Tax News

CCH (cch.taxgroup.com) reports:

  The lead defense attorney for Timothy McVeigh in the Oklahoma City bombing trial could not claim a charitable contribution deduction for the donation of discovery material from the trial. The deduction was denied solely because the discovery material was not a capital asset. The taxpayer's basis in the property was zero so, unless the property was a long-term capital asset, the amount of the deduction would also be zero because the amount would be reduced for ordinary income received in a hypothetical sale.

  The Tenth Circuit Court of Appeals determined that the discovery material was excluded from the definition of capital asset as a letter, memorandum or similar property prepared or produced for the taxpayer. The copies of FBI memoranda, lab reports, computer discs and photographs containing information regarding the taxpayer's client, as well as letters to the client from the FBI and Department of Justice, were clearly letters, memorandum or similar property within the plain language of the statute. Although the material was not originally created for the taxpayer's benefit, it was produced or prepared for the taxpayer within the plain and ordinary meaning of the terms. The material was copied, organized and categorized by the government for the benefit of the taxpayer and his client and then placed in boxes with a letter listing the contents. The material, which was of the type typically produced for use in a criminal trial, was then provided to the taxpayer in his capacity as a defense attorney.

  CCH Comment. In contrast to the decision by the appellate court, the Tax Court (129 TC 146, Dec. 57,160) denied the deduction on the basis that the property was not owned by the taxpayer, and in the alternative, that the discovery material was not a capital asset. The Tax Court's determination that the asset was not a capital asset was based on the exclusion from capital gain property for a letter or memorandum created by the taxpayer's personal efforts. Because the taxpayer's personal efforts did not create the material, the appellate court based its determination on the exclusion for letters, memoranda and similar property prepared or produced for the taxpayer.

  Aff'g 129 TC 146, Dec. 57,160.

S. Jones, CA-10, 2009-1 USTC ¶50,316

Other References:

 
Code Sec. 170

  CCH Reference - 2009FED ¶11,620.54

  CCH Reference - 2009FED ¶11,660.25

  Tax Research Consultant

  CCH Reference - TRC INDIV: 51,060
CCH Reference - TRC INDIV: 51,200