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§ 9.3 INVENTORYthe immediately preceding 180 days. In the case of specific items of contributedproperty not in existence for the entire 180-day period immediately precedingthe date of contribution, this requirement is met if the contributed property compliedwith that law during the period of its existence and at the date of contributionand if, for the 180-day period prior to contribution, other property (if any)held by the donor at any time during that period (which property was fungiblewith the contributed property) was in compliance with that law during theperiod held by the donor. 73EXAMPLE 9.3Z, a grocery store, contributed 12 crates of navel oranges to a public charity for distribution tothe needy. The oranges were picked and placed in the grocery store’s stock two weeks beforethe date of contribution. The contribution satisfied the requirements of these rules if Z compliedwith the Act for 180 days prior to the date of contribution with respect to all navel oranges instock during that period. aaReg. § 1.170A-4A(b)(5)(ii).(f) Amount of ReductionThe amount of the charitable contribution under these rules must be reducedbefore application of the percentage limitation on the charitable deduction. 74These rules mandate two reductions. The amount of the first reduction is equalto one-half of the amount of gain that would not have been long-term capitalgain if the property had been sold by the donor at fair market value on the dateof its contribution (excluding, however, any amount involving certain recapturerules). 75 If the amount of the charitable contribution remaining after this reductionexceeds twice the basis of the contributed property, then the amount of thecharitable contribution is reduced a second time to an amount equal to twice theamount of the basis of the property. 76The basis of contributed property that is inventory must be determinedunder the donor’s method of accounting for inventory for purposes of federalincome tax. The donor must use as the basis of the contributed item the inventoriablecarrying cost assigned to any similar item not included in closing inventory.77 For example, under the last in-first out (LIFO) dollar value method ofaccounting for inventory, the tax regulations provide that “where there has beenan invasion of a prior year’s layer, the donor may choose to treat the item contributedas having a basis of the unit’s cost with reference to the layer(s) of prioryear(s) cost or with reference to the current year cost.” 7873 Reg. § 1.170A-4A(b)(5)(i).74 IRC § 170(e)(3)(B); Reg. § 1.170A-4A(c)(1). These rules are also applied without regard to the deduction reductionrules, which are the subject of §§ 4.4–4.6 (also see text accompanied by notes 37–38). The percentagelimitation applicable to corporations is discussed in § 7.18.75 See § 9.3(g).76 Reg. § 1.170A-4A(c)(1).77 Reg. § 1.170A-4A(c)(2).78 Id. 279