Opinion ID: 628466
Heading Depth: 1
Heading Rank: 2

Heading: Charitable Contribution Deduction

Text: 6 Rokke contends he was entitled to deduct the fair market value of his contribution, under I.R.C. Sec. 170(a)-(b). He argues that the tax court erred in characterizing his contribution as a service. He believes that it was a capital asset. We affirm the tax court on other grounds. 7 We review de novo a tax court's conclusions of law. Ball, Ball and Brosamer, Inc. v. Commissioner, 964 F.2d 890, 891 (9th Cir.1992). Findings of fact are reviewed for clear error. Geneva Drive-In Theater v. Commissioner, 622 F.2d 995, 996 (9th Cir.1980). 8 The contribution was neither a service, as the tax court held, nor a capital asset, as Rokke contends. He contributed ordinary income property, for which he is entitled to deduct, at most, his cost basis. The Commissioner correctly limited Rokke's deduction. 9 The tax court properly found that part of Rokke's contribution was a letter. A letter in the possession of its author is specifically excluded from the definition of a capital asset under I.R.C. Sec. 1221(3). See Treas.Reg. Sec. 1.170A-4(b)(1). Consequently, under I.R.C. Sec. 170(e)(1)(A), such a letter is considered ordinary income property. Morrison v. Commissioner, 71 T.C. 683, 688-689 (1979), aff'd per curiam 611 F.2d 98 (5th Cir.1980) (items excluded from definition of capital asset under Sec. 1221(3) are ordinary income). 10 Rokke also appended several hundred pages of newspaper and magazine clippings to this letter. Collections of news clippings are also ordinary income property under Sec. 1221(3). Chronicle Publishing Co. v. Commissioner, 97 T.C. 445, 448 (1991) (clippings library is similar property referred to in Sec. 1221(3), and therefore ordinary income property under Sec. 170(e)(1)(A)). 11 Based on these findings, we hold that Rokke contributed ordinary income property to the United States. His contention that he contributed a capital asset fails, because under the terms of Sec. 170(e)(1)(A), ordinary income property cannot be a capital asset. 12 The tax court incorrectly held that Rokke contributed a service. A contribution cannot be both a service and ordinary income property. Where contributions have consisted of both property and services, courts have held them to be property where there is a coalescence of the property and service into a separate piece of tangible property. Holmes v. Commissioner, 57 T.C. 430, 436-437 (1971) (taxpayer's services coalesced with blank film to create separate piece of property); Goss v. Commissioner, 59 T.C. 594, 596 (1973) (completed essays formed something different from taxpayer's services and blank paper on which they were printed). See also Jarre v. Commissioner, 64 T.C. 183 (1975) (music manuscripts); Cupler v. Commissioner, 64 T.C. 946 (1975) (heart-lung machine); but see Grant v. Commissioner, 84 T.C. 809 (1985), aff'd per curiam, 800 F.2d 260 (4th Cir.1986) (legal services not like coalesced property although tangible briefs and memorandum resulted from rendering of services); Lary v. Commissioner, 608 F.Supp. 258 (N.D.Ala.1985), aff'd per curiam, 787 F.2d 1538 (11th Cir.1986) (donation of blood is a service under Sec. 170). 13 The value of Rokke's collection of articles, the blank paper on which he typed his letter, and his analysis of the national economic crisis also coalesced into a separate piece of property. That property was a tangible study, which he could have attempted to sell, and to which attached some (albeit minimal) market value.