I know what you’re thinking – McVeigh was executed, right? What’s this about a tax deduction?
You’re right. Timothy McVeigh was a US Army vet who was eventually found guilty of bombing the Alfred P. Murrah Building in Oklahoma City on the second anniversary of the Waco Siege, April 19, 1995. He was labeled a “domestic terrorist” after the event. The bombing claimed the highest death toll (168 people) of any single act of terrorism on US soil prior to September 11.
McVeigh was convicted of 11 federal offenses and sentenced to death. He was executed on June 11, 2001, exactly three months before the September 11 attacks.
After McVeigh’s conviction, his lead defense attorney, L. Stephen Jones withdrew as lead defense counsel. That same year, 1997, Jones donated discovery material from the case to the Center for American History at the University of Texas (Jones’ alma mater). The materials included information prepared by the FBI; the materials were given to Jones by the prosecutors in preparation for McVeigh’s trial.
The discovery materials, which included FBI photos and statements, were appraised by Jones’ appraiser at nearly $300,000. Jones took the donation as a deduction on his personal income tax return. Due to the sizable amount of the donation, Jones carried the deduction forward.
The IRS issued a notice of deficiency related to the donation in 2004. Due to the statute of limitations, the IRS could not challenge the donation for the years 1997-1999 but did issue the notice for the years 2000 and 2001. The deficiency at that point was a mere $15,000, much less than the tax initially attributable to the donation.
Jones challenged the deficiency in Tax Court and lost. The Tax Court found that Jones did not own the property to begin with and therefore couldn’t take the deduction; the materials belonged to the (now deceased) client. I kind of thought that was something that we learned in law school. Apparently, they don’t teach that at the University of Oklahoma Law School (though, in his defense, he might have missed it when he temporarily dropped out of law school to work as a research assistant for Richard Nixon).
The 10th U.S. Circuit Court of Appeals agreed with the decision to reject the donation but on slightly different grounds. The appeals court found that the deduction Jones could claim was limited to the amount he had paid or invested, which was nothing. The appeals court noted: “We note that the discovery material was provided to [Jones] only because of his position as lead counsel for McVeigh, and it was the type of material typically produced for defense counsel in the course of a criminal trial.”
Jones is likely to appeal, despite his own comments that he has spent more money fighting the deficiency than he owed to the IRS. He believes that the opposition to the deduction was based on his choice of client (McVeigh) and emotional Oklahoma City federal workers. As a result, Jones had asked that the agency’s Oklahoma City office be disqualified from the case. The appellate court, which also ruled against Jones, was based in Denver.