IRS snuffs fire department donation

I'm a big proponent of charitable gifts, in part because of the tax breaks they often afford the givers. And I'm particularly impressed by this creative giving approach: Donating a house to a fire department so the structure can be burned down as a training exercise.

In the Columbus, Ohio, suburb of Upper Arlington, such donations and subsequent tax deductions have been common for at least two decades, according to the Columbus Dispatch.

The IRS, however, has snuffed out this type of tax write-off for some of the community's donors.

James and Lori Hendrix and Kirk and Allison Herbstreit have paid the IRS hundreds of thousands of dollars in back taxes and interest after auditors disallowed their innovative donation deductions.

The cost to the Hendrixes was $125,053. The Herbstreits -- and yes, it is that Kirk Herbstreit, quarterback of nearby Ohio State's football team in the early '90s and current ESPN commentator -- ponied up $134,606.

Now both couples are suing the IRS to get their tax money back.

The Columbus newspaper spoke with Terry Grady, the attorney representing both couples. Grady said the IRS didn't challenge the deductions until 2004, the year the Herbstreits donated their house. "People have been led to believe (the practice) is sanctioned by the IRS," added Grady.

'Entirely' allowable, or not: The IRS position, according to U.S. District Court records cited by the newspaper, is that since the Hendrixes and Herbstreits didn't donate their "entire interests," their deductions are not valid.

Specifically, the IRS says the couples should have given the firefighters the land as well as the houses.

But Grady argues that the contributions were the entire interests of each home, making them allowable under tax law. He also noted that both couples used only the appraised values of the homes as their deduction basis and didn't include the value of the land.

The home donations, argues Grady in his filing, serve an important governmental purpose (training of public service personnel) "and should not be frustrated by an erroneous interpretation and application of the Internal Revenue Code."

Not to unduly fan the flames of a tax controversy (sorry, but that was just too easy to resist), but I think the IRS is wrong and I hope the court rules in favor of the Hendrixes and Herbstreits.

TaxProf has more on the deductibility of homes donated to a local fire department.

Photo of Lexington, Mass., firefighter courtesy FreeFoto.com

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