Academic journal article Journal of Accountancy , Vol. 173, No. 1
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 . …