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Sunday, December 11, 2011

Charitable Deductions for Homes Demolished by Fire Department in Training Exercises

FireThomas J. Burmeister Jr. (J.D. 2011, Marquette), Comment, Burnin' Down the House--And Deducting it Too: Charitable Contributions of Buildings to Fire Departments Under I.R.C. § 170, 94 Marq. L. Rev. 1013-1053 (2011):

Section 170 of the Internal Revenue Code allows “as a deduction any charitable contribution . . . payment of which is made within the taxable year.” Unfortunately, the laws of charitable giving stretch much further and deeper than the provision that gave life to the charitable deduction. This Comment analyzes an issue on the relatively unexplored outskirts of charitable giving law: may a taxpayer claim a deduction for the donation of a building to a fire department for training exercises? In 1968, Morris Scharf donated his home to a local fire department for training exercises and deemed the gift “charitable” enough to claim a deduction, much to the dismay of the IRS, which challenged the validity of the deduction. Eventually, though, Scharf prevailed in the U.S. Tax Court, which validated the deduction and provided a precedential interpretation of § 170 that would stand for over thirty years.

Fast forward to 2010. After years of complacency, the IRS reignited its arguments against charitable contributions of buildings just like Morris Scharf’s. While § 170 remains textually intact, subsequent regulations and judicial interpretations have significantly refined the law of charitable giving to cast doubt on the value of the Scharf ruling from over thirty years ago. Theodore Rolfs, a Wisconsin taxpayer who relied on the Scharf case to donate a building to his local fire department, challenged the IRS’s disallowance of his deduction in the U.S. Tax Court that had validated Morris Scharf’s deduction years earlier. The court in Rolfs reached a different result in 2010, deciding in favor of the IRS. This time, however, the pivotal issue involved the valuation of the donated property and not the nature of the deduction. Nonetheless, the court’s decision in Rolfs does not terminate the inquiry. This Comment analyzes the Tax Court’s decision in Rolfs, both for what it is and for what it is not, and discusses the potential for future Scharf-like deductions under the new Rolfs framework.

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