Postcard of Chamberlain-Hunt Academy, Port-Gibson, Mississippi. Credit: Courtesy of the Mississippi Department of Archives and History.
On June 10, the Tax Court issued a memorandum opinion in Wells v. Commissioner, T.C. Memo. 2026-49. In 2016, Mr. Wells was a partner of Chamberlain, LLC. That year, Chamberlain, LLC donated land and buildings to Chamberlain-Hunt Academy, a military boarding school and nonprofit entity of the State of Mississippi. Under I.R.C. § 170(d)(1)(A), Mr. and Mrs. Wells carried over to 2019, 2020, and 2021 his allocable share of the 2016 donation that had not
yet been utilized. The IRS examined those years, disallowed the deduction, and asserted penalties for negligence and a substantial understatement of income tax. The memorandum opinion addressed whether the donor received a “contemporaneous written acknowledgement” (colloquially, a CWA or “gift letter”), which is required by I.R.C. § 170(f)(8) for charitable contributions of $250 or more. The court disallowed the charitable deduction claimed in the carryover years but concluded that Mr. and Mrs. Wells had reasonable cause and acted in good faith in relying on the tax advice of their longtime accountant.
Just the Facts, Ma’am
Since 1885, the French Camp Academy has operated in Mississippi as a Christian boarding school. In 1998, it took over Chamberlain-Hunt Academy, a military boarding school in Port Gibson, Mississippi. Chamberlain-Hunt Academy was a nonprofit entity of the State of Mississippi. French Camp Academy owned Chamberlain-Hunt Academy’s land and structures through a wholly owned limited liability company, Chamberlain Hunt Properties, LLC.
From 1998 to about 2012, French Camp Academy invested over $22 million to operate Chamberlain-Hunt Academy and for capital improvements for deferred maintenance projects. The court’s memorandum opinion does not differentiate between the amount spent on operations compared to capital improvements. Eventually, French Camp Academy determined that it was too expensive to continue to operate Chamberlain-Hunt Academy and looked to divest itself of the school.
French Camp Academy tried to sell the property of Chamberlain-Hunt Academy, listing it for sale at $5.5 million. The property was presented to the Mississippi State Government and Alcorn University (a state university located on the original campus of the predecessor of Chamberlain-Hunt Academy), but neither bought the property. The only offer French Camp Academy received was for $200,000 (approximately 1/27 of the listing price). That offer came from Chamberlain, LLC, a partnership owned 50% by Mr. Wells, one of the petitioners, and 50% by Bill Payne, a former board member of French Camp Academy.
Chamberlain, LLC did not acquire the property directly. On July 23, 2013, French Camp Academy sold the membership units of Chamberlain Hunt Properties, LLC (which owned the property) to Chamberlain, LLC. The court’s memorandum opinion does not specify whether Chamberlain Hunt Properties, LLC had any other assets or liabilities that might explain the discrepancy between the purchase price and the listing price. Although that information was not necessary to decide the substantiation issue, it went to the other issues in the case (namely value).
After the acquisition, Chamberlain-Hunt Academy operated for another year and, in 2014, closed its doors. Mr. Wells was on the board of directors of Chamberlain-Hunt Academy at the time, along with Jim Montgomery, the president of Chamberlain-Hunt Academy, and Tom Bowen.
In 2016, Chamberlain, LLC caused Chamberlain Hunt Properties, LLC to transfer the property to Chamberlain-Hunt Academy by quitclaim deed. The effect of that transfer was that the ultimate owners of Chamberlain, LLC, Mr. Wells and Mr. Payne, donated the property back to the school. Chamberlain, LLC claimed a charitable contribution deduction of $4.42 million. Mr. and Mrs. Wells reported Mr. Wells’s allocable share of the deduction on their tax return, and carried forward unused amounts to subsequent years, including to 2019, 2020, and 2021. The IRS disallowed the 2019-2021 carryovers and asserted a penalty under I.R.C. § 6662 for negligence and a substantial understatement.
The Legal Requirement to Obtain a CWA
A taxpayer claiming a charitable contribution deduction of $250 or more must obtain from the donee a CWA of the donation. I.R.C. § 170(f)(8). The acknowledgement must include: (1) the amount of cash and a description (but not value) of property other than cash contributed; (2) whether the charity provided any goods or services; (3) if goods or services were provided, a description and good faith estimate of the value of the goods and services (or, if the goods or services were solely intangible religious benefits, a statement to that effect).
To be “contemporaneous,” the CWA must be obtained by the taxpayer on or before the earlier of the date the taxpayer files a tax return for the year, or the due date (including extensions) for filing the return.
The caselaw is clear (and the IRS did not dispute) that this requirement can be satisfied through multiple documents. See Irby v. Commissioner, 39 T.C. 371, 389 (2012) (139 T.C. No. 14, slip op. at 31). If the taxpayer fails to obtain a CWA, the deduction is disallowed, and the doctrine of substantial compliance does not apply. As the court noted, the CWA requirement is designed to “‘foster disclosure of ‘dual payment’ or quid pro quo contributions.” Viralam v. Commissioner, 136 T.C. 151, 171 (2011) (136 T.C. No. 8, slip op. at 34).
The Substantiation
Close only counts in horseshoes and hand grenades. In a recent post, we explained a similar case where two cousins lost a charitable deduction because they failed to strictly satisfy the CWA requirement. Mr. Wells ran into a similar problem. He assembled the documents for the transaction, arguing that collectively, they satisfied the CWA requirement. Key to the court’s analysis was that the document(s) constituting the CWA must be acknowledged by the donee.
- The “Donation Letter”: Mr. Wells’ letter to memorialize the donation. The day that Mr. Wells signed the deed conveying the property to Chamberlain-Hunt Academy, he wrote a letter to Mr. Montgomery confirming the donation. The letter described the property, the appraisal, and the deed, and asked Mr. Montgomery to accept the donation. The court rejected the letter as a CWA because it was not acknowledged by the donee. Mr. Wells argued that because he was on both sides of the deal, the donation letter should be considered as acknowledged by the donee. The court rejected that argument.
- Quitclaim Deed. Although a deed may in some cases serve as a CWA, here the deed was signed only by the grantor. Thus, the court rejected this document as a CWA because it was not acknowledged by the donee. As with the donation letter, Mr. Wells argued it should be considered acknowledged by the donee, which the court rejected.
- Acknowledgement Letter. Mr. Montgomery handwrote a letter to Mr. Wells and Mr. Payne thanking them for the property and noting that the value of the gift was $4.42 million. The letter did not identify the property and did not state that no goods or services were provided.
- Form 8283. The Form 8283 did not state that no goods or services were provided; also, offering other evidence of the amount of the donation does not replace the strict substantiation requirements in I.R.C. § 170(f)(8).
The court held that Mr. and Mrs. Wells failed to satisfy the CWA requirements in I.R.C. § 170(f)(8).
Penalties
The IRS asserted penalties for negligence and a substantial understatement. As a defense to the penalties, Mr. Wells asserted that he had reasonable cause and acted in good faith because he and Mrs. Wells relied on Mr. Long, his long-time accountant. Reliance on professional advice is a ground for reasonable cause. See Treas. Reg. § 1.6664-4(b). The court, citing the Neonatology factors, stated that reliance on the advice of a tax professional may establish the defense of reasonable cause and good faith, but only if (1) the adviser was a competent professional with sufficient expertise to justify reliance, (2) the taxpayer provided necessary and accurate information to the advisor, and (3) the taxpayer actually relied in good faith on the adviser’s judgment. See Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000) (115 T.C. No. 5, slip op. at 91), aff’d, 299 F.3d 211 (3d Cir. 2002). The court found that Mr. and Mrs. Wells acted reasonably by retaining his longtime accountant, Mr. Long, who had education and work experience that made him sufficiently competent to justify their reliance on his advice and that they relied in good faith on his advice.
Other Observations
- IRS Independent Office of Appeals. Prior to issuance of the notice of deficiency, this case was considered by the IRS Independent Office of Appeals. See Wells v. Commissioner, T.C. Memo. 2026-49 at n.6. The opinion does not (and should not) detail those proceedings, but several facts likely influenced the failure to settle: (1) Mr. Wells was on both sides of the deal; (2) the 2013 purchase price of the LLC that owned the property ($200,000) was significantly lower than the 2016 claimed fair market value of the property ($4.42 million); (3) Mr. Wells signed the deed (only) and did not record it until seven months later; and (4) because these were carryover years, the lion’s share of the deduction had already been claimed.
- Deficiency Procedures. The IRS did not assert a gross valuation misstatement penalty (which is both higher (40% v. 20%), but also has no reasonable cause defense). I.R.C. § 6664(c)(1). Also, because Chamberlain, LLC had two members who were individuals, Chamberlain, LLC was a “small partnership” exempt from the unified audit and litigation proceedings enacted in the Tax Equity and Fiscal Responsibility Act (TEFRA). See I.R.C § 6231(a)(1)(B) (2016). There would have been no issue with the IRS raising the adjustment or penalty at the partner level. See United States v. Woods, 571 U.S. 31 (2013) (penalties for a partnership item occur in a partnership-level proceeding).
- Know Your Donee. Donors should not rely on donees for tax advice about donations, particularly where the donee lacks experience with the tax law requirements. If you need assistance with charitable giving, please seek professional tax advice from a qualified professional.
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Tax deductions for charitable contributions have several legal requirements that, if not strictly complied with, can cause a lost deduction. The complete disallowance of the charitable contribution deductions in this case could have been avoided. If you are donating an asset and would like to consult with experienced tax attorneys who specialize in charitable giving, contact the attorneys at K. Tyson Law.
June 12, 2026. Written by Kim Tyson and Karin Gross.
This article should not be construed as legal advice or to provide a determination as to an outcome.