No deduction for donating right to burn house.

• Author: Beavers, James A.

The Tax Court held that taxpayers who gave a local fire department the right to burn down a house on property they had recently purchased were not entitled to a charitable deduction donation for the value of the house.

Background

At the end of May 2006, Upen and Avanti Patel purchased property in Vienna, Va., with the intention of demolishing the house on the property and constructing a new house on the site. Their real estate agent told them about the Fairfax County Fire and Rescue Department (FCFRD) Acquired Structures Program, under which a property owner allows the fire department to conduct fire training exercises on his or her property. As part of the exercises, the fire department destroys, by burning, the designated building on the owner's property.

Within a few weeks of purchasing the Vienna property, the Patels contacted FCFRD and obtained information about the requirements for participating in the program. After the Patels obtained a demolition permit and completed all the other requirements, they executed documents granting the fire department the right to conduct training exercises on the Vienna property and to burn the house during the exercises. During October 2006, FCFRD, along with six other fire departments, used the Vienna property to conduct fire training exercises, during which fire destroyed the house.

On their 2006 federal income tax return, the Patels reported a noncash charitable contribution of $339,504 on Schedule A, Itemized Deductions, for the donation of the house to FCFRD. The IRS disallowed the deduction, asserting that the Patels' donation to FCFRD was a contribution of a partial interest in property, which was nondeductible under Sec. 170(f)(3). The Patels challenged the IRS's determination in the Tax Court.

The Tax Court's Decision

The Tax Court held that the Patels were not entitled to take a noncash charitable contribution deduction for granting FCFRD the right to conduct training exercises on their property and burn down the house as part of the exercises because they donated only the right to use the Vienna property and the house, which was a nondeductible partial interest in property under Sec. 170(f)(3)(A).

The court first looked to Virginia law to determine what property rights the Patels had in the house and what property rights they gave to FCFRD. The court found that under Virginia law, land includes everything belonging or attached to it, above and below the surface. In the Patels' case, the...