Tax Memorandum
MEMORANDUM
To: S. Partner, C.P.A.
From: Nicole J. Badalamenti, J. Accountant
Date: August 27, 2012
Subject: Mr. B. Potato
I
FACTS
Mr. B. Potato, a wealthy real estate investor, recently purchased a house on a parcel of land for $400,000. The house was appraised at a value of $300,000 and the land had an appraised value of $100,000. Mr. Potato plans to tear down the house and replace it with a new house worth $1,500,000 with the intentions of living in it personally. Paying to have the house bulldozed would cost Mr. Potato a considerable amount of money. It has been suggested to Mr. Potato to permit the Troy Fire Department rights to conduct training exercises on the land, and as part of those training exercises, to burn the house down to cinders.
II
ISSUES
1. Is Mr. B. Potato entitled to a charitable contribution deduction for the donation of his property to the Troy Fire Department to conduct training exercises on the land that include burning the house down to cinders? 2. Is Mr. B. Potato subject to negligence or substantial understatement penalties if the deduction is taken, but then not allowed?
III
CONCLUSIONS
1. Mr. B. Potato is not entitled to a charitable contribution deduction for the donation of the use of his property to the Troy Fire Department to conduct training exercises that include burning his house to ground. 2. Mr. Potato will be liable for accuracy-related penalty for negligence and substantial understatement if the deduction is taken, but then not allowed.
IV
ANALYSIS
A. IS MR. POTATO ENTITLED TO A CHARITABLE CONTRIBUTION DEDUCTION FOR THE DONATION OF THE USE OF HIS PROPERTY TO THE TROY FIRE DEPARTMENT TO CONDUCT TRAINING EXERCISES?
IRC Sec. 170(a)(1) provides, in relevant part, that deduction is permitted for any charitable contribution, payment that is made within the taxable year. “Charitable contribution” is defined in IRC Sec. 170(c)(1)
To: S. Partner, C.P.A.
From: Nicole J. Badalamenti, J. Accountant
Date: August 27, 2012
Subject: Mr. B. Potato
I
FACTS
Mr. B. Potato, a wealthy real estate investor, recently purchased a house on a parcel of land for $400,000. The house was appraised at a value of $300,000 and the land had an appraised value of $100,000. Mr. Potato plans to tear down the house and replace it with a new house worth $1,500,000 with the intentions of living in it personally. Paying to have the house bulldozed would cost Mr. Potato a considerable amount of money. It has been suggested to Mr. Potato to permit the Troy Fire Department rights to conduct training exercises on the land, and as part of those training exercises, to burn the house down to cinders.
II
ISSUES
1. Is Mr. B. Potato entitled to a charitable contribution deduction for the donation of his property to the Troy Fire Department to conduct training exercises on the land that include burning the house down to cinders? 2. Is Mr. B. Potato subject to negligence or substantial understatement penalties if the deduction is taken, but then not allowed?
III
CONCLUSIONS
1. Mr. B. Potato is not entitled to a charitable contribution deduction for the donation of the use of his property to the Troy Fire Department to conduct training exercises that include burning his house to ground. 2. Mr. Potato will be liable for accuracy-related penalty for negligence and substantial understatement if the deduction is taken, but then not allowed.
IV
ANALYSIS
A. IS MR. POTATO ENTITLED TO A CHARITABLE CONTRIBUTION DEDUCTION FOR THE DONATION OF THE USE OF HIS PROPERTY TO THE TROY FIRE DEPARTMENT TO CONDUCT TRAINING EXERCISES?
IRC Sec. 170(a)(1) provides, in relevant part, that deduction is permitted for any charitable contribution, payment that is made within the taxable year. “Charitable contribution” is defined in IRC Sec. 170(c)(1)