November 8, 2010 12:00 am

No Deduction for Home Donated to Fire Company

A couple that was planning to demolish their home and build a new one in its place instead donated the home to their local fire company. As part of training exercises, the company burned down the home.

The couple claimed a charitable contribution deduction of $76,000, which the IRS denied. The reason for the disallowance: The couple received a substantial benefit for their donation, namely, the demolition of their home that they would otherwise have had to pay for.

The Tax Court agrees with the IRS. The couple received a substantial benefit in exchange for their donation, and they failed to show that the value of the donated property exceeded the amount of this benefit. Both sides agreed that the cost of demolition was at least $10,000. Also, the donation had restrictions that diminished the value of the donation; the house had to be demolished quickly and was severed from the land on which it sat, so there was little chance that the home could have any value to the fire company for residential use. Thus, the valuation of home (the donated property) did not exceed the cost of demolition (the benefit received).

Source: Theodore R. Rolfs et ux. v. Commissioner; 135 T.C. No. 2

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Straddle

Taking an offsetting investment position to reduce the risk of loss in a similar investment.

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