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Wednesday, July 2, 2014

Smith: Charitable Deductions for Live-Burn Donations

Eric Smith (Weber State), A Deduction Properly Extinguished? The Live-Burn Donation: A Proposed Sequence of Analysis and Policy Evaluation, 33 Va. Tax. Rev. 459 (2014):

This article updates the literature analyzing the charitable deduction associated with live-burn donations. This deduction has been the subject of multiple recent Tax and appellate Court rulings, all of which have disallowed the deduction. The article examines and reconciles the resulting live-burn donation line of cases. It agrees with prior scholarship finding that the courts’ treatment of the deduction has rendered it ineffective as a tax planning tool, but proposes a theoretical sequence of analysis to gauge the state of the law and determine whether any avenue remains which leads to deduction. Scholarly response to the disallowance of the live-burn donation has been generally negative. In contrast to these positions in the literature, this article finds that denial of a deduction for live-burn donations is consistent with and reconcilable on grounds of traditional tax policy notions of equity and fairness. Despite the live-burn donation’s initial acceptance on the basis of public benefit, the doctrine is fundamentally vulnerable on multiple fronts: it pushes the bounds of vertical equity, it disproportionately favors the wealthy, it undermines traditional concepts of charitable intent, and it provides an excessive private benefit in exchange for a public benefit which is too difficult to measure or quantify.

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I am not sure why people thought this was a legitimate deduction. At most, you are giving the fire departments the fmv of what their cost would otherwise have been to use a training facility. But the IRC generally denies demolition costs as a deduction, so this is in keeping with that line of thought. the cost of demolition and the cost of the old home should be added to the basis of the new home. I hope the attorney for Herbstreit gave detailed advice that this deduction most likely would be disallowed before charging the fees for litigation. There were several other cases before his that clearly indicated the disallowance was the most likely result.

Posted by: Daniel | Jul 2, 2014 12:19:12 PM