138 T.C. 395
Tax Ct.2012Background
- Petitioners claimed a noncash charitable deduction of $92,865 for 2006 for granting FCFRD the right to destroy the Vienna property house during training.
- The Vienna property included a 1,221-square-foot house on a 22,786-square-foot lot; land and house were acquired in May 2006 for $625,000.
- FCFRD acquired the property to use for live-fire training; petitioners signed authorization and release forms granting permission to burn the house.
- After destruction, petitioners rebuilt a new house on the site and continued to own the land; petitioners had not conveyed title to FCFRD.
- Respondent disallowed the $92,865 deduction and issued deficiencies and an accuracy-related penalty under section 6662.
- The Court granted partial summary judgment for respondent on the charitable contribution issue, ruling petitioners did not donate a viable charitable interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did petitioners donate a partial interest in property under 170(f)(3)? | Petitioners transferred all rights to FCFRD via destruction of the house with retained land rights. | Donating only the right to destroy the house constitutes a partial interest in land and is disallowed under 170(f)(3). | No; petitioners did not donate an undivided portion of the entire property interest. |
| Was the donation the transfer of the house or just a license to destroy it? | Granting destruction rights conveyed ownership/interest in the house, not merely a license. | Destruction rights were a license, not an ownership transfer, so the deduction is barred. | Donation was not a license-only transfer; however the court still found no deductible partial interest. |
| Are petitioners liable for the accuracy-related penalty under section 6662? | Unclear state of law post-Schaf and Rolfs justifies reasonable cause. | Penalty applies for negligence or substantial understatement absent reasonable cause. | Petitioners acted with reasonable cause and in good faith; no penalty under section 6662. |
Key Cases Cited
- United States v. Craft, 535 U.S. 274 (2002) (federal law governs transfer of property interests; state law determines sticks in bundle)
- Stark v. Commissioner, 86 T.C. 243 (1986) (insubstantial retained interests may permit deduction under 170(f)(3))
- Rolfs v. Commissioner, 668 F.3d 888 (7th Cir. 2012) (quid pro quo standard governs charitable deductions post Am. Bar Endowment)
- United States v. American Bar Endowment, 477 U.S. 105 (1986) (quid pro quo requirement for charitable deductions)
- Bostic v. Bostic, 99 S.E.2d 591 (Va. 1957) (license to enter or extract minerals conveys no property interest until separated)
- Young v. Young, 63 S.E. 748 (Va. 1909) (license to cut timber conveys no property until severed)
- Walshire v. United States, 288 F.3d 342 (8th Cir. 2002) (undivided interest concept applied to donations under 170(f)(3))