Rolfs v. Commissioner of Internal Revenue II

US Court of Appeals, 7th Circuit, No. 11-2078, February 8, 2012: Upholds the Tax Court decision that value of house donated to fire department on condition it be destroyed did not exceed the fair market value of the benefit the taxpayer received in return by house’s destruction.

The opinion upholds the decision of the Tax Court in Rolfs v. Comm’r of Internal Revenue, 135 T.C. 471 (2010). The Rolfs wanted their house demolished to make way for a new one, so they donated the house to the local fire department on the condition that it be burned down. The Rolfs claimed a $76,000 charitable deduction on their tax return for the value of their donated and destroyed house. The IRS disallowed the deduction, and that decision was upheld by the United States Tax Court. The Rolfs appeal.

The Appeals Court agreed with the Tax Court that when property is donated to a charity on the condition that it be destroyed, that condition must be taken into account when valuing the gift. That condition essentially deprived the house of what little value it may have had separated from the land. The Court wrote, “The fair market valuation of donated property must take into account conditions on the donation that affect the market value of the donated property.”

Using this principle, the Court turned to how to account for a condition in a valuation. The Rolfs appraisal failed to offer evidence “of an actual market for, and thus no real or hypothetical willing buyers of… doomed houses” severed from the land.

The Appeals Court also approved of the ruling of the Tax Court that the ruling in the case of Scharf v. Comm’r of Internal Revenue, T.C.M. 1973-265, that allowed a charitable deduction for property donated to a fire department to be burned, “has no vitality” after the decision of the US Supreme Court in United States v. American Bar Endowment, 477 U.S. 105, 118 (1986).

In passing, the Court noted that the Rolfs’ donation was significantly different from conservation easement.

The decision is available at and

Comments are closed.