Court Opinion

ID: 4339208
Source: CourtListenerOpinion
Date Created: 2018-11-14 04:18:16.166737+00
Date Added: 2024-06-11T14:48:28.362211
License: Public Domain

UPEN G. PATEL AND AVANTI D. PATEL, PETITIONERS
                                                   v. COMMISSIONER OF INTERNAL REVENUE,
                                                                RESPONDENT
                                                        Docket No. 11694–09.                       Filed June 27, 2012.

                                                   At the end of May 2006, Ps purchased property in Vienna,
                                                Virginia (Vienna property), with the intention to demolish the
                                                house situated thereon (house) and construct a new one on
                                                the site. Their realtor told them about the Fairfax County
                                                Fire and Rescue Department (FCFRD) Acquired Structures
                                                Program, where a property owner allows FCFRD to conduct
                                                live fire training exercises on his or her property. As part of
                                                the exercises, FCFRD destroys, by burning, the designated
                                                building on the owner’s property. Within a few weeks of pur-
                                                chasing the Vienna property, Ps contacted FCFRD and
                                                obtained information about the requirements for participating
                                                in the program. After Ps obtained a demolition permit and
                                                completed all of the other requirements, they executed docu-
                                                ments granting FCFRD the right to conduct training exercises
                                                on the Vienna property and to destroy the house by burning
                                                during the exercises. During October 2006, FCFRD, along
                                                with six other fire departments, used the Vienna property to
                                                conduct live fire training exercises, during which the house
                                                was destroyed. On their 2006 Federal income tax return, Ps
                                                reported a noncash charitable contribution of $339,504 on
                                                Schedule A, Itemized Deductions, for the donation of the
                                                house to FCFRD. R disallowed the deduction Ps claimed for
                                                2006 and asserts that Ps’ donation to FCFRD was a contribu-
                                                tion of a partial interest in property, a deduction for which is
                                                denied by I.R.C. sec. 170(f)(3). Held: A landowner’s grant to
                                                a fire department of the right to conduct training exercises on
                                                his property and destroy a building thereon during the exer-
                                                cises is a mere license that permits the fire department to do
                                                an act which without such a grant would be illegal and which
                                                conveys no interest in the property to the fire department.
                                                Held, further, taxpayers who grant a fire department the right
                                                to conduct training exercises on their property and destroy a
                                                building thereon during the exercises do not donate any
                                                ownership interest in property to the fire department, and
                                                I.R.C. sec. 170(f)(3) denies them a charitable contribution
                                                deduction for the donation of the use of their property regard-
                                                less of the value of that use. Held, further, Ps donated only

                                                                                                                                     395

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                                      396                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                                the use of the Vienna property and the house to FCFRD, a
                                                partial interest in the property, and pursuant to I.R.C. sec.
                                                170(f)(3) are not entitled to the $92,865 noncash charitable
                                                contribution deduction claimed on their 2006 income tax
                                                return under I.R.C. sec. 170(a). Held, further, Ps acted with
                                                reasonable cause and in good faith and are accordingly not
                                                liable for any accuracy-related penalty under I.R.C. sec.
                                                6662(a) or (h).

                                           Upen G. Patel and Avanti D. Patel, pro sese.
                                           Erin R. Hines, for respondent.

                                                                                  OPINION

                                        DAWSON, Judge: Petitioners petitioned the Court for
                                      redetermination of a deficiency of $32,672 in their Federal
                                      income tax for 2006 and an accuracy-related penalty of
                                      $6,534.40 under section 6662. 1 This case is before us on
                                      respondent’s motion for partial summary judgment pursuant
                                      to Rule 121 filed on July 19, 2011. Petitioners object to the
                                      motion and filed a response. Summary judgment may be
                                      granted with respect to all or any part of the legal issues in
                                      controversy ‘‘if the pleadings, answers to interrogatories,
                                      depositions, admissions, and any other acceptable materials,
                                      together with the affidavits, if any, show that there is no
                                      genuine issue as to any material fact and that a decision may
                                      be rendered as a matter of law.’’ Rule 121(b); Sundstrand
                                      Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff ’d, 17
F.3d 965 (7th Cir. 1994); Zaentz v. Commissioner, 90 T.C.
753, 754 (1988). The moving party bears the burden of
                                      proving that there is no genuine issue of material fact, and
                                      factual inferences will be read in a manner most favorable to
                                      the party opposing summary judgment. Dahlstrom v.
                                      Commissioner, 85 T.C. 812, 821 (1985); Jacklin v. Commis-
                                      sioner, 79 T.C. 340, 344 (1982).
                                        Although the parties have not stipulated any of the facts
                                      in this case, they agree there are no disputes as to genuine
                                      issues of material facts. On the basis of our review of the
                                      record, we are satisfied that there is no genuine issue as to
                                      any material fact and that judgment may be rendered as a
                                      matter of law.
                                        1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect

                                      for the year in issue as amended, and all Rule references are to the Tax Court Rules of Practice
                                      and Procedure.

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                                      (395)                           PATEL v. COMMISSIONER                                         397

                                         After concessions by respondent, 2 the issues for decision
                                      are (1) whether petitioners are entitled to the noncash chari-
                                      table contribution deduction under section 170(a) in connec-
                                      tion with their granting the Fairfax County Fire and Rescue
                                      Department (FCFRD) the right to conduct training exercises
                                      on their property and demolish the house thereon during the
                                      exercises, and (2) whether petitioners are liable for the
                                      accuracy-related penalty under section 6662.

                                                                                Background
                                         Petitioners resided in Virginia when their petition was
                                      filed. In 2006 petitioners resided in Haymarket, Virginia. On
                                      May 31, 2006, they purchased property in Vienna, Virginia
                                      (Vienna property), for $625,000 and acquired the fee simple
                                      interest therein. The Vienna property consisted of a 1,221-
                                      square-foot brick house (house) situated on a 22,786-square-
                                      foot lot. Petitioners purchased the Vienna property with the
                                      intent to demolish the house, which had been built in 1960,
                                      and build a new one to their specifications. Petitioners never
                                      resided in the house, nor did they reside on any part of the
                                      Vienna property during 2006. In May 2006, before closing on
                                      the Vienna property, petitioners engaged Atlantic Coast
                                      Inspection Services, LLC, to complete a home inspection of
                                      the house that included an asbestos report. They also
                                      obtained an appraisal dated May 14, 2006, from William
                                      Fluharty of Reliable Appraisal Service. Mr. Fluharty valued
                                      the entire property (including the house and land) at
                                      $625,000. Petitioners subsequently obtained a second
                                      appraisal from Mr. Fluharty, dated September 1, 2006, that
                                      valued the entire property at $660,000.
                                         Petitioners learned of the FCFRD Acquired Structures Pro-
                                      gram from the realtor who represented them in their pur-
                                      chase of the Vienna property. The program was designed to
                                      provide ‘‘real life’’ training for emergency personnel by using
                                      structures for training exercises. Under the program the
                                      property owner allows the FCFRD to conduct live fire training
                                      exercises on his or her property. As part of the exercises,
                                      FCFRD destroys, by burning, the designated building on the

                                        2 Respondent has conceded that petitioners are entitled to deductions claimed on Schedule A,

                                      Itemized Deductions, for taxes of $18,074 and mortgage interest of $37,428 for 2006. These
                                      amounts will be allowed and reflected in the Rule 155 computations.

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                                      398                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                      owner’s property. In June 2006, petitioners contacted the
                                      FCFRD about its program. On June 12, 2006, FCFRD acknowl-
                                      edged petitioners’ interest in participating in the program
                                      and sent them a Standard Property Owner Package.
                                         In order to participate in the program, petitioners were
                                      required to (1) permit FCFRD to inspect the house to deter-
                                      mine its training value; (2) have the house inspected and
                                      remove any asbestos found as a result of such inspection; (3)
                                      obtain a demolition permit; (4) sign certificates of authoriza-
                                      tion and temporary release forms; (5) disconnect and/or
                                      remove any utilities from the house; and (6) provide all
                                      required documentation to FCFRD at least two weeks before
                                      the planned demolition.
                                         Petitioners hired MW Construction in Alexandria, Virginia,
                                      to construct a new house on the Vienna property after the
                                      old house was demolished. As part of the contract, MW
                                      Construction was to remove the debris from the burning of
                                      the house after the fire training exercises were completed.
                                         On or about July 20, 2006, petitioners requested a demoli-
                                      tion permit for the Vienna property from Fairfax County.
                                      The application for the permit required petitioners to provide
                                      the name, address, telephone number, State contractor’s
                                      license number, and Fairfax County business license number
                                      of the licensed contractor that would perform the work. 3 On
                                      September 28, 2006, Fairfax County issued a demolition
                                      permit to ‘‘Demolish Entire Structure’’ (permit No. 62010212)
                                      to Upen Patel showing MW Construction as the contractor.
                                         Because the May 2006 home inspection report indicated
                                      that asbestos was present in the house in the basement floor
                                      tile and baseboard, petitioners hired Young Environmental to
                                      remove the asbestos. Young Environmental removed the
                                      materials containing asbestos on or about July 24, 2006, and
                                      sent a letter of completion to petitioners, along with an
                                      invoice for its services.
                                         On August 25, 2006, petitioners obtained a construction
                                      mortgage loan of $943,575 from Suntrust Mortgage, Inc.
                                      They used a portion of the loan to pay off a mortgage from
                                        3 Under Virginia law contracting without the proper license or certificate to remove improve-

                                      ments on real property owned, controlled, or leased by another person is a class 1 misdemeanor
                                      and a violation of the Virginia Consumer Protection Act. Va. Code Ann. sec. 54.1–1115(A)(1),
                                      (B) (2009); see Tuggle Masonry, Inc. v. Dailey, 2010 WL 7372379, at *1 (Va. Cir. Ct. 2010).

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                                      (395)                           PATEL v. COMMISSIONER                                          399

                                      Wells Fargo Bank, N.A., and a home equity loan from
                                      National City.
                                        On September 14, 2006, petitioners executed two forms
                                      required by FCFRD for participation in the program: (1) the
                                      Live Fire Training Exercise Certificate of Authorization Form
                                      (authorization form), and (2) the Certificate of Authorization/
                                      Temporary Liability Release Form (release form). On the
                                      authorization form petitioners certified that they were the
                                      true owners of the Vienna property and granted FCFRD
                                      permission to use the Vienna property as follows:
                                      This is to certify that: UPEN PATEL & AVANTI PATEL * * * is the true
                                      owner or authorized agent of the property located at (address): * * * [the
                                      Vienna property address] * * *.
                                      Permission is herby [sic] granted to the Fairfax County Fire and Rescue
                                      Department to utilize for training such building(s) designated on the above
                                      describe property. In return, Fairfax County agrees not to bring suit to
                                      exercise its right of subrogation under Virginia Code 65.1–41 (Repl. Vol.
                                      1980) against the property owner and/or his/her representative for any per-
                                      sonal injury to a Fairfax County Career or Volunteer Firefighter during
                                      the training period. Fairfax County further agrees not to bring suit for
                                      damage to any self-insured equipment during the training session.

                                      Signed:               Upen Patel and Avanti Patel       Date:                        9/14/06
                                                    Property Owner or Authorized Representative
                                      Signed:       llllllllllllllllllllll                                           Date:    llll
                                                    Fairfax County Representative

                                         On the release form petitioners certified that they were the
                                      owners of the Vienna property and that they had obtained a
                                      permit to demolish the house on the Vienna property and
                                      granted FCFRD permission to use the house for training as
                                      follows:
                                        This is to certify that I, UPEN PATEL & AVANTI PATEL * * * am the
                                      true owner or authorized agent of the owner of the property located at
                                      (address): * * * [the Vienna property address] * * *.
                                        I further certify that a Demolition Permit has been secured from the
                                      Department of Environmental Management, Permit Branch, and is
                                      described as Permit # 62010212 issued on (date) 9/2/2006, and that all
                                      public utilities have been removed or disconnected from the above
                                      described property.
                                        I herby [sic] grant permission to the Fairfax County Fire and Rescue
                                      Department to conduct a training exercise on the above premises and to
                                      destroy, by burning, such building(s) as designed on the above described
                                      property. I agree to remove any remaining hazardous conditions including
                                      but not limited to open pits, basements and wells, standing walls and

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                                      400                 138 UNITED STATES TAX COURT REPORTS                                        (395)

                                      chimney, and burned and unburned debris after the completion of the
                                      training exercise. I understand that the designated building(s) may not be
                                      destroyed or may only be partially destroyed by the Fairfax County Fire
                                      and Rescue Department if circumstances beyond the control of the Fairfax
                                      County Fire and Rescue Department should arise.
                                         It is agreed that I will not hold Fairfax County or the Fairfax County
                                      Fire and Rescue Department or any of its officers, agents, or employees
                                      liable for any damage to the above described property. In return, Fairfax
                                      County agrees not to bring suit to exercise its right or subrogation under
                                      Virginia Code 65.1–41 (1987) against me and/or my representative for any
                                      personal injury to a Fairfax County Career or Volunteer Firefighter
                                      incurred during the training exercise on the site. Fairfax County further
                                      agrees not to bring suit for damage to any self-insured equipment incurred
                                      during the training exercise on the site.

                                      Signed:               Upen Patel and Avanti Patel       Date:                        9/14/06
                                                    Property Owner or Authorized Representative
                                      Signed:       llllllllllllllllllllll                                           Date:    llll
                                                    Fairfax County Representative

                                         On September 29, 2006, petitioners sent to FCFRD all of the
                                      documents necessary to participate in the program. None of
                                      the documents purport to transfer title to the house or the
                                      Vienna property or any ownership interest therein to Fairfax
                                      County or FCFRD.
                                         During October 2006, FCFRD, along with six other fire
                                      departments, used the Vienna property to conduct live fire
                                      training exercises. The house was demolished by fire during
                                      the training exercises. On October 23, 2006, FCFRD sent peti-
                                      tioners an acknowledgment letter thanking them for their
                                      donation and expressing their appreciation for petitioners’
                                      allowing them to use the Vienna property for the training
                                      exercises.
                                         On October 23, 2006, MW Construction was given access
                                      to the Vienna property to remove the debris and begin
                                      construction of the new house. The construction was com-
                                      pleted in July 2007. Petitioners subsequently obtained a resi-
                                      dential use permit and moved into the new house, where
                                      they currently reside.
                                         On their 2006 Federal income tax return, petitioners
                                      reported a noncash charitable contribution of $339,504 on
                                      Schedule A. The contribution of $339,504 consisted of only
                                      the claimed donation of the house on the Vienna property. In
                                      accordance with the limitations of section 170(b) and the
                                      regulations thereunder, petitioners deducted $92,865 as a

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                                      (395)                           PATEL v. COMMISSIONER                                         401

                                      noncash charitable contribution for 2006. 4 Petitioners filed
                                      their 2006 tax return electronically. They submitted Form
                                      8283, Noncash Charitable Contributions, with the return;
                                      however, Form 8283 was not signed by the appraiser or the
                                      donee because of the electronic submission. Petitioners
                                      retained a fully signed copy of Form 8283 which they later
                                      submitted to respondent upon request.
                                        On February 17, 2009, respondent sent petitioners a notice
                                      of deficiency for their 2006 tax year disallowing their claimed
                                      noncash charitable contribution deduction of $92,865 and
                                      determined an income tax deficiency of $32,672 and an
                                      accuracy-related penalty of $6,534 under section 6662.

                                                                                 Discussion
                                      I. Charitable Contribution Deduction
                                           A. Noncash Charitable Contribution Deduction Under
                                              Section 170
                                         Section 170(a)(1) provides in relevant part that a deduction
                                      is allowed for any charitable contribution, payment of which
                                      is made within the taxable year. Section 170(c)(1) defines the
                                      term ‘‘charitable contribution’’ to include a contribution or
                                      gift to or for the use of, inter alia, a political subdivision of
                                      a State, but only if the gift is made for exclusively public pur-
                                      poses. Contributions or gifts to nonprofit volunteer fire
                                      companies are deemed to be for the use of a political subdivi-
                                      sion of a State for exclusively public purposes and are
                                      deductible under section 170(c)(1). Rev. Rul. 71–47, 1971–1
                                      C.B. 92; see also Rev. Rul. 74–361, 1974–2 C.B. 159.
                                         Before 1969 a taxpayer could deduct contributions to chari-
                                      table organizations of partial interests in the taxpayer’s prop-
                                      erty, including income and remainder interests and the right
                                      to use the property. See, e.g., Thriftimart, Inc. v. Commis-
                                      sioner, 59 T.C. 598 (1973). The only limitation placed on con-
                                      tributions of partial interests, found in what was then section
                                      170(f), delayed the deduction for contributions of future
                                      interests in tangible personal property until all intervening
                                      interests in the property had expired. For purposes of that
                                         4 The remaining $246,639 of the reported contribution for 2006 has been carried forward by

                                      petitioners under sec. 170(d) and the regulations thereunder. The full amount of the contribu-
                                      tion, which includes the amount deducted for 2006 and the carryover amounts, is at issue in
                                      this case.

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                                      402                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                      limitation, a fixture that was intended to be severed from
                                      real property was treated as a future interest in tangible per-
                                      sonal property and not as real property.
                                         Congress became concerned that the amount of a chari-
                                      table contribution deduction for a partial interest in property
                                      might not correspond to the value of the benefit ultimately
                                      received by the charity and that taxpayers were receiving a
                                      double benefit from donations of the use of property for a
                                      period of time. See S. Rept. No. 91–552, at 83–87 (1969),
                                      1969–3 C.B. 423, 477–479; see also H.R. Rept. No. 91–413, at
                                      57 (1969), 1969–3 C.B. 200, 237–239. In the Tax Reform Act
                                      of 1969, Pub. L. No. 91–172, sec. 201(a), 83 Stat. at 549, Con-
                                      gress amended section 170 to address those concerns by,
                                      inter alia, moving the limitation previously provided in sec-
                                      tion 170(f) to new section 170(a)(3) and adding a new section
                                      170(f). Section 170(f)(2) denies a charitable contribution
                                      deduction for certain contributions of interests in property
                                      placed in trust: Section 170(f)(2)(A) disallows a deduction for
                                      contributions of remainder interests in property placed in
                                      trust unless the trust is a charitable remainder annuity trust
                                      or a charitable remainder unitrust or a pooled income fund,
                                      and section 170(f)(2)(B) disallows a deduction for the value of
                                      any other interest in property placed in trust, unless the
                                      interest is a guaranteed annuity or fixed percentage of the
                                      trust property distributed annually. Section 170(f)(3) denies
                                      a charitable contribution deduction for certain contributions
                                      of partial interests in property and provides as follows:
                                           (3) DENIAL     OF DEDUCTION IN CASE OF CERTAIN CONTRIBUTIONS OF PAR-
                                      TIAL INTERESTS IN PROPERTY.—
                                             (A) IN GENERAL.—In the case of a contribution (not made by a transfer
                                           in trust) of an interest in property which consists of less than the tax-
                                           payer’s entire interest in such property, a deduction shall be allowed
                                           under this section only to the extent that the value of the interest
                                           contributed would be allowable as a deduction under this section if such
                                           interest had been transferred in trust. For purposes of this subpara-
                                           graph, a contribution by a taxpayer of the right to use property shall be
                                           treated as a contribution of less than the taxpayer’s entire interest in
                                           such property.
                                             (B) EXCEPTIONS.—Subparagraph (A) shall not apply to—
                                                (i) a contribution of a remainder interest in a personal residence or
                                             farm,
                                                (ii) a contribution of an undivided portion of the taxpayer’s entire
                                             interest in property, and
                                                (iii) a qualified conservation contribution.

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                                      (395)                           PATEL v. COMMISSIONER                                         403

                                      Congress described the purpose of section 170(f)(3) as follows:
                                        General reasons for change.—An individual receives what may be
                                      described as a double benefit by giving a charity the right to use property
                                      which he owns for a given period of time. For example, if the individual
                                      owns an office building, he may donate the use of 10 percent of its rental
                                      space to a charity for 1 year. As a result, he may report for tax purposes
                                      90 percent of the income which he otherwise would have had if the
                                      building was fully rented, and may claim a charitable deduction
                                      (amounting to 10 percent of the rental value of the building) which offsets
                                      his reduced rental income. [H.R. Rept. No. 91–413, supra at 57, 1969–3
                                      C.B. at 237.]

                                      Accord S. Rept. No. 91–552, supra at 83, 1969–3 C.B. at 477.
                                      Section 170(f)(3) is considerably broader in scope than that
                                      articulated purpose, Stark v. Commissioner, 86 T.C. 243, 250
                                      (1986), and it reflects Congress’ concern that the amount of
                                      a charitable contribution deduction might not correspond to
                                      the value of the benefit ultimately received by the charity.
                                         Respondent contends that petitioners donated to FCFRD
                                      merely the right to use the Vienna property. Respondent
                                      argues alternatively that if petitioners transferred an owner-
                                      ship interest in the house to FCFRD, they nonetheless
                                      retained substantial interest in the Vienna property and the
                                      house. Respondent concludes therefore that petitioners
                                      contributed a partial interest in the property, a deduction for
                                      which is prohibited under section 170(f)(3)(A).
                                         Petitioners assert that their granting FCFRD the right to
                                      destroy the house by burning conveyed to FCFRD all of their
                                      rights, title, and interest in the house and not merely the use
                                      of the Vienna property. 5 They assert that there is no require-
                                      ment that the land be transferred with the house and, there-
                                      fore, they are entitled to a charitable contribution deduction
                                      for the value of the house.
                                         Whether petitioners’ contribution to the FCFRD constitutes
                                      a transfer of a partial interest in property for the purposes
                                      of section 170(f) is ultimately a question of Federal law. See
                                      United States v. Craft, 535 U.S. 274, 278 (2002). The answer
                                         5 Petitioners assert that had they given FCFRD only the use of the house, they would have

                                      expected FCFRD to return it in essentially the same state as it was before the use. We do not
                                      think that such an expectation is particularly relevant where a donor intends to make improve-
                                      ments to his real property that require the destruction of the existing building situated on the
                                      land. Allowing FCFRD to burn the house during its training exercises so that petitioners might
                                      construct a new house on the site is consistent with and necessary for petitioners’ intended use
                                      of the Vienna property.

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                                      404                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                      to this Federal question, however, depends in part upon
                                      State law, which creates and governs the nature of interests
                                      in property. United States v. Nat’l Bank of Commerce, 472
U.S. 713, 722 (1985); United States v. Mitchell, 403 U.S. 190,
                                      197 (1971); Commissioner v. Estate of Bosch, 387 U.S. 456,
                                      465 (1967).
                                         ‘‘A common idiom describes property as a ‘bundle of
                                      sticks’—a collection of individual rights which, in certain
                                      combinations, constitute property.’’ Craft, 535 U.S. at 278–
                                      279. ‘‘Likewise, ownership of property is not a single indivis-
                                      ible concept but rather an aggregate or bundle of rights per-
                                      taining to the property involved.’’ Molbreak v. Commissioner,
                                      61 T.C. 382, 390 (1974), aff ’d, 509 F.2d 616 (7th Cir. 1975).
                                      ‘‘State law determines only which sticks are in a person’s
                                      bundle.’’ Craft, 535 U.S. at 279. Once property rights are
                                      determined under State law, as announced by the highest
                                      court of the State, the tax consequences are decided under
                                      Federal law. Commissioner v. Estate of Bosch, 387 U.S. 456;
                                      Aquilino v. United States, 363 U.S. 509, 512–513 (1960);
                                      Morgan v. Commissioner, 309 U.S. 78 (1940).
                                         Accordingly, we first look to Virginia law to determine
                                      what property rights petitioners had in the house and what
                                      property rights in the house were given to FCFRD. In looking
                                      to State law, we consider the substance of the property rights
                                      State law provides, including the benefits and burdens of
                                      such rights, not merely the labels the State gives these rights
                                      or the conclusions it draws from them. Craft, 535 U.S. at
                                      279.
                                           B. Virginia Real Property Law: House Is Part of the Land
                                         In Virginia the common law continues in full force except
                                      as altered by the General Assembly of Virginia. 6 Va. Code
                                      Ann. sec. 1–200 (2011); Brown v. Brown, 32 S.E.2d 79, 80
                                      (Va. 1944). By the original rule of common law everything
                                      that was affixed to land held in fee simple was considered to
                                      be a part of it. Marraro v. State, 189 N.E.2d 606, 610 (N.Y.
                                      1963). Under Virginia statutory law the terms ‘‘land’’,
                                      ‘‘lands’’, and ‘‘real estate’’ are synonymous and include
                                        6 Va. Code Ann. sec. 1–200 (2011) provides: ‘‘The common law of England, insofar as it is not

                                      repugnant to the principles of the Bill of Rights and Constitution of this Commonwealth, shall
                                      continue in full force within the same, and be the rule of decision, except as altered by the Gen-
                                      eral Assembly.’’

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                                      (395)                           PATEL v. COMMISSIONER                                           405

                                      ‘‘lands, tenements[7] and hereditaments,[8] and all rights and
                                      appurtenances thereto and interests therein, other than a
                                      chattel interest’’. 9 Va. Code Ann. sec. 1–219 (2011) (formerly
                                      sec. 1–13.12). In Stuart v. Pennis, 22 S.E. 509, 510 (Va.
                                      1895), the Supreme Court of Appeals of Virginia held:
                                      Land includes everything belonging or attached to it, above and below the
                                      surface. It includes the minerals buried in its depths, or which crop out
                                      of its surface. It equally includes the woods and trees growing upon it.
                                      Rooted and standing in the soil, and drawing their support from it, they
                                      are regarded as an integral part of the land, just as the coal, the iron, the
                                      gypsum, and the building stone which enter so largely into the business
                                      of commerce. Attached to the soil, they pass with the land, as a part of
                                      it. * * *

                                        The definition of land under Virginia law, as interpreted
                                      by the Virginia Court, is the widely recognized ordinary legal
                                      definition of land that derives from the common law. See 1
                                      Tiffany Real Prop., secs. 3, 10 (2011); Webster’s Third New
                                      International Dictionary 1268 (2002); Black’s Law Dictionary
                                      954 (9th ed. 2009). Under the common law, a fixture 10
                                      attached to the land, 11 including a structure erected on the
                                      land, is regarded as part of the land and remains so unless
                                      and until it is severed from the land. 12 Myers v. Hancock, 39
S.E.2d 246, 248 (Va. 1946); Stuart, 22 S.E. at 510; Baker v.
                                      Jim Walter Homes, Inc., 438 F. Supp. 2d 649 (W.D. Va.
                                      2006).
                                         7 ‘‘The word ‘tenement’ means either an estate or holding of land, or a house or other building

                                      used as a residence.’’ Pardoe & Graham Real Estate, Inc. v. Schulz Homes Corp., 525 S.E.2d
284, 286 (Va. 2000) (citing Black’s Law Dictionary 1480 (7th ed. 1999), and 1 Raleigh Colston
                                      Minor & Frederick Deane Goodwin Ribble, The Law of Real Property sec. 17 (2d ed. 1928)).
                                         8 ‘‘The term ‘hereditament,’ in general, signifies any interest in real property that may be in-

                                      herited by an owner’s heirs.’’ Pardoe, 525 S.E.2d at 286 (citing 1 Minor & Ribble, supra sec.
                                      17, and Caroline N. Brown, 4 Corbin on Contracts sec. 17.1 (rev. ed. 1997)).
                                         9 A chattel interest is an interest that is less than a freehold such as a lease for a year or

                                      term of years. Hannan v. Dusch, 153 S.E. 824, 827 (Va. 1930).
                                         10 A fixture is an article of personal property that ‘‘by being affixed to the realty, became ac-

                                      cessory to it and parcel of it.’’ Green v. Phillips, 67 Va. [26 Gratt. 752] 250, 252, 1875 WL 5726
                                      (1875). ‘‘A thing is deemed to be affixed to land when it is attached to it by roots, imbedded
                                      in it, permanently resting upon it, or permanently attached to what is thus permanent, as by
                                      means of cement, plaster, nails, bolts, or screws’’. Dowdy v. Silverstein, 1981 WL 180584, 2 (Va.
                                      Cir. Ct. 1981) (citing Black’s Law Dictionary 574 (5th Ed. 1979)).
                                         11 Movable buildings and fixtures that have never been attached to the land never become a

                                      part of the land and remain personal property. Pardoe, 525 S.E.2d at 286; Commonwealth v.
                                      Pembroke Limestone Works, 134 S.E. 717, 720 (Va. 1926). However, once a structure is erected
                                      and attached to the land, it becomes real property and part of the land. Pardoe, 525 S.E.2d at
                                      286.
                                         12 The common law definition of land is recognized in all 50 States. See, e.g., cases listed infra

                                      app. A wherein the courts apply the law of fixtures to determine whether an item is sufficiently
                                      ‘‘attached’’ to the land that it is considered part of the real property.

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                                      406                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                         Where a taxpayer contributes to a charity an interest in a
                                      building that is part of the land under State law but retains
                                      all title to and interest in the remaining land, the taxpayer
                                      has donated less than his entire interest in the land. The
                                      taxpayer will not be allowed a charitable contribution deduc-
                                      tion unless the donated interest falls within the exceptions of
                                      section 170(f)(3)(B).
                                         In the case at hand, the house was attached to the land
                                      and was conveyed to petitioners along with the land when
                                      they purchased the Vienna property. Under the common law
                                      and the laws of Virginia, the house was part of the land that
                                      is the real estate we refer to as the Vienna property. Peti-
                                      tioners’ purported contribution of the house to FCFRD was a
                                      contribution of less than their entire interest in the Vienna
                                      property.
                                           C. Permissible Partial Interests: Section 170(f)(3)(B)
                                        Pursuant to section 170(f)(3), where a taxpayer contributes
                                      to a charitable organization an interest in a house considered
                                      part of the land under State law but retains a substantial
                                      interest in the remaining land the taxpayer will not be
                                      allowed a charitable contribution deduction unless the
                                      donated interest is (i) an undivided portion of the taxpayer’s
                                      entire interest in property, (ii) a remainder interest in a per-
                                      sonal residence, or (iii) a qualified conservation contribution.
                                           1. Undivided Portion of Property
                                        Pursuant to section 170(f)(3)(B)(ii) a taxpayer is allowed a
                                      deduction for a contribution of ‘‘an undivided portion of the
                                      taxpayer’s entire interest in property’’. Section 1.170A–
                                      7(b)(1)(i), Income Tax Regs., provides in relevant part:
                                        (1) Undivided portion of donor’s entire interest. (i) An undivided portion
                                      of a donor’s entire interest in property must consist of a fraction or
                                      percentage of each and every substantial interest or right owned by the
                                      donor in such property and must extend over the entire term of the donor’s
                                      interest in such property and in other property into which such property
                                      is converted. For example * * * . * * * If a taxpayer owns 100 acres of
                                      land and makes a contribution of 50 acres to a charitable organization, the
                                      charitable contribution is allowed as a deduction under section 170.

                                        If a donor contributes some of the rights in the property
                                      and retains other substantial rights, the donated rights in

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                                      (395)                           PATEL v. COMMISSIONER                                            407

                                      the property are not an undivided portion of the entire
                                      interest. The substantiality of the donor’s interest in the
                                      retained property is determinative. Stark v. Commissioner,
                                      86 T.C. 243 (Tax Court held mineral interest retained by tax-
                                      payer was insubstantial).
                                         In Walshire v. United States, 288 F.3d 342 (8th Cir. 2002),
                                      the Court of Appeals for the Eighth Circuit upheld the
                                      validity of section 25.2518–3(b), Gift Tax Regs., which pro-
                                      vides the same definition for an undivided portion of a
                                      disclaimant’s entire interest in property for purposes of sec-
                                      tion 2518. 13 In discerning the meaning of ‘‘undivided
                                      interest’’, the Court of Appeals stated:
                                      The term ‘‘undivided’’ in its common usage means ‘‘not separated out into
                                      parts or shares.’’ Webster’s Third New International Dictionary 2492
                                      (1986). We are most familiar with the concept of undivided interests in the
                                      context of a tenancy in common, which is ‘‘[a] tenancy by two or more per-
                                      sons, in equal or unequal undivided shares, each person having an equal
                                      right to possess the whole property.’’ Black’s Law Dictionary 1478 (17th
                                      [sic] ed. 1999). ‘‘ ‘The central characteristic of a tenancy in common is
                                      simply that each tenant is deemed to own by himself, with most of the
                                      attributes of independent ownership, a physically undivided part of the
                                      entire parcel.’ ’’ Id. (quoting Thomas F. Bergin & Paul G. Haskell, Preface
                                      to Estates in Land and Future Interests 54 (2d ed. 1984)). From these uses
                                      of the term ‘‘undivided,’’ we discern that an undivided portion of an
                                      interest is a portion that does not separate out the bundle of rights associ-
                                      ated with the interest being apportioned. Thus, * * * an undivided portion
                                      of that [fee simple] interest would have to include all of the rights associ-
                                      ated with the fee. * * * [Walshire, 288 F.3d at 347–348. 14]

                                        The ‘‘bundle of sticks’’ that constitutes land situated in Vir-
                                      ginia includes the rights with respect to the surface of the
                                      land, the minerals in the land, the timber growing on the
                                      land, structures attached to the land, and the air space over
                                      the land. An undivided portion of a donor’s entire interest in
                                      the land must consist of a fraction or percentage of each and
                                        13 Sec. 2518 allows the donee of an interest in property to disclaim an undivided portion of

                                      a transferred interest, and that portion of the interest is treated as having never been trans-
                                      ferred to him for gift or estate tax purposes.
                                        14 If a landowner who owns a 100-acre parcel of land conveys 50 acres to a charitable organi-

                                      zation, the conveyance severs the 50 acres from 50 acres retained by the landowner and creates
                                      two separate lots. The example provided in the regulations treats the 50 acres as an undivided
                                      interest in the 100 acres. Sec. 1.170A–7(b)(1)(i), Income Tax Regs. This is consistent with and
                                      reflects the cotenants’ right to have the land partitioned. Under the regulations the transfer of
                                      the 50-acre lot to the charitable organization is a contribution of a partial interest in the original
                                      100-acre parcel—an undivided interest in the 100 acres for which a charitable contribution de-
                                      duction is permitted.

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                                      408                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                      every one of those ‘‘sticks’’ and must extend over the entire
                                      term of the donor’s interest in such property. Thus, a chari-
                                      table contribution of an interest in the land does not con-
                                      stitute a contribution of an undivided portion of the donor’s
                                      entire interest if the donor transfers some sticks and retains
                                      substantial rights in others. Stark v. Commissioner, 86 T.C.
243.
                                         We observe that while some of the sticks, e.g., minerals
                                      buried in the land and soil covering the surface of the land,
                                      extend over the entire property, others such as fixtures
                                      attach to one specific location; e.g., a building occupies only
                                      the land immediately under its footprint. A landowner can
                                      convey by metes and bounds any part of the land or convey
                                      all or a portion of his interest in the minerals, the timber,
                                      or the structures, severing the transferred interest in the
                                      land from the interest retained, creating separate estates in
                                      the land. 15 See, e.g., United Masonry, Inc. v. Jefferson Mews,
                                      Inc., 237 S.E.2d 171, 181–182 (Va. 1977) (area above the land
                                      may be subdivided into a number of three-dimensional air
                                      spaces, each susceptible of being separately conveyed; sever-
                                      ance of condominium units from the soil is ‘‘an estate in the
                                      subdivided cubes in the sky’’ analogous to the accepted rule
                                      that minerals below the topsoil may be severed from the sur-
                                      face lot); Morison v. Am. Ass’n, 65 S.E. 469 (Va. 1909) (land
                                      was divided into a surface estate and a mineral estate); Blue-
                                      field Timber, LLC v. Harlan Lee Land, LLC, 2006 WL
6185856, at *1 (Va. Cir. Ct. 2006) (the interests in the parcel
                                      consisted of three separate and distinct estates: an undivided
                                      interest in 60% of the timber; a 60% undivided interest in
                                      the surface; and a 40% interest in the fee simple).
                                         When a taxpayer transfers a fee interest in land to a chari-
                                      table organization while retaining substantial mineral rights,
                                      he does not transfer an undivided interest in the land. See
                                      Stark v. Commissioner, 86 T.C. at 254. Similarly, the
                                      transfer of mineral rights would constitute an undivided
                                      interest in the land only if the taxpayers’ retained interest
                                        15 In Virginia, an interest in land must be conveyed by deed or will. Va. Code Ann. sec. 55–

                                      2 (2007); FDIC v. Hish, 76 F.3d 620, 623 (4th Cir. 1996). ‘‘The requirements for a deed are ‘com-
                                      petent parties, a lawful subject matter, a valuable consideration, apt words of conveyance, and
                                      proper execution.’ ’’ Lim v. Choi, 501 S.E.2d 141, 143 (Va. 1998) (quoting Morison v. Am. Ass’n,
                                      65 S.E. 469, 470 (1909)). Use of technical words or strict compliance with the Virginia statute
                                      regarding form of deed is not necessary to effect a transfer if the language used plainly shows
                                      on the face of the document a clear intent to convey title. Id. at 144.

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                                      (395)                           PATEL v. COMMISSIONER                                             409

                                      in the land is insubstantial; i.e., the value of the retained
                                      interest in the land (the surface estate) is de minimis in
                                      comparison to the mineral estate. See id. at 247–248, 255.
                                         Hypothetically, because the regulations treat a division of
                                      land into separate lots as an undivided interest, a taxpayer
                                      could donate just the land under the building’s footprint,
                                      including the building, to a charitable organization. If local
                                      law permitted a landowner to divide his land into two such
                                      separate lots, the donation of an interest in the building
                                      alone would be an undivided interest in the land if the
                                      retained rights in the building and the land immediately
                                      under its footprint were insubstantial.
                                         Under the common law, a fixture that is attached to the
                                      land, including a building, is regarded as part of the land
                                      unless and until it is severed from the land. Baker, 438 F.
                                      Supp. 2d 649; Myers, 39 S.E.2d at 248; Stuart, 22 S.E. at
                                      510. When a landowner conveys the building and retains the
                                      land, unless the building is to be moved from the land, the
                                      building remains real property 16 and certain easements by
                                      necessity are implicitly granted to the building. An easement
                                      by necessity arising from an implied grant or implied res-
                                      ervation stems from the principle that whenever a party con-
                                      veys property, he conveys whatever is necessary for the bene-
                                      ficial use of that property and retains whatever is necessary
                                      for the beneficial use of land he still possesses. Middleton v.
                                      Johnston, 273 S.E.2d 800, 803 (Va. 1981); Jennings v.
                                      Lineberry, 21 S.E.2d 769, 771 (Va. 1942); see also Powell v.
                                      Magee, 60 S.E.2d 897, 899 (Va. 1950) (if a landowner conveys
                                      the land but retains a building surrounded by the land con-
                                      veyed, it will be assumed that the parties intended that the
                                      grantor has reserved a right of way (easement) over the land
                                      conveyed). Thus, if a landowner conveys the building and
                                      retains the land, it will be assumed that the parties intended
                                      that the grantor has granted the right to have the building
                                      supported by the land (the right of subjacent support),
                                      Tunstall v. Christian, 80 Va. 1, 1885 WL 4179 (1885); 17 see
                                        16 ‘‘ ‘ ‘‘A man may have an inheritance in an upper chamber, though the lower buildings and

                                      soile be in another, and seeing it is an inheritance corporeall it shall passe by livery.’’ ’ ’’ United
                                      Masonry, Inc. v. Jefferson Mews, Inc., 237 S.E.2d 171, 181 (Va. 1977) (quoting commentator
                                      quoting Lord Coke).
                                        17 In Tunstall v. Christian, 80 Va. 1, 1885 WL 4179, at *1–*3 (1885), the Supreme Court of

                                      Virginia held:
                                                                                                    Continued

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                                      410                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                      also Large v. Clinchfield Coal Co., 387 S.E.2d 783, 786 (Va.
                                      1990), and a right of way over the lands has been retained
                                      by the grantor, Powell, 60 S.E.2d at 899 (citing 1 Minor on
                                      Real Property (2d ed.), 1 Ribble, at 140, sec. 101); Jennings,
                                      21 S.E.2d 769. 18 These easements by necessity pass to the
                                      successors in title of the building, and they will not be extin-
                                      guished by the destruction of the building but will survive
                                      and adhere to the new building the owner of the destroyed
                                      building erects on its ruins. Stevenson v. Wallace, 68 Va. 77
                                      (1876).
                                        Granting a fire department the right to destroy the
                                      building while conducting training exercises on the property
                                      does not transfer to the fire department all the benefits and
                                      burdens of ownership and title to the building. The fire
                                      department does not have the right to keep and use the
                                      building in its current condition with ingress and egress over
                                      the land retained by the landowner, to sell the building with
                                      all the rights attached thereto, or to construct a new building
                                      on the site of the destroyed building. The landowner retains
                                      those substantial rights. Indeed, petitioners granted FCFRD
                                      the right to burn the house so that they could exercise those
                                      rights. Nor does the contribution transfer the burdens of
                                      ownership of the building. The landowner must make the
                                      building suitable for use in the training exercises; e.g., by
                                      removing any asbestos present in the building, obtaining any
                                      permits required by local government, and disconnecting
                                         It is well settled that the right to support for land from the adjacent and subjacent soil is
                                      a natural right, analogous to the flow of a natural river or of air. It stands on natural justice,
                                      and is not dependant upon grant; * * *. But the right is confined to the soil in its natural condi-
                                      tion. It does not extend to buildings or other artificial burdens thereon, increasing the downward
                                      and lateral pressure. * * *
                                         The right to support for artificial burdens on land is an easement, and can be acquired only
                                      by grant, express or implied. * * *

                                                         *         *          *          *         *          *    *
                                         * * * The right [to subjacent support] is also implied where property, consisting of a house
                                      and unimproved land, is severed by sale. And the right to support, thus granted and reserved,
                                      is transmitted to the successors in title of the parties respectively. * * *
                                         18 An easement is the privilege to use the land of another in a particular manner and for a

                                      particular purpose. Russakoff v. Scruggs, 400 S.E.2d 529, 531–532 (Va. 1991) (citing Brown v.
                                      Haley, 355 S.E.2d 563, 567–568 (Va. 1987)). If one part of the land is used for the benefit of
                                      another part (the dominant tract), a ‘‘quasi-easement’’ exists over the ‘‘quasi-servient’’ portion
                                      of the land. Id. at 532. That easement is conveyed by implication when the dominant tract is
                                      severed from the servient tract. The existence of the easement is established on a showing that
                                      (1) the dominant and servient tracts originated from a common grantor, (2) the use was in exist-
                                      ence at the time of the severance, and that (3) the use is apparent, continuous, and reasonably
                                      necessary for the enjoyment of the dominant tract. Id. (citing Brown, 355 S.E.2d at 569, and
                                      Fones v. Fagan, 196 S.E.2d 916, 919 (1973)).

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                                      (395)                           PATEL v. COMMISSIONER                                         411

                                      utilities. The landowner is also responsible for safeguarding
                                      the public from hazardous conditions remaining after the
                                      training exercises are completed, such as open pits, base-
                                      ments and wells, standing walls and chimney, and burned
                                      and unburned debris.
                                         If the landowner conveys the building and retains the land
                                      with the intent that the building be detached and removed
                                      from the land, the easements by necessity are not granted to
                                      the building. Severance of the building from the land may be
                                      actual, by detachment of the building from the land, or it
                                      may be constructive, by express or implied agreement that it
                                      will be detached. Myers, 39 S.E.2d at 248. Constructive
                                      severance of a fixture that is to be detached from the land
                                      ‘‘makes the fixture an entity distinct from the land, so that
                                      it will not pass with the land upon a conveyance of the latter,
                                      if the purchaser of the land have notice of such agreement.’’
                                      Id. However, since the fixture is real property until sever-
                                      ance, a transfer of the fixture is a transfer of real property.
                                      Id.
                                         To effect a constructive severance of a building from land,
                                      the transfer ordinarily must be in a writing in a form suffi-
                                      cient for a conveyance of land, 2 Tiffany Real Property, sec.
                                      624 (3d ed. 1939); i.e., to effect a constructive severance, the
                                      writing must convey ownership and title to the building. The
                                      grant of an easement, a lease, or a license will not construc-
                                      tively sever the building from the land.
                                         Granting a fire department the right to destroy the
                                      building while conducting training exercises on the property
                                      is not a conveyance of ownership, title, or possession of the
                                      building or any other property interest in the building or the
                                      Vienna property. Rather it is a mere license to use the prop-
                                      erty.
                                         A license is a right, given by some competent authority, to
                                      do an act which without such authority would be illegal, a
                                      tort, or a trespass. Bunn v. Offutt, 222 S.E.2d 522 (Va. 1976).
                                      A license is a mere unassignable privilege that is personal
                                      between the licensor and the licensee and passes no interest
                                      in any portion of the land to the licensee. Peabody v. United
                                      States, 175 U.S. 546, 550 (1899) (citing De Haro v. United
                                      States, 72 U.S. 599, 627 (1866)); Bunn v. Offutt, 222 S.E.2d
522. The stated definition, scope, and effect of a license is the
                                      widely recognized ordinary legal definition of license that

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                                      412                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                      derives from the common law. 19 See 3 Tiffany Real Prop.,
                                      supra, secs. 829, 831; Webster’s Third New International Dic-
                                      tionary 1304; Black’s Law Dictionary 1002–1003.
                                         The Supreme Court of Appeals of Virginia has established
                                      a well-marked dividing line between the class of agreements
                                      that constitute revocable licenses and those that grant either
                                      an estate or easement in land. Church v. Goshen Iron Co., 72
S.E. 685, 686 (Va. 1911). In order to ascertain whether an
                                      instrument must be construed as more than a mere license,
                                      it is only necessary to determine whether the grantee has
                                      acquired by it any estate in the land in respect of which he
                                      might bring an action of ejectment. Id. For an instrument to
                                      constitute more than a mere license, there must be an exclu-
                                      sive right of possession vested in the grantee. If the land is
                                      still to be considered in the possession of the grantor, the
                                      instrument will only amount to a license. Id.
                                         In Bostic v. Bostic, 99 S.E.2d 591, 594 (Va. 1957), the
                                      Supreme Court of Appeals of Virginia held that a grant
                                      merely of the right to enter and take minerals from the land
                                      is not an absolute grant of the minerals in place as real
                                      estate. Such a grant creates a mere incorporeal right, privi-
                                      lege, or license in the grantee that carries with it no interest
                                      in the land. Id. at 594–595. The grantee of the license will
                                      be entitled to do the permitted acts according to the terms
                                      of his grant and appropriate the minerals to his own use, but
                                      he will acquire no interest in the minerals until they are
                                      actually separated from the land and have become recover-
                                      able in an action of trover. Id. at 595; Church, 72 S.E. at 686.
                                         In Young v. Young, 63 S.E. 748, 749 (Va. 1909), the Vir-
                                      ginia Supreme Court held that a license to cut and sell
                                      timber on the land created no estate or property in the
                                      timber itself until it was actually severed from the land. In
                                      reaching that conclusion the court pointed out that a license
                                      to cut and sell timber does not vest title to the timber in the
                                      licensee before the actual severance of such timber. See also
                                      Bostic, 99 S.E.2d 591.
                                         Granting a fire department the right to conduct training
                                      exercises on one’s property and destroy a building thereon by
                                      fire grants the fire department the right ‘‘to do an act which
                                        19 Cases cited infra app. B indicate that license has the same definition and scope in 47 States

                                      and the District of Columbia. Our limited search on Westlaw did not identify any opinions on
                                      the issue issued by the courts of Alaska, Louisiana, or Nevada.

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                                      (395)                           PATEL v. COMMISSIONER                                         413

                                      without such authority would be illegal, a tort, or a tres-
                                      pass’’. The fire department does not acquire the right to eject
                                      the landowner from the building and cannot force the land-
                                      owner to allow the destruction of the building should he
                                      change his mind before the house has been destroyed. The
                                      fire department has acquired a mere revocable license that
                                      does not vest any property interest in the fire department. 20
                                      Because the grant does not convey an interest in any prop-
                                      erty, it does not constructively sever the building from the
                                      land.
                                         Moreover, when a taxpayer grants a fire department the
                                      right to destroy a building while conducting training exer-
                                      cises on his property, it is the destruction of the building that
                                      actually severs it from the land. Since the landowner retains
                                      rights and responsibility for the debris (everything that has
                                      not disintegrated), at the time of severance, there is no prop-
                                      erty to which title could vest in the fire department.
                                         Although the value of the remnants of the building may be
                                      de minimis after the training exercises, property rights
                                      include not only the benefits of ownership but also its bur-
                                      dens. At all times, petitioners retained all the burdens of
                                      ownership of the house, except for liability for any injury to
                                      a fireman incurred during the training exercises. Petitioners
                                      as owners of the house obtained the demolition permit from
                                      the county. They were responsible for safeguarding the public
                                      from hazardous conditions created by the destruction of the
                                      house including any open pits, standing walls and chimneys,
                                      and debris remaining after the training exercises were com-
                                      pleted. They retained a substantial ownership interest in the
                                      house in the form of their liability for any injury that might
                                      be caused by the hazardous conditions of the remnants of the
                                      building remaining after FCFRD completed its exercises.
                                         Petitioners assert that under the holding of Scharf v.
                                      Commissioner, T.C. Memo. 1973–265, allowing FCFRD to
                                      destroy the house was a conveyance of the house. In Scharf
                                      the taxpayer owned a building that had been partially
                                      destroyed by fire, and he allowed a volunteer fire department
                                      to destroy it by fire for training purposes. Although the facts
                                         20 In Virginia, land must be conveyed by deed or will. Va. Code Ann. sec. 55–2; FDIC v. Hish,

                                      76 F.3d at 623. Use of technical words or strict compliance with the Virginia statute regarding
                                      form of deed is not necessary to effect a transfer if the language used plainly shows on the face
                                      of the document a clear intent to convey title. Lim, 501 S.E.2d at 144.

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                                      414                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                      in Scharf are nearly indistinguishable from the facts in this
                                      case, petitioners’ reliance on Scharf is unfounded for multiple
                                      reasons. First, in deciding the amount of the deduction in
                                      Scharf, the Court held that it was not necessary to choose
                                      between the fair market value of the building in its damaged
                                      condition and the value of the donated use of the building
                                      because the values were the same. Thus, the Court did not
                                      decide in Scharf whether the taxpayer had donated the
                                      building or just the use of the building. Second, the Court
                                      allowed a charitable contribution deduction for the donation
                                      in Scharf because it held that the public benefit of firefighter
                                      training greatly exceeded the demolition benefit received by
                                      the donor taxpayer. In Rolfs v. Commissioner, 135 T.C. 471,
                                      487 (2010), aff ’d, 668 F.3d 888 (7th Cir. 2012), we held that
                                      the public benefit standard applied in Scharf has been super-
                                      seded by the quid pro quo standard established by the
                                      Supreme Court in United States v. Am. Bar Endowment, 477
U.S. 105, 118 (1986). Third, one significant and distinguish-
                                      able fact in Scharf makes the opinion inapplicable here;
                                      namely, the taxpayer in Scharf made the contribution in
                                      1967, before Congress amended section 170 to disallow a
                                      deduction for contributions of partial interests in property.
                                      The amendment to section 170 makes Scharf inapplicable to
                                      contributions made after 1969.
                                        We hold that petitioners did not contribute the house or an
                                      undivided interest in the Vienna property to the FCFRD.
                                           2. Remainder Interest in a Personal Residence
                                        A remainder is a future interest in property ‘‘limited in
                                      favor of a transferee in such manner that it can become a
                                      present interest upon the expiration of all prior interests
                                      simultaneously created’’. 2 Restatement, Property, sec. 156
                                      (1936). A vested remainder ripens into title in fee upon the
                                      death of the life tenant. See, e.g., Miller v. Citizens Nat’l
                                      Bank, 60 S.E.2d 868, 870 (Va. 1950). When a taxpayer grants
                                      a fire department a license to conduct training exercises on
                                      his land and destroy the house situated thereon during the
                                      exercise, the fire department does not receive a remainder
                                      interest, or any other interest, in the house.
                                        Additionally, in the case at hand, petitioners never used
                                      the house as their personal residence before FCFRD destroyed

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                                      (395)                           PATEL v. COMMISSIONER                                         415

                                      it while conducting its training exercises. See sec. 1.170A–
                                      7(b)(3), Income Tax Regs.; see also Estate of Brock v.
                                      Commissioner, 71 T.C. 901, 906–907 (1979), aff ’d, 630 F.2d
368 (5th Cir. 1980).
                                         We hold that petitioners did not contribute a remainder
                                      interest in a personal residence to FCFRD.
                                           3. Qualified Conservation Contribution
                                         A qualified conservation contribution is a contribution of a
                                      qualified real property interest to a qualified organization
                                      exclusively for conservation purposes. Sec. 170(h)(1). Section
                                      170(h)(4)(A) generally provides that a contribution is for a
                                      conservation purpose if it: (1) preserves land for outdoor
                                      recreation by, or the education of, the general public, (2) pro-
                                      tects a relatively natural habitat of fish, wildlife, or plants,
                                      or similar ecosystem, (3) preserves open space for the scenic
                                      enjoyment of the general public or pursuant to a Federal,
                                      State, or local governmental conservation policy, and this
                                      preservation will yield a significant public benefit, or (4) pre-
                                      serves a historically important land area or a certified his-
                                      toric structure. See also sec. 1.170A–14(d)(1), Income Tax
                                      Regs. A contribution of a qualified real property interest may
                                      be exclusively for conservation purposes only if it is protected
                                      in perpetuity. Sec. 170(h)(5)(A). We recognize that contribu-
                                      tion of a taxpayer’s house to a volunteer fire department for
                                      destruction by burning during training exercises provides
                                      valuable training experience for the volunteer firefighters
                                      that serves to further the protection of property. However,
                                      that is not a conservation purpose for purposes of section
                                      170.
                                         We hold that petitioners did not make a qualified conserva-
                                      tion contribution to FCFRD.
                                           D. Conclusion
                                         As with this case, taxpayers usually grant a fire depart-
                                      ment license to destroy a building on their land because they
                                      wish to have it removed from the land, either to increase the
                                      value of the land (Scharf) or so that they may construct a
                                      new building on the land (Rolfs). The Court of Appeals for
                                      the Seventh Circuit accurately described such donations as
                                      follows: ‘‘The taxpayers here gave away only the right to

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                                      416                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                      come onto their property and demolish their house, a service
                                      for which they otherwise would have paid a substantial
                                      sum.’’ Rolfs v. Commissioner, 668 F.3d at 895. The taxpayers
                                      retain all property rights appertaining to the building. See
                                      id. (‘‘None of the value of the house, as a house, was actually
                                      given away.’’). Such taxpayers, including petitioners, give
                                      only the use of their property to the fire department. 21 Sec-
                                      tion 170(f) denies them a charitable contribution deduction
                                      for the contribution of the use of their property regardless of
                                      the value of that use or the fact that the value of the debris
                                      remaining after the training exercises was de minimis. 22 Cf.
                                      Logan v. Commissioner, T.C. Memo. 1994–445. We hold that
                                      petitioners are not entitled to any deduction for their
                                      granting FCFRD the right to conduct training exercises on the
                                      Vienna property and to destroy the house by burning during
                                      those exercises.
                                      II. Accuracy-Related Penalties
                                        Respondent determined that petitioners are liable for an
                                      accuracy-related penalty under section 6662(a) and (b)(1) and
                                      (2) for negligence and substantial understatement of income
                                      tax. Under section 6664(c), however, generally no penalty is
                                      imposed under section 6662 with respect to any portion of an
                                      underpayment if it is shown that there was reasonable cause
                                      for such portion and that the taxpayer acted in good faith
                                        21 This is consistent with the following explanation in Fairfax County Fire and Rescue Ac-

                                      quired Structure Powerpoint published on the Internet at www.fairfaxcounty.gov/fr/academy/Ac-
                                      quiredlStructurelPowerpoint.pdf, of which we take judicial notice:
                                         When a property owner loans their property to the program for training, they are performing
                                      a valuable service to their community. * * *
                                         Each property that is offered to the program must meet extensive requirements prior to ac-
                                      ceptance and utilization (e.g. acquiring the appropriate permits, the structural stability assess-
                                      ment, asbestos free inspection, and confirmation that utilities have been disconnected).
                                         For live burn training, the structures are not completely burned to the ground and remain the
                                      responsibility of the property owner for demolition and removal.
                                         [Emphasis added.]
                                         22 In Rolfs v. Commissioner, 135 T.C. 471 (2010), aff ’d, 668 F.3d 888 (7th Cir. 2012), we held

                                      that the taxpayers did not make a charitable contribution because they did not prove that the
                                      value of the house (taking into account the requirement that it be destroyed) exceeded the sub-
                                      stantial benefit they received in the form of demolition services. In affirming this Court, the
                                      Court of Appeals opined: ‘‘Perhaps the best ‘comparable sales’ comparison might have been the
                                      price paid by the fire department to rent a burn tower for the length of time the department
                                      conducted exercises in and around the lake house, but there is no such evidence here.’’ Rolfs
                                      v. Commissioner, 668 F.3d at 895. However, the Court of Appeals held that the taxpayers gave
                                      away only the right to come onto their property and demolish their house. Id. Where only the
                                      use of the taxpayers’ property is donated, a charitable contribution deduction is denied by sec.
                                      170(f)(3) and the value of the contribution is irrelevant.

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                                      (395)                           PATEL v. COMMISSIONER                                         417

                                      with respect to such portion. The determination of whether
                                      a taxpayer acted with reasonable cause and in good faith ‘‘is
                                      made on a case-by-base basis, taking into account all perti-
                                      nent facts and circumstances.’’ Sec. 1.6664–4(b)(1), Income
                                      Tax Regs.
                                         When petitioners filed their return, the legal issues raised
                                      by their charitable contribution deduction claim were not set-
                                      tled. Importantly, in Scharf v. Commissioner, T.C. Memo.
                                      1973–265, this Court held that a charitable contribution
                                      deduction was available for the donation of a building to a
                                      volunteer fire department for demolition in firefighter
                                      training exercises. The donation in Scharf was made in 1967
                                      before Congress amended section 170 to disallow a charitable
                                      contribution deduction for the contribution of a partial
                                      interest in property, and the standard applied in Scharf was
                                      subsequently superseded by the quid pro quo standard for
                                      charitable contribution deductions established by the
                                      Supreme Court in Am. Bar Endowment, 477 U.S. 105. No
                                      Federal court had reconsidered or questioned Scharf until
                                      2010 when this Court issued Rolfs v. Commissioner, 135 T.C.
471, wherein we applied the quid pro quo standard. 23 In
                                      Rolfs we held the taxpayers had not made a charitable con-
                                      tribution because they received a substantial benefit in the
                                      form of demolition services, the value of which exceeded the
                                      value of the interest in the house donated. We did not decide
                                      whether section 170(f)(3) applied.
                                         Given all the facts and circumstances, including the uncer-
                                      tain state of the law, we find that petitioners acted with
                                      reasonable cause and in good faith. Therefore, we hold that
                                      they are not liable for any penalty under section 6662.
                                         Respondent is entitled to summary judgment only on the
                                      charitable contribution issue. We have ruled in petitioners’
                                      favor on the penalty issue, and there are no other issues to
                                      be decided in this case.
                                         23 We have found only two other cases involving the contribution of a building to a fire depart-

                                      ment for training purposes made after the amendment to sec. 170. In each case the taxpayers
                                      were not entitled to a deduction for the contribution regardless of whether the building was part
                                      of the land. In the first case, Lawver v. Commissioner, T.C. Memo. 1981–192, this Court held
                                      that the taxpayer was allowed a deduction for the loss on the building which precluded an addi-
                                      tional deduction for the donation to the fire department. In Hendrix v. United States, 106
                                      A.F.T.R.2d (RIA) 2010–5373, 2010–2 U.S. Tax Cas. (CCH) para. 50,541, 2010 WL 2900391 (S.D.
                                      Ohio 2010), the U.S. District Court for the Southern District of Ohio held that the taxpayers
                                      were not entitled to the deduction because they did not obtain a qualified appraisal and attach
                                      it to their tax return as required by sec. 170(f)(11)(C).

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                                      418                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                           Accordingly,
                                                                     An appropriate order will be issued, and
                                                                   decision will be entered under Rule 155.
                                        Reviewed by the Court.
                                        COLVIN, COHEN, VASQUEZ, THORNTON, MARVEL, GUSTAF-
                                      SON, and MORRISON, JJ., agree with this opinion of the
                                      Court.
                                        PARIS, J., concurs in the result only.
                                        KERRIGAN, J., dissents.

                                                                                APPENDIX A

                                        The following cases show that fixtures are considered part
                                      of the land under the common law in all 50 States: Sycamore
                                      Mgmt. Grp., LLC v. Coosa Cable Co., Inc., 42 So. 3d 90, 93
                                      (Ala. 2010); K & L Distribs., Inc. v. Kelly Elec., Inc., 908 P.2d
429, 432 (Alaska 1995); Fish v. Valley Nat’l Bank of Phoenix,
                                      167 P.2d 107, 111 (Ariz. 1946); Ozark v. Adams, 83 S.W. 920,
                                      921 (Ark. 1904); R. Barcroft & Sons Co. v. Cullen, 20 P.2d
665 (Cal. 1933); Rare Metals Min. & Mill. Co. v. W. Colo.
                                      Power Co., 213 P. 124 (Colo. 1923); Merritt-Chapman & Scott
                                      Corp. v. Mauro, 368 A.2d 44, 47 (Conn. 1976); Della Corp. v.
                                      Diamond, 210 A.2d 847, 850 (Del. 1965); Burbridge v.
                                      Therrell, 148 So. 204, 206 (Fla. 1933); Nat’l Cmty. Builders,
                                      Inc. v. Citizens & So. Nat’l Bank, 207 S.E.2d 510, 512 (Ga.
                                      1974); Ahoi v. Pacheco, 1914 WL 1743, at *1 (Haw. Terr.
                                      1914); Beeler v. C.C. Mercantile Co., 70 P. 943 (Idaho 1902);
                                      White Way Elec. Sign & Maint. Co. v. Chi. Title & Trust Co.,
                                      14 N.E.2d 839, 841 (Ill. 1938); State ex. rel. Green v. Gibson
                                      Circuit Court, 206 N.E.2d 135, 138 (Ind. 1965); Ford v.
                                      Venard, 340 N.W.2d 270 (Iowa 1983); Blankenship v. School
                                      Dist. No. 28 of Wyandotte Cnty., 15 P.2d 438, 439 (Kan.
                                      1932); Tarter v. Turpin, 291 S.W.2d 547 (Ky. 1956); Prevot v.
                                      Courtney, 129 So. 2d 1, 3 (La. 1961); Searle v. Town of
                                      Bucksport, 3 A.3d 390, 396 (Me. 2010); Supervisor of Assess-
                                      ments of Anne Arundel Cnty. v. Hartge Yacht Yard, Inc., 842
A.2d 732, 738 (Md. 2004); Meeker v. Oszust, 30 N.E.2d 246
                                      (Mass. 1940); Sequist v. Fabiano, 265 N.W. 488 (Mich. 1936);
                                      Merch. Nat’l Bank of Crookston v. Stanton, 56 N.W. 821, 822

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                                      (395)                           PATEL v. COMMISSIONER                                         419

                                      (Minn. 1893); Connolly v. McLeod, 52 So. 2d 473, 476 (Miss.
                                      1951); Marsh v. Spradling, 537 S.W.2d 402, 404 (Mo. 1976);
                                      Grinde v. Tindall, 562 P.2d 818 (Mont. 1977); Fuel Explo-
                                      ration, Inc. v. Novotny, 374 N.W.2d 838, 842 (Neb. 1985);
                                      Flyge v. Flynn, 166 P.2d 539, 552 (Nev. 1946); New England
                                      Tel. & Tel. Co. v. City of Franklin, 685 A.2d 913 (N.H. 1996);
                                      Gen. Motors Corp. v. City of Linden, 696 A.2d 683 (N.J.
                                      1997); Garrison Gen. Tire Serv., Inc. v. Montgomery, 404 P.2d
143 (N.M. 1965); Marraro v. State, 189 N.E.2d 606, 610 (N.Y.
                                      1963); Lee-Moore Oil Co. v. Cleary, 245 S.E.2d 720, 722 (N.C.
                                      1978); Strobel v. Northwest G. F. Mut. Ins. Co., 152 N.W.2d
794, 796 (N.D. 1967); Masheter v. Boehm, 307 N.E.2d 533
                                      (Ohio 1974); Akers v. Hintergardt, 203 P.2d 883, 884 (Okla.
                                      1949); First State & Sav. Bank v. Oliver, 198 P. 920 (Or.
                                      1921); First Nat’l Bank of Mount Carmel v. Reichneder, 91
A.2d 277, 280 (Pa. 1952); Butler v. Butler’s Diner, Inc., 98
A.2d 875, 876 (R.I. 1953); Carroll v. Britt, 86 S.E.2d 612 (S.C.
                                      1955); Killian v. Hubbard, 9 N.W.2d 700 (S.D. 1943); Knox-
                                      ville Gas Co. v. W. I. Kirby & Sons, 32 S.W.2d 1054 (Tenn.
                                      1930); O’Neil v. Quilter, 234 S.W. 528 (Tex. 1921); Couch v.
                                      Welsh, 66 P. 600 (Utah 1901); Sherburne Corp. v. Town of
                                      Sherburne, 207 A.2d 125, 127 (Vt. 1965); Island Cnty. v.
                                      Dillingham Dev. Co., 662 P.2d 32 (Wash. 1983); Ohio Cel-
                                      lular RSA Ltd. P’ship v. Bd. of Pub. Works of State of W. Va.,
                                      481 S.E.2d 722, 727 (W. Va. 1996); Milburn By-Prod. Coal
                                      Co. v. Eagle Land Co., 93 S.E.2d 231 (W. Va. 1956);
                                      Premonstratensian Fathers v. Badger Mut. Ins. Co., 175
N.W.2d 237 (Wis. 1970); Wyo. State Farm Loan Board v.
                                      FCSCC, 759 P.2d 1230 (Wyo. 1988).

                                                                                APPENDIX B

                                        The following cases indicate that, consistent with the
                                      common law in Virginia as set forth in Bunn v. Offutt, 222
S.E.2d 522 (Va. 1976), a license does not convey an interest
                                      in the property under the common law in the 49 remaining
                                      States (listed alphabetically) and the District of Columbia:
                                      Davis v. Miller Brent Lumber Co., 44 So. 639 (Ala. 1907);
                                      Laverty v. Alaska R.R. Corp. 13 P.3d 725, 735 (Alaska 2000);
                                      Charlebois v. Renaud, 300 P. 190 (Ariz. 1931); Harbottle v.
                                      Cent. Coal & Coke Co., 203 S.W. 1044 (Ark. 1918); Beckett v.
                                      City of Paris Dry Goods Co., 96 P.2d 122 (Cal. 1939); Radke

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                                      420                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                      v. Union Pac. R. Co., 334 P.2d 1077 (Colo. 1959); Bland v.
                                      Bregman, 192 A. 703, 705 (Conn. 1937); Timmons v. Cropper,
                                      172 A.2d 757 (Del. Ch. 1961); Burdine v. Sewell, 109 So. 648
                                      (Fla. 1926); Henson v. Airways Serv., Inc., 136 S.E.2d 747
                                      (Ga. 1964); Kiehm v. Adams, 126 P.3d 339 (Haw. 2005);
                                      Shultz v. Atkins, 554 P.2d 948 (Idaho 1976); Cook v. Univ.
                                      Plaza, 427 N.E.2d 405 (Ill. App. Ct. 1981) (citing Holladay v.
                                      Chi. Arc Light & Power Co., 55 Ill. App. 463 (1st Dist. 1894));
                                      One Dupont Centre, LLC v. Dupont Auburn, LLC, 819 N.E.2d
507, 513–514 (Ind. Ct. App. 2004); Baker v. Kenney, 124 N.W.
901 (Iowa 1910); Denver Nat’l Bank of Denver, Colo. v. State
                                      Comm’n of Revenue, 272 P.2d 1070 (Kan. 1954); Polley v.
                                      Ford, 227 S.W. 1007 (Ky. 1921); Blackshear v. Hood, 45 So.
957 (La. 1908); Benham v. Morton & Furbish Agency, 929
A.2d 471, 475 (Me. 2007); Condry v. Laurie, 41 A.2d 66 (Md.
                                      1945); Baseball Publ’g Co. v. Bruton, 18 N.E.2d 362 (Mass.
                                      1938); Kitchen v. Kitchen, 641 N.W.2d 245, 249 (Mich. 2002);
                                      Hotel Markham v. Patterson, 32 So. 2d 255 (Miss. 1947);
                                      Kuhlman v. Stewart, 221 S.W. 31 (Mo. 1920); Johnson v.
                                      Skillman, 12 N.W. 149 (Minn. 1882); Herigstad v. Hardrock
                                      Oil Co., 52 P.2d 171 (Mont. 1935); Brown Cnty. Agric. Soc’y,
                                      Inc. v. Brown Cnty. Bd. of Equalization, 660 N.W.2d 518
                                      (Neb. App. Ct. 2003); Paul v. Cragna, 59 P. 857 (Nev. 1900);
                                      Houston v. Laffee, 46 N.H. 505, 1866 WL 1951 (1866);
                                      Mandia v. Applegate, 708 A.2d 1211 (N.J. Super. Ct. App.
                                      Div. 1998); Bd. of Cnty. Comm’rs of Dona Ana Cnty. v. Sykes,
                                      394 P.2d 278 (N.M. 1964); Cahoon v. Bayard, 25 N.E. 376
                                      (N.Y. 1890); Moon v. Central Builders, Inc., 310 S.E.2d 390
                                      (N.C. Ct. App. 1984); Lee v. N.D. Park Serv., 262 N.W.2d 467
                                      (N.D. 1977); Rodefer v. Pittsburg, O. V. & C. R.R. Co., 74
N.E. 183, 185–186 (Ohio 1905); McKenna v. Williams, 167
P.2d 368, 370 (Okla. 1946); McCarthy v. Kiernan, 245 P. 727
                                      (Or. 1926); Baldwin v. Taylor, 31 A. 250 (Pa. 1895); Fish v.
                                      Capwell, 29 A. 840 (R.I. 1894); Briarcliffe Acres v. Briarcliffe
                                      Realty Co., 206 S.E.2d 886 (S.C. 1974); Polk v. Carney, 112
N.W. 147 (S.D. 1907); Harris v. Miller, 19 Tenn. 158, 1838
WL 1108 (Tenn. 1838); Settegast v. Foley Bros. Dry Goods
                                      Co., 270 S.W. 1014, 1016 (Tex. 1925); Kennedy v. Combined
                                      Metals Reduction Co., 51 P.2d 1064 (Utah 1935); Price v.
                                      Rowell, 159 A.2d 622 (Vt. 1960); Bakke v. Columbia Valley
                                      Lumber Co., 298 P.2d 849 (Wash. 1956); Campbell Brown &
                                      Co. v. Elkins, 93 S.E.2d 248 (W. Va. 1956); French v. Owen,

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                                      (395)                           PATEL v. COMMISSIONER                                         421

                                      2 Wis. 250, 1853 WL 1760 (Wis. 1853); Seven Lakes Dev. Co.,
                                      L.L.C. v. Maxson, 144 P.3d 1239 (Wyo. 2006); Jackson v.
                                      Emmons, 19 App. D.C. 250, 254, 1902 WL 19620 (D.C. 1902).

                                         GALE, J., dissenting: The opinion of the Court holds that
                                      petitioners’ grant of permission to the local fire department
                                      to destroy the house on their property merely granted a
                                      license to use the house, making it a contribution of less than
                                      their entire interest in the house, disallowed under section
                                      170(f)(3) because it did not constitute a contribution of an
                                      undivided portion of their entire interest in the property as
                                      provided in section 170(f)(3)(B)(ii). I disagree. Petitioners’
                                      grant of permission to destroy conveyed more than a license
                                      to use the house. When an owner of property grants a license
                                      for its use, that grant necessarily includes the premise that
                                      the property will be returned to the owner when the licensed
                                      use terminates, subject to ordinary wear and tear. Permis-
                                      sion to destroy eliminates that premise, and upon destruction
                                      the property interests formerly held by the owner are trans-
                                      ferred to the licensee with such permission.
                                         Here, the fire department’s destruction of the house sev-
                                      ered it from the land (as the opinion of the Court concedes,
                                      see op. Ct. p. 413) pursuant to petitioners’ written permission
                                      and thus rendered the structure personal property. See 2 Tif-
                                      fany Real Property sec. 623 (3d ed. 1939) (actual severance
                                      of a fixture from land converts it to personal property if the
                                      owner intends the severance to be permanent). Petitioners
                                      ceded every substantial interest they held in that personal
                                      property and at best retained only insubstantial interests
                                      (such as ownership of the postburn debris). They did not
                                      expect the structure to be returned to them, and it was not.
                                      As it was tangible personal property, all of petitioners’
                                      substantial property interests in the structure were con-
                                      sumed by the fire department when it destroyed the struc-
                                      ture in furtherance of its training objectives.
                                         An exception to disallowance under section 170(f)(3) is
                                      made where the taxpayer makes a contribution of an undi-
                                      vided portion of his entire interest in property. The regula-
                                      tions interpret an undivided portion of a donor’s entire
                                      interest as follows:

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                                      422                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                      An undivided portion of a donor’s entire interest in property must consist
                                      of a fraction or percentage of each and every substantial interest or right
                                      owned by the donor in such property and must extend over the entire term
                                      of the donor’s interest in such property and in other property into which
                                      such property is converted. * * * [Sec. 1.170A–7(b)(1)(i), Income Tax Regs.;
                                      emphasis added.]

                                      We have interpreted this ‘‘insubstantiality rule’’ in the regu-
                                      lations as permitting the retention by the donor of insubstan-
                                      tial interests in the donated property without triggering a
                                      disallowance of his deduction under section 170(f)(3). Stark v.
                                      Commissioner, 86 T.C. 243, 252 (1986). In Stark we held that
                                      section 170(f)(3) was not triggered even though the donor of
                                      land retained the interest in all minerals and the right to
                                      mine for them, subject to certain U.S. Forest Service regula-
                                      tions. We reasoned that the mineral interest as so restricted
                                      was so insubstantial that the donor had ‘‘in substance’’ trans-
                                      ferred his entire interest in the land for purposes of section
                                      170(f)(3). Id. at 252–253. The mineral interest retained by
                                      the donor was not a ‘‘ ‘substantial interest or right’ ’’ within
                                      the meaning of section 1.170A–7(b)(1)(i), Income Tax Regs.,
                                      we concluded. Id. at 255; see also Rev. Rul. 75–66, 1975–1
                                      C.B. 85, 86 (retention of right to train hunting dogs and
                                      maintain trails for that purpose on donated land ‘‘not
                                      substantial enough to affect the deductibility of the property
                                      contributed’’).
                                         Once the fire department destroyed the structure as con-
                                      templated, petitioners retained no substantial interest in it
                                      that would trigger the section 170(f)(3) limitation on their
                                      charitable contribution deduction. 1 Under Virginia property
                                      law (as discussed more fully below), petitioners’ written
                                      permission to enter their land and destroy the house con-
                                      veyed to the fire department a property interest in the struc-
                                      ture, effective upon its severance via demolition. The opinion
                                      of the Court contends that petitioners nonetheless retained a
                                      substantial property interest in the house after its destruc-
                                      tion, arguing that a property interest includes not only the
                                         1 The opinion of the Court appears to suggest that petitioners’ donation to the fire department

                                      was of a partial interest in property for purposes of sec. 170(f)(3) because the fire department
                                      did not receive the right ‘‘to sell the building with all the rights attached thereto’’. See op. Ct.
                                      p. 410. However the mere fact that a donee does not receive the donor’s unrestricted fee simple
                                      interest in the donated property but instead receives it encumbered with restrictions does not
                                      trigger sec. 170(f)(3). See, e.g., Rev. Rul. 85–99, 1985–2 C.B. 83; G.C.M. 39380 (July 9, 1985)
                                      (sec. 170(f)(3) not triggered where donor with fee simple interest in land donates it with condi-
                                      tion that it be used only for agricultural purposes).

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                                      (395)                           PATEL v. COMMISSIONER                                         423

                                      benefits of ownership but also its burdens. The opinion of the
                                      Court reasons that the structure’s postdemolition remnants
                                      imposed significant burdens on petitioners, such as responsi-
                                      bility for clearing debris and liability for injury from haz-
                                      ardous conditions created by the remnants. Petitioners
                                      shoulder the liability for such hazardous conditions, however,
                                      as owners of the land from which the house was severed. All
                                      substantial property interests of an owner in his structure
                                      are eliminated when the structure is demolished.
                                         The contention of the opinion of the Court that petitioners
                                      merely gave a license also does not account fully for
                                      applicable Virginia property law. The opinion of the Court
                                      contends that petitioners never transferred any property
                                      interest in the house to the fire department but instead
                                      granted only a revocable license to use it. The opinion of the
                                      Court cites Bostic v. Bostic, 99 S.E.2d 591 (Va. 1957), and
                                      Young v. Young, 63 S.E. 748 (Va. 1909), in an effort to show
                                      that under Virginia property law petitioners’ grant of permis-
                                      sion to destroy the house would be construed as a mere
                                      license to use that did not convey any property interest in
                                      the house. In Bostic, the Virginia Supreme Court of Appeals
                                      held that a grant of the right to enter and take minerals is
                                      a mere license that creates no property interest in the min-
                                      erals until they are separated from the land. Bostic, 99 S.E.2d
                                      at 594–595. Young cites a similar principle with respect to
                                      timber; namely, a license to cut and sell timber conveys no
                                      property interest in the timber until it is cut, i.e., severed
                                      from the land. Young, 63 S.E. at 749; see also Minor on Real
                                      Property, 2d ed., sec. 51 (‘‘the grant of * * * [a] license * * *
                                      under which the grantee is entitled to mine the ore, stone,
                                      etc., and remove it * * * [gives the grantee] no interest in
                                      the land or in any ore save that actually mined’’), cited with
                                      approval in Bostic, 99 S.E.2d at 594.
                                         Virginia has by statute modified the common law of prop-
                                      erty with respect to structures to be removed from realty,
                                      adopting the Uniform Commercial Code provision that deems
                                      a contract for the sale of such a structure to be one for the
                                      sale of goods where the structure is to be severed by the
                                      seller. See Va. Code Ann. sec. 8.2–107(1) (2001). (If the buyer
                                      is to sever, the contract remains one for the sale of land. See

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                                      424                 138 UNITED STATES TAX COURT REPORTS                                       (395)

                                      U.C.C. sec. 2–107(1) cmt. 1. 2) Notably, however, the Virginia
                                      statute (consistent with the Uniform Commercial Code) pro-
                                      vides that while a contract for the sale of a structure to be
                                      severed by the seller is one for goods, ‘‘until severance a pur-
                                      ported present sale * * * [of the structure] which is not
                                      effective as a transfer of an interest in land is effective only
                                      as a contract to sell.’’ Va. Code Ann. sec. 8.2–107(1). Con-
                                      versely, once severance has occurred, the structure con-
                                      stitutes goods, the sale of which is governed by statute and
                                      need not be effective as a transfer of an interest in land. In
                                      short, actual severance converts the structure from an
                                      interest in land to personal property.
                                         On the basis of Bostic and Young the opinion of the Court
                                      concludes that petitioners’ grant to the fire department of the
                                      right to destroy the house conveys no property interest but
                                      only a license. Because such a license did not convey a prop-
                                      erty interest, the opinion of the Court argues, it did not
                                      constructively sever the house from the land. But the opinion
                                      of the Court ignores the second prong of the principle in
                                      Bostic and Young and the Virginia statute governing struc-
                                      tures to be severed from land: severance effects a change in
                                      property interests. While the grant of permission to mine or
                                      cut conveys no property interest, such an interest does
                                      transfer to the licensee when he mines the ore or cuts the
                                      timber—that is, when severance occurs—according to both
                                      cases. The same is true under Virginia statutory law for a
                                      structure that is to be severed from land. Once severed, the
                                      structure constitutes goods that need not be conveyed as an
                                      interest in land.
                                         While the opinion of the Court concedes that the destruc-
                                      tion of the house severed it from the land (which rendered
                                      it personalty), the opinion of the Court does not consider
                                      whether this severance itself effected a transfer of property
                                      interests analogous to the transfer of an interest in ore or
                                      timber that occurs when the licensee severs either pursuant
                                      to his license. However, by virtue of the fire department’s
                                      severance and destruction of the house, petitioners in sub-
                                      stance ceded all substantial property interests they held in
                                      the structure to the department. Once severed, the structure
                                        2 The Virginia Supreme Court of Appeals has noted that the Official Comments concerning

                                      the Uniform Commercial Code ‘‘are frequently helpful in discerning legislative intent’’. Leake v.
                                      Meredith, 267 S.E.2d 93, 95 (Va. 1980).

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                                      (395)                           PATEL v. COMMISSIONER                                         425

                                      was personal property. Petitioners retained no substantial
                                      interest in that personal property; they were left only with
                                      the debris into which it was converted.
                                         Petitioners gave more than the use of their house and
                                      retained no substantial interest therein by virtue of their
                                      grant of permission to destroy. ‘‘Where the interest retained
                                      by the taxpayer is so insubstantial that he has, in substance,
                                      transferred his entire interest in the property, the tax treat-
                                      ment should so reflect. Such a taxpayer satisfies the original
                                      congressional purpose behind section 170(f)(3)’’. Stark v.
                                      Commissioner, 86 T.C. at 252. As in Stark, petitioners’ reten-
                                      tion of an interest in the charred debris into which the struc-
                                      ture was converted was not a ‘‘substantial interest or right’’
                                      within the meaning of section 1.170A–7(b)(1)(i), Income Tax
                                      Regs. Because petitioners in substance transferred their
                                      entire interest in the house, section 170(f)(3) does not limit
                                      their deduction and provides no basis for an award of sum-
                                      mary judgment to respondent in this case.
                                         While section 170(f)(3) does not bar petitioners’ charitable
                                      contribution deduction, it must still satisfy the ‘‘sine qua non
                                      of a charitable contribution’’; namely, a transfer of money or
                                      property without adequate consideration in return. United
                                      States v. Am. Bar Endowment, 477 U.S. 105, 118 (1986);
                                      Rolfs v. Commissioner, 668 F.3d 888 (7th Cir. 2012), aff ’g
                                      135 T.C. 471 (2010). Petitioners must show that the value of
                                      the house, taking into account the conditions on its donation,
                                      exceeded the value of the benefit they received from the fire
                                      department in the form of demolition services. See Rolfs v.
                                      Commissioner, 668 F.3d at 892. I would deny the motion for
                                      summary judgment and, if petitioners wished, proceed to
                                      trial on that question of fact.
                                         HALPERN, FOLEY, GOEKE, WHERRY, KROUPA, and HOLMES,
                                      JJ., agree with this dissent.

                                                                               f

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