The Sum of its Parts: Reforming Charitable Donations of Partial Interests

This essay analyzes the tax rule that permits a deduction for donating property to a charity, but denies a deduction for donating a partial interest in that same property. For example, someone who donates a building to a charity may be permitted to take a deduction for the fair market value of the building. But if instead of donating the entire building, that person permits the charity to use the building rent-free for a year, he cannot take any deduction at all. Drawing on insights from modern finance, the essay shows that the only reason Congress gave for enacting the partial interest provision does not actually provide a way to distinguish between partial interests and whole interests, and that other possible justifications for the provision are also unconvincing. The partial interest ban is at best unnecessary and at worst inconsistent with other areas of tax law, and it should therefore be repealed.