No Deduction for Gift of Newspaper's "Morgue." (Chronicle Publishing Co Cannot Write off Donation of Its Clippings Library)

Article excerpt

Chronicle Publishing Company, publisher of the daily newspaper, the San Francisco Chronicle, maintained a morgue (a clippings library) compiled mostly from the paper's issues since 1906. The $10 million cost to create the library was written a an off by the company over time as an ordinary and necessary business expense.

During 1983 and 1984, the publisher donated the library to a local historical society that was a qualified charitable organization, claiming a charitable contribution deduction of almost $3 million over a three-year period.

The IRS denied the deductions. Because the mortgue was "ordinary income" property, it argued, the deduction was limited to the publisher's tax basis in the property--which was zero.

Under Internal Revenue Code section 170(e)(A), the amount of a charitable contribution deduction for property that would produce ordinary income if sold is limited to the property's basis. Under IRC section 1221(3), ordinary income property includes a .... letter or memorandum, or similar property, held by .... a taxpayer for whom such property was . …