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Attorney loses tax case, but gets credit for chutzpah -
No High Court review of disallowed deduction for Oklahoma bomber workpapers
An attorney for the Oklahoma City bomber tried to take a charitable deduction of nearly $300,000 for government papers he received in connection with the case. A summary (from the RIA tax service) follows:
The Supreme Court declined to review a Tenth Circuit decision holding that an attorney couldn't claim a charitable deduction for his transfer to a university of copies of documents he received from the Government in connection with his representation of Timothy McVeigh, the notorious Oklahoma City bomber. The Tenth Circuit found that the documents were excepted from capital asset treatment under Code Sec. 1221(a)(3)(B), and, as a result, the deduction was zero under Code Sec. 170(e)(1)(A). The Tax Court had also denied the deduction but on different grounds.
Facts. In his capacity as lead counsel for several years for Timothy McVeigh, Leslie Stephen Jones received from the U.S. Government photocopies of many documents and copies of many tangible objects. In '97, Jones donated the copies to the University of Texas and, based on an appraisal, claimed a $294,877 charitable donation for the gift on his '97 return. IRS barred the deduction on the ground that Jones did not personally own the donated materials.
Tax Court. The Tax Court held that Jones couldn't deduct the gift because under Oklahoma law, an attorney does not own his client's case file, but rather maintains custodial possession of it. Since Jones didn't possess an ownership interest in the materials and was thus incapable of effecting a valid gift of the materials under Oklahoma State law, he couldn't claim a charitable contribution deduction under Code Sec. 170(c).
The Tax Court also held that even if Jones had owned the documents, he would have been barred from claiming a charitable deduction for them under Code Sec. 170(e)(1)(A), which provides that the amount of any charitable contribution of property otherwise taken into account under Code Sec. 170(a) must be reduced by the amount of gain that would not have been long-term capital gain (i.e., by the amount of gain that would have been ordinary gain) if the property contributed had been sold by the taxpayer at its fair market value. Under Code Sec. 1221(a)(3)(A), a letter or memorandum or similar property held by a taxpayer whose personal efforts created it isn't a capital asset.
Tenth Circuit. The Tenth Circuit said that the controlling provision in this case was Code Sec. 1221(a)(3)(B) not Code Sec. 1221(a)(3)(A) because the subject material were not created by the efforts of Jones. Specifically, under Code Sec. 1221(a)(3) , copyrights, or literary, musical, or artistic compositions, or letters or memoranda, or similar property (e.g., theatrical productions, radio programs, newspaper cartoon strips, or other copyrightable property) aren't capital assets in the hands of certain taxpayers. Such taxpayers are:
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Their creator. ( Code Sec. 1221(a)(3)(A) )
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In case of letters, memoranda or similar property also the taxpayer for whom such property was prepared or produced. ( Code Sec. 1221(a)(3)(B) )
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A taxpayer whose basis of determining gain for such property is determined (wholly or partly) with reference to the basis of a taxpayer listed in (1) or (2) above. ( Code Sec. 1221(a)(3)(C) )
The Tenth Circuit observed that the items Jones donated consisted of copies of FBI memoranda, lab reports, computer discs, and photographs-all containing information related to the investigation and prosecution of Timothy McVeigh. In addition, the discovery material included letters to Jones from the FBI and the Department of Justice explaining the contents of the material. The Tenth Circuit concluded that the discovery material is properly characterized as letters, memoranda or similar property under Code Sec. 1221(a)(3)(B) and that it was produced for Jones.
Accordingly, because Jones had no basis in the discovery material, he was precluded from claiming any income tax deduction for his charitable donation. Now that the Supreme Court has declined review, this decision is final. | 
