In Uncategorized on 06/27/2012 at 18:47

Doesn’t get you a charitable deduction this time, says Judge Dawson, in Upen G. Patel and Avanti D. Patel, 138 T.C. 23, filed 6/27/12.

Upen and Avanti wanted to demolish the house on land they bought in Vienna, VA, up the road a piece from us here at the NSTP Summer Session. The Fairfax County Firefolks had a program whereby they would burn down your house (with your consent and your mortgagee’s, of course) to train their firefighters. Upen and Avanti wanted the house removed anyway, so they handed the keys to the firefolks and told them to do their thing, claiming a charitable deduction.

IRS invokes the Section 170(f)(3)(A) amendment to Section 170, the “no partial interest deduction” rule, claiming the most that Upen and Avanti gave the Vienna Firefighters was a license to go onto their land and burn down a structure for which (a) Upen and Avanti had obtained a demolition permit and (b) obtained construction financing for a brand-new house and (c) in which Upen and Avanti never lived.

The house and the land are inseparable, under Virginia law. Judge Dawson: “Where a taxpayer contributes to a charity an interest in a building that is part of the land under State law but retains all title to and interest in the remaining land, the taxpayer has donated less than his entire interest in the land.  The taxpayer will not be allowed a charitable contribution deduction unless the donated interest falls within the exceptions of section 170(f)(3)(B).

“In the case at hand, the house was attached to the land and was conveyed to petitioners along with the land when they purchased the Vienna property.  Under the common law and the laws of Virginia, the house was part of the land that is the real estate we refer to as the Vienna property.  Petitioners’ purported contribution of the house to FCFRD [the firefighters] was a contribution of less than their entire interest in the Vienna property.” 138 T.C. 23, at p.19.

So, no charitable contribution for Upen and Avanti.

But they dodge penalties, because when they filed their return, the law had not been settled as it is now, and old pre-amendment precedent existed that might have justified their position.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: