Documentation is no joke and coffee is not milk: Two important tax rulings

by Nicolette Lewis, JD

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At Community Foundation Tampa Bay, we value the role you play in helping individuals and families make the most of their charitable giving. That is why we provide regular updates on legal and policy developments that may affect your clients.  

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In two recent rulings, the underlying message is consistent: Courts and the IRS continue to apply the technical requirements governing charitable deductions with precision. Your clients’ good intentions are not enough.

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Strict substantiation: A familiar but critical reminder

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Gibson v. Commissioner serves as another reminder that it is really important for your clients to substantiate their charitable deductions. The IRS and the Tax Court have repeatedly disallowed a taxpayer’s deduction when required documentation rules were not followed. In Gibson, a married couple claimed nearly $194,000 in noncash charitable contributions related to donated personal property. The court did not dispute that tangible items were transferred to a charitable organization. Instead, the deduction was denied because the taxpayers did not meet the detailed substantiation requirements—specifically, contemporaneous written acknowledgments and qualified appraisal standards.

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No matter how strong a client’s desire to make a difference through charitable donations, technical compliance determines deductibility. Form 8283 thresholds, appraisal rules, and acknowledgment language are not administrative formalities; they are statutory requirements. The Gibson case offers a practical example to share with clients who may be inclined to “drop off” significant in-kind gifts without first consulting their advisory team.  

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Here is the key takeaway: Even when you, as an attorney, CPA, or financial advisor, fully understand the importance of following the rules, it is still important to remind clients regularly. No one wants to hear a client ask, “Why didn’t you tell us?” After learning the hard way that stronger documentation was required.

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Exempt status is not forever

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The lesson in Milk Saving Starving Children Foundation v. Commissioner is straightforward: If an organization says it is distributing milk, its activities must reflect that purpose. In Milk, the Tax Court upheld the IRS’s revocation of 501(c)(3) status for an organization that failed to operate exclusively for charitable purposes and conferred impermissible private benefits. The organization’s stated mission—to distribute milk—was in fact charitable. Over time, though, its operations drifted away from distributing milk to operating a coffee shop and hosting a golf tournament.  

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There are two reasons we are highlighting this case:

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-The Tax Court’s written opinion in Milk provides a terrific overview of the legal principles behind one of the cornerstones of tax-exempt status: a charity’s ongoing activities must further its exempt purposes. As you bring new attorneys, CPAs, and financial advisors into your practice, the Milk case is simply terrific for training purposes.  

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-As it applies to your client work, remember the Milk case when a client expresses interest in supporting a lesser-known or newly formed organization. Please reach out to the Community Foundation in these instances, as our team can provide insight into any charitable organization, whether well-established or new, and offer safeguards through field-of-interest funds and other vehicles.

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Thank you for the opportunity to work together in serving your charitable clients. Our goal is to remain a practical resource, helping ensure that your clients’ charitable intentions are carried out with clarity, compliance, and confidence. If you have questions as you navigate charitable planning or evaluate potential gifts, we encourage you to reach out to the Community Foundation Tampa Bay team. We are glad to serve as a sounding board and partner in developing thoughtful, compliant giving strategies.

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Nicolette Lewis, J.D., is Associate Counsel, Philanthropic Giving at Community Foundation Tampa Bay. She combines her legal background with her passion for nonprofits to provide donors, fundholders, and professional advisors with comprehensive giving experience. She can be reached by phone at (813) 609-4855 or via email at nlewis@cftampabay.org.

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