364 F. Supp. 3d 553
D. Md.2019Background
- In Dec. 2011 the Manns contracted to donate the residence (the "House") and certain personal property at 5300 Moorland Lane, Bethesda, MD to Second Chance, a §501(c)(3) deconstruction charity; Linda Mann executed conveyance agreements but those instruments were not recorded in Montgomery County land records.
- Second Chance performs workforce-training deconstruction, salvages some materials for resale, and commonly requires a supplemental cash payment from donors (a "funded deconstruction"); it estimated salvage at ~$150,000 and requested $20,000 from the Manns.
- The Manns paid $10,000 on Dec. 31, 2011 and $1,500 in Dec. 2012, and claimed on their returns: $675,000 for the House (Appraisal A), $24,206 for personal property (appraisal), and $10,000/$1,500 cash donations. They later amended 2011 to claim $313,353 for the House (Appraisal B).
- IRS disallowed all deductions; Manns paid assessed taxes and sued for refund. Both parties moved for summary judgment.
- Key factual points: Second Chance did not keep a manifest of salvaged items; deconstruction salvaged less than expected; deconstruction did not reduce the Manns' demolition costs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of House donation as a donation of an entire property interest | Manns: conveyed all rights in the improvements (House) to Second Chance, so donated an undivided/entire interest qualifying under §170 | IRS: Manns retained record title to land and improvements were not severed/recorded — donation was a partial interest (disallowed) | Held for IRS: under Maryland law recordation is required to sever improvements; donation was not a conveyance of an entire interest and is non-deductible |
| Valuation/appraisal of the House (Appraisal A and B) | Manns: appraisal(s) support claimed values ($675,000; later $313,353) | IRS: Appraisals invalid—A values the House at its highest and best use inapplicable to conditioned donation; B overstates value because deconstruction/destroyed materials reduce resale value; neither is a proper qualified appraisal | Held for IRS: both appraisals deficient and do not substantiate claimed deductions |
| Personal property deduction ($24,206) | Manns: relied on itemized appraisal of 40 items | IRS: appraisal lacks required documentation, inconsistent methodology, insufficient comparables — not a qualified appraisal | Held for IRS (Manns abandoned opposition): appraisal is deficient; deduction disallowed |
| Cash payments to Second Chance ($10,000 in 2011; $1,500 in 2012) — quid pro quo? | Manns: payments were required by charity to fund deconstruction but donor received no specific benefit; therefore deductible as charitable contributions | IRS: payments were effectively required to obtain deconstruction services and thus were quid pro quo payments for services, not donations | Held for Manns: payments were not quid pro quo; they funded charity’s administration/mission and provided no specific benefit to donor, so deductible |
Key Cases Cited
- United States v. Craft, 535 U.S. 274 (question of federal law of property interests depends on state property law)
- Rolfs v. Commissioner, 668 F.3d 888 (7th Cir.) (donation conditioned on destruction/use can invalidate highest-and-best-use valuation)
- Scheidelman v. Commissioner, 682 F.3d 189 (2d Cir.) (mandatory cash payment to secure acceptance of a charitable conveyance is not a quid pro quo when donor receives no specific benefit)
- Hernandez v. Commissioner, 490 U.S. 680 (quid pro quo analysis looks to whether taxpayer received an identifiable benefit)
- Miller v. I.R.S., 829 F.2d 500 (4th Cir.) (quid pro quo requires taxpayer to receive specific benefit tied to payment)