Academic journal article Journal of Accountancy

Charity Begins with Ownership

Academic journal article Journal of Accountancy

Charity Begins with Ownership

Article excerpt

The Tax Court ruled that a criminal defense attorney who donated case materials in a prominent case to the University of Texas did not have sufficient ownership rights to the materials to claim a charitable deduction under IRC [section] 170. Even if the taxpayer did exhibit proper ownership, section 170(e)(1)(A) would limit his deduction to zero--his cost basis in the materials. Based on the disallowed deductions, the taxpayer was found liable for deficiencies in 2000 and 2001.

Leslie Stephen Jones represented accused Oklahoma City bomber Timothy McVeigh from May 1995 until Jones with drew from the case in August 1997. McVeigh was convicted in June 1997 and subsequently executed for the bombing of the Alfred P. Murrah Federal Building, which killed 168 people. Jones donated to the university materials in his possession, which included FBI case notes, witness interviews, medical examiner reports, photographs and computer disks, among many other materials tied to the case.

Based upon an appraiser's valuation, Jones and his wife claimed a charitable deduction of $294,877 in 1997, which was carried over from their 1997, 1998 and 1999 joint federal income tax returns. The IRS denied the deduction and assessed deficiencies of $3,675 for 2000 and $11,110 for 2001.

Since state law controls the nature of a taxpayer's legal interest in property, the court first examined whether Jones had a property interest in the donated materials under Oklahoma state law. In denying Jones' assertion that he owned the materials, the court noted the unique fiduciary relationship between an attorney and a client. The rules of ethics charge an attorney in that role with the safekeeping of a client's property. …

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