Our client, Richie Ray Richardson, is a wealthy businessman who collects valuable works of art in his leisure.  On June 20, 2021, Mr. Richardson donated a painting to the Troy Institute of Arts (“the TIA”), a tax-exempt section 501(c)(3) charitable institution.  Several months before making his donation to the TIA, Richie Ray Richardson commissioned a qualified appraisal of this painting. According to the written appraisal of Will U. Evaluate, which was dated April 15, 2021, the fair market value of the painting was $125,500 and the appraisal was performed for “income tax purposes.” On June 22, 2021, Richie Ray received an acknowledgement of his donation from the TIA.  The TIA sold the painting at an auction on July 5, 2021, for $106,675 (i.e. 15% less than the gift’s appraised value).

             On the Schedule A to his 2021 Form 1040, Richardson claimed the gift to the TIA as a charitable deduction in the amount of $125,500.  To substantiate this charitable deduction, Monsieur Richardson attached a Form 8283 (signed by Richard R. Richardson and Mr. Evaluate) and the appraisal prepared by Mr. Evaluate. 

             After a recent Internal Revenue Service audit, the revenue agent conducting the audit determined that Mr. Evaluate’s appraisal and the Form 8283 were deficient under the Treasury Regulations.  The revenue agent refused to allow any portion of the gift to the TIA as a charitable deduction.

             Last week, Mr. Richardson received a 30-day letter from the local Internal Revenue service office, accompanied by the revenue agent’s report (“RAR”). The 30-day letter ratified the revenue agent’s position disallowing the entire $125,500 charitable donation, because Richie Ray Richardson failed to comply with the regulations that govern charitable gift reporting.  The defect noted in the RAR and the 30-day letter was: “Qualified Appraisal. Appraisal of gift was completed more than 60 days before the date of the donation.”

             Richie Ray provided us with a copy of his calendar and medical records to show us that he was hospitalized for the month of May 2021.  The hospitalization resulted in a delay of the original gift date to the TIA by a few weeks.

             Please prepare a memorandum concerning the issues that we should raise for purposes of protesting the IRS deficiency notice.

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