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Wednesday, February 8, 2012

7th Circuit Denies Charitable Deduction for Home Demolished by Fire Department in Training Exercise

Dudley Home The Sevent Circuit yesterday affirmed the Tax Court (135 T.C. 471 (2010)) and held that a married couple could not claim a charitable contribution deduction for a house that they donated to a local fire department for training purposes because they failed to prove that the fair market value of the house exceeded the benefit they received by having the fire department burn down the house. Rolfs v. Commissioner, No. 11-2078 (7th Cir. Feb. 8, 2012):

Charitable deductions for burning down a house in a training exercise are unusual but not unprecedented. By valuing their gifts as if the houses were given away intact and without conditions, taxpayers like the Rolfs have claimed substantial deductions from their taxable income. But this is not a complete or correct way to value such a gift. When a gift is made with conditions, the conditions must be taken into account in determining the fair market value of the donated property. As we explain below, proper consideration of the economic effect of the condition that the house be destroyed reduces the fair market value of the gift so much that no net value is ever likely to be available for a deduction, and certainly not here.

Prior TaxProf Blog coverage:

http://taxprof.typepad.com/taxprof_blog/2012/02/7th-circuit.html

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