In Rolfs v. Commissioner, 135 T.C. No. 24, the taxpayers donated the lake house they had been living in to an exempt organization but were denied any charitable deduction. The grounds for the denial were that the lake house’s value did not exceed the benefit the taxpayers received in return. That return benefit was valued at $10,000. The lake house was a “typical, albeit modest” lake house. So, how in the world could you donate such a house and have it not be worth at least $10,000?
At first blush, this result of this lake house donation is as hard to believe as Keanu Reeves’ sneeze in the movie The Lake House. (Don’t get me wrong, I like Keanu Reeves. Nobody can fake sneeze.) But the reasoning comes from the rule that “restrictions or conditions affecting the marketability” must be accounted for when determining the value of donated property. In this case, the taxpayers wanted to build a new house on their property, but they wanted to avoid paying $10,000 to have the existing lake house demolished and removed. So, they donated the lake house to the local volunteer fire department under the conditions that the lake house only be used for firefighter and police training exercises and be burned down relatively soon. The court could not find that the lake house transferred subject to those conditions was worth more than $10,000.
So, I personally draw two lessons from this case. First, I may want to re-think my scheme of donating educational books to a school on the conditions that no one be permitted to display, read or copy them and that the books be promptly shredded and returned to me to line my guinea pig cages. Second, if I ever receive a letter from Sandra Bullock telling me that she is writing from the future and it will be cold (sneezing weather) soon, I’ll take her word for it.