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INDIVIDUALS

was an involuntary conversion.25 The 1.263(a)-5(c)(8) would allow an ordi- partnership, which held hotel property,
Ninth Circuit found that this argument nary deduction. The IRS stated that Sec. to set up a donor-advised fund while
failed, as a “diminution in the value” of 263(a) provides that merger expenses are the hotel’s sale to a third party was
a capital asset is insufficient to declare to be capitalized. pending.28 The district court disal-
a capital loss, and the shares had not lowed the deduction for two reasons:
been sold at a loss or otherwise shown Sec. 170(c): Charitable First, the donation was ruled an antici-
to have been rendered worthless dur- contribution defined patory assignment of income because
ing the tax year. The court also found Guidance on leave-based the taxpayers failed to give away the
that the alternative argument that the donation programs benefiting entire partnership interest. Under the
alleged patent infringement constituted Ukraine: Employer leave-based dona- terms of the donation, the charity’s
a Fifth Amendment taking by inverse tion programs permit employees to elect interest in the partnership was limited
condemnation failed. It noted that no to forgo vacation, sick, or personal leave to sharing in the proceeds from the
court had ruled in the taxpayer’s favor in exchange for their employers’ making sale of one of the partnership’s assets
on patent infringement, and the Tax cash payments to charitable organiza- (the hotel), which the court deemed
Court could not adjudicate the issue. tions described in Sec. 170(c). an assignment of income only, not a
The Ninth Circuit, however, did vacate Notice 2022-28 states that such complete assignment. In other words,
accuracy-related penalties that had employer leave-based donation pay- the taxpayers retained all interests in
been imposed by the IRS and upheld ments made by an employer before Jan. the partnership except the interest
by the Tax Court. 1, 2023, to Sec. 170(c) organizations in the sale proceeds, which meant
Property sold for criminal to aid victims of the Russian invasion that they had not given the property
forfeiture: In Sestak,26 the taxpayer of Ukraine will not be treated as gross away entirely.
received $3.2 million in bribery pro- income, wages, or compensation of the Second, the taxpayers did not
ceeds in 2012 to provide U.S. visas to employees. Similarly, employees elect- obtain a proper contemporaneous
foreign nationals and sold real estate ing or able to elect to forgo leave that written acknowledgment of the con-
acquired with the proceeds at a loss in funds the qualified employer leave-based tribution, and the initially written ac-
connection with criminal forfeiture. donation payments will not be treated as knowledgment referred to an intended
The Tax Court did not allow the 2013 having constructively received gross in- donation, not an actual one. A subse-
loss as a deduction under Sec. 165 or come, wages, or compensation. Electing quent document properly acknowl-
162. Several cases were distinguished employees may not claim a charitable edged the donation but failed to state
in which deductions had been allowed contribution deduction under Sec. 170 that the recipient organization had
in connection with an illegal business for the value of the forgone leave. exclusive legal control of the donated
because in this case, the Tax Court An employer may deduct qualified asset, as required for contributions to
held, public policy would be frustrated employer leave-based donation pay- donor-advised funds.
by allowing them. ments under Sec. 170 or Sec. 162 if In Harrison, one of the issues
Termination fees: The IRS the employer otherwise meets the sec- centered on the taxpayer’s reported
Office of Chief Counsel determined tion’s requirements. $7,550 in charitable contributions on
that termination fees a taxpayer paid her 2015 income tax return.29 The IRS
were dispositions of property within Sec. 170(f): Disallowance of disallowed the entire amount. In Tax
the meaning of Sec. 1001, resulting in deduction in certain cases Court, the taxpayer presented limited
losses under Sec. 165, rather than busi- and special rules testimony and receipts for noncash
ness expenses under Sec. 162.27 The In several cases, courts determined contributions, but her records lacked
taxpayer paid a termination fee to back whether taxpayers claiming charitable the donated items’ acquisition dates,
out of a proposed acquisition. Concur- contribution deductions met the sub- descriptions, and cost basis. Since the
rently, the taxpayer paid another termi- stantiation requirements of Sec. 170. court had insufficient information to
nation fee to a corporation attempting In Keefer, the taxpayers were place a value on the property donated,
to purchase the taxpayer entity. The denied a deduction for a charitable it allowed the taxpayer $500 for non-
taxpayer asserted that Regs. Sec. contribution of a partial interest in a cash contributions. The taxpayer also

25. Filler, No. 21-71080 (9th Cir. 7/13/22), aff’g in part T.C. Memo. 2021-6. 28. Keefer, No. 3:20-cv-0836-B (N.D. Tex. 7/6/22).
26. Sestak, T.C. Memo. 2022-41. 29. Harrison, T.C. Summ. 2022-6.
27. Chief Counsel Advice 202224010.

36 March 2023 The Tax Adviser