Tuesday, August 10, 2010

Taxpayers get Burned

In a recent court case, the court struck down a tax deduction for a couple who donated their house to a local fire department. It seems they were in need of the house being removed from their property, and the fire department was in need of a burning house to train in. The couple obtained an appraisal of the house at $287,000, donated the home to the fire department, who burned it to the ground and trained their firefighters. The couple deducted the appraised value as a charitable deduction.

The district court denied the charitable deduction, but not on theoretical grounds. The deduction was denied because the appraisal of the property was faulty. The appraisal failed to lay out specifically the dates of the donation, the qualifications of the appraiser, the terms of the agreement with the fire department, and to state that the appraisal was done for tax purposes. These are all requirements spelled out in regulations. Whatever merit there might have been in taking the deduction for the house, it was lost because they failed to follow the rules and document the deduction properly.

The punch line: If there is big money at stake, it pays to do right, otherwise your tax savings might well go up in flames.

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