Tax Court Denies $300k Charitable Deduction Claimed by Timothy McVeigh's Lawyer for Donation of Work Papers to University of Texas

The Tax Court on Thursday denied the $300,000 charitable deduction claimed by Leslie Stephen Jones, lead counsel for the defense of Timothy McVeigh in the 1995 bombing of the Alfred P. Murrah Federal Building in Oklahoma City, for the donation of his papers in the case to the University of Texas.  Jones v. Commissioner, 129 T.C. No. 16 (11/1/07):

On May 1, 1998, John R. Payne (Payne), employed by petitioners to value the materials for the purpose of their claiming a charitable contribution deduction, appraised the materials at $294,877. Payne spent only one day reviewing the materials, which included hundreds of thousands of items contained in 171 boxes. He reviewed only a small percentage of the materials before assessing their value. Although he discounted his preliminary value assessment by 50 percent because none of the materials were originals, Payne did not take into consideration that multiple copies of the materials had been distributed to various attorneys during the course of the underlying trial. Payne's appraisal method in part involved assessing the value of certain documents at the price that a legal research service would charge for access to them. His appraisal method also relied heavily on purchase prices or assessed values of document archives that Payne considered to be comparable collections. All of the collections to which Payne compared the materials possessed by petitioner as part of McVeigh's case file, however, consisted primarily of original documents, handwritten letters, and original signatures of players in other infamous crimes or scandals. None of the materials in issue are original documents, and none contain an original signature or notation of McVeigh or any other person. ...

The majority of courts that have considered the issue of whether attorneys or clients own case files have held that clients are the legal owners of their entire case files, including the attorney's work product for which the client paid when he purchased the attorney's services. ... These courts have held that the creation of the case file is part of the services for which the client pays his attorney, and they have justified their holdings that clients have full access to and superior property rights in their entire case file based primarily on the principle that the fiduciary relationship between attorney and client necessitates full disclosure. ...

However, some courts have held that ownership of a case file is divided between attorney and client. These jurisdictions generally hold that an attorney's work product, including internal legal memoranda and preliminary drafts of documents, remains the property of the attorney; however, the client has superior property rights in the end product of the attorney's representation, which includes finalized legal documents, pleadings filed, correspondence among parties, and other papers "exposed to public light by the attorney to further [the] client's interests." ... While the opinions of courts in other jurisdictions are persuasive and helpful in our analysis, we must ultimately determine whether, and to what extent, an attorney or his client owns the client's case file under Oklahoma State law.

Because the materials are not work product, it is not necessary for us to determine in this case whether Oklahoma would follow the majority or minority view with regard to ownership of case files. We are aware of no court that has held that clients have no ownership interests in their respective case files. Rather, as we have summarized above, all jurisdictions that have considered explicitly the issue of ownership of case files have held that clients have superior property rights in at least those items in the case file that are not the attorney's self-created work product. Those courts that have reserved a property right to the attorney have done so only with regard to the attorney's personal notes, working drafts and papers, and internal memoranda. The materials in issue in this case fall outside of this work product exception. Thus, under either approach, the documents in issue in this case belong properly to petitioner's client, McVeigh, and not to petitioner. Petitioner, in effect, was merely the authorized and incidental custodian of the copies in issue and had no ownership rights sufficient to effect a gift or support a charitable contribution deduction under section 170. ...

[E]ven if petitioners could fall within the minority work product exception to the general rule that a client's case file legally belongs to the client, their allowable deduction would be limited to their basis in the materials. Petitioners have presented no evidence that the basis in the materials was greater than zero. Thus, even if we held that petitioner legally owned the materials under a work product exception, section 170(e)(1)(A) would limit petitioners' deduction to zero, the amount of petitioners' basis.

Because petitioner was not the legal owner of the materials, he was not legally capable of divesting himself of the burdens and benefits of ownership or effecting a valid gift of the materials. He is therefore not entitled to any deduction under section 170 for his donation of the materials. Because the materials contain merely copies of documents and other items that have been duplicated many times and are in the possession of many different people and entities, we have serious doubts about the value asserted by petitioners' appraiser. However, because petitioner was not the legal owner of the materials and was not legally entitled to donate them, we need not reach the valuation issue.