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two appraisers whom it hired both valued the parcel at about $2.7
million. The Wilkersons were a bit skeptical, and talked with
several people in the business before they had Terrene claim such
a large deduction. Having convinced themselves that the
appraisals were correct, they had Terrene donate the parcel to
the Assemblies of God Foundation in November 1998, and claim a
$2.7 million charitable contribution deduction on its 1998
partnership return. Their initial skepticism was justified when
the return was chosen for audit. The Commissioner determined
that the fair-market value of the donated land was only $150,000,
and he mailed Terrene a notice of Final Partnership
Administrative Adjustment (FPAA). Terrene timely filed its
petition, and the case was tried in Houston on the valuation
question alone.
Discussion
The question before us is really a question of just what
effect the four holes drilled into the 31.41-acre parcel of the
Hamblen Road property had on its value. Under section 170, the
amount of the deduction for a contribution of property to a
charity is its fair-market value (FMV) at the time of donation.
Sec. 1.170A-1(c)(1), Income Tax Regs. The regulations define FMV
as “the price at which the property would change hands between a
willing buyer and a willing seller, neither being under any
compulsion to buy or sell and both having reasonable knowledge of
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