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not be considered the property of KQC while the lease
was still in effect. Accordingly, KQC’s deduction may
be limited to the fair market value of the property at
the time of the donation excluding the renovations made
by Texas.
DISCUSSION AND ANALYSIS
The predominant issue is that of establishing ownership
of the leasehold improvements at the time of transfer.
There are two positions on this: a) the leasehold
improvements immediately vested in KQC when made,
subject only to the possessory rights of Texas under
the lease agreement or b) the leasehold improvements do
not become the property of KQC until termination of the
lease agreement.
* * * * * * *
KQC had a basis only of approximately $125,000 in the
property when they donated it to Texas. KQC made no
investment in the significant improvements made by
Texas and had no depreciable interest in them. There-
fore, based on the numerous case law and opinions of
the Service discussed above, significant risk ensues as
to whether or not the Service will allow KQC a full
fair market value charitable contribution deduction.
Lease Terms
Additionally, the specific terms of the lease should be
considered in determining ownership of the leasehold
improvements. As enumerated in the facts above,
Kaplan’s law firm has provided what they believe to be
provisions of the lease agreement that support the
interpretation that ownership resided with KQC. It is
important to note a few facts regarding these provi-
sions. In the event of a total condemnation, the lease
agreement shall also terminate. Accordingly, ownership
in the improvements may be interpreted to reside with
KQC as a result of the termination of the lease rather
than as a result of the condemnation. Additionally,
while the lease agreement does include all improvements
in the description of property owned by KQC, this same
section states that KQC agrees to “let” and Texas
agrees to take from KQC “said property”. This state-
ment therefore does not clearly indicate ownership of
leasehold improvements made during the term of the
lease agreement. * * * The last provision provided by
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