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No deduction for gift of newspaper's "morgue." (Chronicle Publishing Co cannot write off donation of its clippings library)

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 ... produced." Treasury regulation section 1.1221-1(c)(2) says "similar property" includes a corporate archive.

Chronicle argued

* the clippings library was not an ordinary income asset as described in section 1221(3).

* That code section should not apply to a corporation.

Result: The Tax Court denied the deductions. the morgue is an ordinary income asset because it fits the definition of archive. Inclusion of archives in the regulation is consistent with the statute and legislative history.

Further, section 1221(3) does apply to corporations. The statute's structure and the legislative history show its application was not intended to be restricted to individuals. Therefore, section 170(e) negates any charitable deduction for donation of the clippings library.

Note: The court acknowledged it well may be this collection should be classified as a capital asset--in which case A deduction would be allowed--but such a change is up to Congress.

* Chronicle Publishing Co., 97 TC no. 31.
COPYRIGHT 1992 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Journal of Accountancy
Date:Jan 1, 1992
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