No Charitable Deduction if Value Received

June 26, 2013

Not everyone understands that if you receive something of value in return, you are not entitled to a charitable contribution deduction for that portion of the cost.

For example, if you purchase tickets to a theater performance to support your favorite charity, your contribution deduction is limited to the amount the price you pay for the tickets exceeds the value of the tickets.

It’s always a good idea to remind your donors of this tax principle to avoid potential problems with the IRS.

A recent Tax Court case illustrates this point (James M. Pollard v. Commissioner, TC Memo 2013-38, Feb. 6, 2013).

James Pollard purchased property with the intention of building a new home on the site. On applying for a building permit, he was informed that, because his property consisted of less than 70 acres, he would have to obtain approval from the county to increase the property’s building density.

Initially, the county staff recommended against granting Pollard’s request. After Pollard inquired whether the board might be more agreeable if he granted a conservation easement, a deal was reached.

The county board approved Pollard’s subdivision exemption to split his property into two parcels and granted him permission to construct a single residential family home on one of the lots. Pollard granted the county a conservation easement on each of the parcels and claimed a charitable contribution deduction.

The IRS disallowed the contribution deduction Pollard claimed for the easement on the property where he built his house. The IRS did not challenge the other conservation easement.

The Tax Court concluded that Pollard’s granting of the conservation easement was part of a quid pro quo exchange for the county’s approval of Pollard’s subdivision exemption request. Pollard did not convey the easement for the detached and disinterested motives that characterize a charitable gift. Instead, he did so to secure a personal benefit.