the CP&C unit created an issue
portal that receives IRS employee submissions of com-
pliance issues. These issues can be developed into com-
pliance strategies by the Issue Identification team, which
collaborates with the IRS’s Research, Applied Analytics &
Statistics function. This is why, management stated, the
report was able to conclude that CP&G has “resulted in
improved productive workload identification for the TE/
GE Division overall.”
As to the first of the TIGTA recommendations, TE/
GE management commented (drily?) that, “[w]ithout a
detailed review of books and records, there is no way to
‘validate’ that an issue exists before a case is sent to an
The Acting Commissioner stated: “We will strive to
frame process improvements prior to making further
organizational changes. We will ensure we have the
information necessary to identify areas needing improve-
ment and the capacity to implement large-scale changes
while also continuing to deliver on day-to-day services
before proceeding with future reorganizations.”
The TIGTA report is titled “Consolidation of Exami-
nation Case Selection and Assignment in the Tax Exempt
and Government Entities Division Created Benefits, but
Additional Improvements Are Needed” (2021-10-005).
Readers will recall the case of the couple who tried to
obtain charitable contribution deductions for donation
of “deconstruction” opportunities concerning the con-
tents of their home to a charity that performed the ser-
vices as part of a job training program for disadvantaged
individuals. This effort failed at the district court level,
with the court concluding that the transfers involved
nondeductible partial-interest gifts and a nonqualified
appraisal (Mann v. Commissioner). The facts of this case
are detailed in the April 2019 issue. The US Court of
Appeals for the Fourth Circuit affirmed the trial court’s
decision, by opinion dated January 6.
The appellate court observed that the charity may
have become the contractual owner of the house by
reason of the agreement with the donors, the principal
donor retained record ownership of the property (as evi-
denced by the ongoing liability for payment of property
taxes). Consequently, the appellate court found that
the donors did not convey their entire interest in the

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