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Section 170(e)(1)(A) provides that deductions for claimed
charitable contributions are required to be reduced by the
ordinary income or short-term capital gain that would have been
realized if the property had been sold at its fair market value
on the date of contribution. Simply stated, a taxpayer's
allowable deduction is limited by his basis in such property. As
set forth in our findings of fact, the transaction at issue is
the December 1979 donation of real estate to Kenyon College with
a net value, after encumbrances, of $657,000. Petitioner owned
the properties donated to Kenyon College in 1979 for, at most,
one day, because the properties were transferred to him by deeds
from McZand, his wholly owned corporation, immediately before he
transferred the properties to Kenyon College. The narrow dispute
between the parties on this issue is whether these properties,
had they been sold by petitioner at fair market value, would have
produced any short-term capital gain or ordinary income, which
would have reduced petitioner's allowable amount for the
charitable contribution deduction.
Petitioner's main contention is that the property was given
to him in satisfaction of loans he purportedly made to the McZand
Corporation. He argues that he had a basis in the donated realty
equal to the loan notes of approximately $669,000 which exceeded
the net fair market value ($657,000) of the property after taking
into account the debt on the property. Thus, petitioner contends
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