Rolfs v. Commissioner

The Rolfs (plaintiffs) purchased a three-acre property that had a house on it. The Rolfs wanted to build a new house, so they donated the old house to the local fire department for a training exercise. This saved the Rolfs an estimated $10,000 in demolition fees. The Rolfs claimed a $76,000 charitable deduction on their income-tax return for the value of the burned house, calculated as the difference between the value of the property before and after the old house was destroyed. The Commissioner of Internal Revenue (the Commissioner) (defendant) and the United States Tax Court disallowed the deduction. The tax court found that the Rolfs had failed to show that the value they received from the donation—the fair market value of the house’s destruction—did not exceed the value of the donation itself. The Rolfs, the tax court continued, had incorrectly valued their donation because they failed to factor in the condition on which their gift was made—that the fire department would burn down the house and leave the property otherwise intact for the Rolfs to repurpose. The before-and-after method of valuation that the Rolfs had used was therefore inappropriate because the fire department would never enjoy the full use of the house. As there is no market for houses being sold to burn, the tax court instead proposed that the value of the donation be determined by analogy, considering the value of the house if it was used for salvage or moved off the land, and found that the house had negligible value. The Rolfs appealed.