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SPECIAL GIFT SITUATIONS(d) Interplay with Carryover RulesIn a case, a donor made a bargain sale of capital gain property to a charitableorganization. Earlier in the same year, the same donor made another gift of differentcapital gain property to another charitable recipient, resulting in a charitablededuction (prior to application of the percentage limitations). 461 Thisdeduction exceeded the amount allowable for the donor for gifts of capital gainproperty for the year, thus forcing all of the deduction attributable to the bargainsale to be carried forward.The tax regulations state that a charitable deduction arising from a bargainsale of property is an “allowable” deduction, even if part or all of the contributionmust be carried forward, irrespective of whether the portion carried over isever used as a deduction. 462 In this case, the donors challenged the regulation,claiming that the deduction resulting from the first gift must be made in itsentirety before any part of the contribution for the second gift can be deducted.If that were true, it would have worked out that the entire allowable deductionrelating to capital gain property in the year of the gift and in the subsequent yearwould have been charged against the first contribution, leaving nothing to bedeductible attributable to the second contribution. But the court held that thereis no basis in law for the “first-in first out” rule as the donors suggested. 463The court construed the term allowable in the context of the five-year carryoverrule. That is, the deductibility of a gift may not be known until the expirationof six years—long after the expiration of the period of limitations forassessment of a deficiency in respect to the year of contribution. Wrote the court:We think it unlikely that Congress intended the substantive rights of taxpayersand the Government to be imperiled by a rule providing that no deductionwas “allowable” for [these] purposes . . . unless it eventually turned out,long after the taxable year, that the contribution actually reduced the taxpayer’staxable income in any of the 5 succeeding taxable years. 464The court continued:We think that if the statute is read in the context of all relevant provisions, theword “allowable” must be interpreted as referring to a contribution availablefor deduction even though the contribution does not ultimately result in adeduction by reason of future events entirely unrelated to the nature of thecharitable contribution. 465This interpretation of the law, concluded the court, “strongly supports” the regulation.466§ 9.20 PROPERTY SUBJECT TO DEBTProperty may be the subject of charitable gifts. 467 When, however, the property issubject to a debt, unique tax consequences are likely to arise.461 See Chapter 7.462 Reg. § 1.1011-2(a)(2).463 Hodgdon v. Commissioner, 98 T.C. 424 (1992).464 Id. at 434.465 Id.466 Id. A court case involving carryovers of a charitable contribution deduction arising out of a bargain sale is Fairv. Commissioner, 66 T.C.M. (CCH) 460 (1993).467 See, e.g., Chapter 4. 330