## Facts

- Sidney W. Rosen and Lorraine S. Rosen owned real property in Fall River, Massachusetts.
- On December 20, 1972, they donated the property to the City of Fall River and claimed a $51,250 charitable contribution deduction on their 1973 federal return.
- On April 30, 1973, the City determined it could not use the property and reconveyed it to the Rosens.
- On June 20, 1973, the Rosens donated most of the same property to Union Hospital of Fall River, Inc., valued at $48,000, and claimed a charitable deduction on their 1974 federal return.
- On August 27, 1974, the hospital determined it could not use the property and transferred it back to the Rosens.
- The IRS treated the reconveyances as recoveries of previously deducted charitable contributions and required inclusion in income in the year of each return.
- The Tax Court sustained the IRS under the tax benefit rule, and the Rosens appealed.

## Issues

1. Whether the tax benefit rule requires a taxpayer to include in gross income, in the year donated property is reconveyed, the value previously deducted as a charitable contribution.
2. Whether application of the tax benefit rule depends on the donor having retained an express right of reversion or similar condition in the original charitable transfer.
3. Whether the reconveyances may be treated as new “gifts” to the taxpayers rather than recoveries of previously deducted items.

## Decision

- The First Circuit affirmed the Tax Court.
- The court held that the tax benefit rule required the Rosens to include in income, in the year of reconveyance, the value of the property previously deducted as charitable contributions.
- The court rejected the argument that the rule is inapplicable absent a retained reversionary interest.
- The court refused to characterize the reconveyances as new gifts, treating them instead as recoupments of previously deducted contributions.

## Legal Principles

- Under the tax benefit rule, recovery of money or property that produced a tax deduction in an earlier year must be included in income in the year of recovery to prevent distortion of annual taxable income.
- The tax benefit rule turns on economic recoupment of a previously deducted item, not on formal property-law labels or whether the original transfer reserved a right of reversion.
- A taxpayer may not retain the benefit of a charitable contribution deduction when later events effectively undo the contribution by returning the property to the taxpayer.

## Conclusion

Because the Rosens deducted charitable contributions for donated real property and later recovered that same property through reconveyances by the donees, the tax benefit rule required income inclusion in the years the property was returned, even though the original transfers did not reserve a reversionary right and the reconveyances could not be treated as new gifts.


Rosen v. Comm’r, 611 F.2d 942 (1st Cir. 1980)