## Facts

- Theodore and Martha Rolfs bought a three-acre lakefront property in Wisconsin with an existing house and planned to replace the house with a new residence.
- Rather than hiring a contractor to demolish the house, they transferred only the house (not the land) to a local fire department on the condition that the department use it for live-fire training and then leave the site cleared for the Rolfs.
- The arrangement saved the Rolfs an estimated $10,000 in demolition and site-clearing costs.
- On their 1998 federal income tax return, the Rolfs claimed a $76,000 charitable-contribution deduction, valuing the “donation” using a before-and-after appraisal of the overall property value with and without the house.
- The IRS disallowed the deduction; the Tax Court upheld the disallowance, and the Rolfs appealed.

## Issues

1. Whether taxpayers may claim a charitable-contribution deduction under I.R.C. § 170 for transferring a house to a fire department subject to the condition that it be burned for training.
2. If a deduction is potentially available, whether valuation must reflect the gift’s restrictions and be reduced by any return benefit (including demolition-cost savings).

## Decision

- The Seventh Circuit affirmed the Tax Court’s decision disallowing the deduction.
- The court held no charitable-contribution deduction was allowable because the house, transferred only to be destroyed, had negligible fair market value to the donee and did not exceed the value of the benefits the Rolfs received.
- The court rejected the Rolfs’ before-and-after appraisal because it valued the property as if an unrestricted, intact house had been transferred, contrary to the transaction’s actual conditions.

## Legal Principles

- A charitable-contribution deduction under I.R.C. § 170 is generally measured by the donated property’s fair market value on the date of the gift.
- Valuation must reflect the objective terms of the transaction, including restrictions and conditions attached to the transfer.
- A donor must reduce the claimed deduction by the value of any return benefit received; only the excess of value transferred over value received is potentially deductible.
- Where a donee receives only a limited, nonmarketable interest (here, a structure provided solely for destruction), fair market value may be negligible, and any net charitable gift may be eliminated by offsetting benefits.

## Conclusion

Because the fire department received only a restricted right to burn the house and the Rolfs received measurable economic benefits from demolition and site clearing, the value transferred did not exceed the value received, so no charitable-contribution deduction was permitted.


Rolfs v. Commissioner, 668 F.3d 888 (7th Cir. 2012)