Not So Fast, My Friend...

July 24, 2009

From TaxProf via the Columbus Dispatch, we get this story about ESPN Commentator Kirk Herbstreit's attempt to donate a house for fire training purposes and then deduct it as a charitable contribution.

In March, the Buckeye-turned-ESPN commentator sued the IRS for rejecting a $330,000 tax deduction he and his wife, Allison, took for donating their house at 2321 Onandaga Dr. to the Upper Arlington Fire Division.

The donation -- and the deduction -- have been common for at least two decades for Upper Arlington residents who wanted to build new homes on property where old homes resided. Firefighters have used the old houses for training and burn-down exercises. Columbus lawyer Terry Grady said the IRS didn't challenge the deductions until 2004 -- the year the Herbstreits donated their house. ...

Although the number of people nationwide who donate homes to fire departments is small, the tax-deduction question isn't peculiar to central Ohio. Cases have cropped up in Wisconsin and Minnesota, and at least one other lawsuit is pending in federal court. An online discussion on the subject has lasted three years on as some accountants argue that the donation isn't eligible for a deduction and others say it is. ...

In U.S. District Court records, the IRS argues that the two Upper Arlington couples did not donate their entire interests in the homes to the fire department and thus are not allowed to take the deduction. Grady said the IRS makes that argument because the couples donated only the structures, not the land. But Grady argues that the contributions were the entire interests of each home and thus are allowable under tax law. He said both couples used only the appraised values of the homes as their deduction and didn't include the value of the land. ...

Since 1988, 31 houses and one commercial building have been donated and 28 have been burned, city records show.

Had Herbstreit donated money to an Ohio State booster club, however, that would be partially deductible, as that is somehow considered "charity" by our tax code's ridiculous definition of "charity."

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