Ltr. Rul. 8641017

Ltr. Rul. 8641017

Story posted in Letter Rulings on 30 July 1999
audience: PGDC Network | last updated: 15 June 2011
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DONATION OF LAND SUBJECT TO MINING RESTRICTIONS DEDUCTIBLE

Reference:

Section 170 -- Charitable Deduction

Full Text:

Refer Reply to: CC:IND:I:3:2

July 7, 1986

LEGEND:
State = * * *
Center = * * *
Dear * * *

This is in response to a request for a ruling concerning the federal income tax consequences relating to the contribution of land to a public charity.

You intend to donate approximately 3/4 acre of land located in the State to the Center, an organization determined to be a publicly supported organization described in section 170(b)(1)(A)(vi) and section 509(a)(1) of the Internal Revenue Code. It is represented that the land is located in an environmentally sensitive area and you desire the permanent dedication of the land for charitable purposes. To ensure such dedication you intend to place the following three restrictions in the grant deed of the land to the Center:

(1) no mining or subsurface extraction of minerals shall be permitted at any time;

(2) improvements that will be constructed on the land cannot exceed thirty-five feet in height; and

(3) you shall have a first right of refusal to purchase the land and any improvements thereon at the price offered by a bona fide third-party should the Center propose to sell, exchange or otherwise dispose of it to any person or entity other than another qualified charitable organization for a period of twenty years.

Section 170(a) of the Code provides, subject to certain limitations, a deduction for contributions and gifts to or for the use of organizations described in section 170(c), payment of which is made within the taxable year.

Section 1.170A-1(c)(1) of the Income Tax Regulations provides that if a charitable contribution is made in property other than money, the amount of the contribution is the fair market value of the property at the time of the contribution reduced as provided by section 170(e)(1) of the Code and section 1.170A-4(a) of the regulations.

The issue of whether the amount of a charitable contribution deduction is affected by a restriction placed by the donor on the use of the donated property is discussed in Rev. Rul. 85-99, 1985-2 C.B. 83. In the revenue ruling an individual donated land to an educational institution under a deed of gift containing a restrictive convenant providing that the land be used for agricultural purposes only. The holding of the ruling states that, subject to the reductions imposed by section 170(e)(1) of the Code, the amount of the donor's charitable contribution deduction is the fair market value of the property at the time of the contribution determined in the light of the restriction placed by the donor on the use of the property.

Rev. Rul. 76-151, 1976-1 C.B. 59, considered the consequences of a conveyance of land and a building to a "charitable organization" where the corporate donor reserved the right to purchase the land and building at its fair market value if the charitable organization ceased to use the property and decided to dispose of it. The revenue ruling held that the taxpayer is entiDP1ed to a charitable contribution deduction, subject to the limitations of section 170(b)(2) of the Code for the land and building transferred to the charitable organization.

Based on the information submitted and the authorities cited above, we conclude that the donation of land to the Center will entiDP1e you to a charitable contribution deduction within the meaning of section 170 of the Code. Because the property to be donated will be subject to various restrictions, the amount of your charitable contribution deduction will be the fair market value of the property at the time of donation determined in light of the restrictions.

It should be noted that section 111 of the Code, which embodies the principle often referred to as the "tax benefit rule", may apply to a donor who has donated property which is subsequenDP1y returned. Section 111(a) excludes from gross income amounts that are attributable to the recovery during the taxable year of any amount deducted in any prior taxable year to the extent such amount did not reduce income subject to the adjustment.

Although section 111 is phrased in exclusionary terms, it in effect provides that recovered property is to be included in gross income to the extent that the taxpayer derived a tax benefit in a prior year for a deduction of the recovered item.

This ruling is directed only to the taxpayer on whose behalf it was requested. Section 6110(j)(3) of the Code provides that it may not be used or cited for precedent.

Except as specifically ruled upon above no opinion is expressed as to the federal income tax consequences of the transaction described above under any other provision of the Internal Revenue Code.

A copy of this letter should be attached to the federal income tax return for the year in which the transaction covered by this ruling is consummated. We are enclosing a copy for that purpose.

In accordance with a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

Sincerely yours,

Richard H. Manfreda
Chief, Individual Income
Tax Branch

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