concurring: While I join in the majority opinion in this case, I choose to write separately in order to address the questions raised by Judge Parker’s concurring and dissenting opinion. The concurring and dissenting opinion concludes that the result reached by the majority can also be reached without invalidating the regulations under sections 170(e)(1) and 1011(b). I disagree.
The analysis set forth in the concurring and dissenting opinion turns on a distinction between the elective and the mandatory application of section 170(e)(1). The taxpayers in the instant case made an election under section 170(b)(l)(C)(iii) to apply section 170(e)(1) to contributions of capital gain property made in 1977. Section 170(b)(1)(C) provides, in general, that deductions for contributions of capital gain property to which section 170(e)(1)(B) does not apply cannot exceed 30 percent of a taxpayer’s contribution base for a taxable year. However, under section 170(b)(l)(C)(iii), the taxpayer may elect to have section 170(e)(1) apply to such contributions if section 170(e)(1)(B) does not otherwise apply (i.e., if the application of section 170(e)(1)(B) is not mandatory). If such an election is made, the contribution is not subject to the 30-percent limitation of section 170(b)(1)(C); however, the amount of the contribution must be reduced in accordance with section 170(e)(1). Under section 170(e)(1)(A), the amount of any charitable contribution must be reduced by the amount of gain which would have been ordinary income or short-term capital gain if the property had been sold by the taxpayer at its fair market value. Section 170(e)(1)(B) provides that the amount of a contribution of tangible personal property which is unrelated to the purpose or function of the donee organization, or a contribution to or for the use of a private foundation which is not described in section 170(b)(1)(E), must be reduced by 50 percent of the amount of gain which would have been long-term capital gain if the property had been sold by the taxpayer at its fair market value. A taxpayer has the option, therefore, when making a contribution of capital gain property (not otherwise subject to section 170(e)(1)(B)), of restricting that contribution to 30 percent of his contribution base for the taxable year under section 170(b)(1)(C), or of taking a deduction of up to 50 percent of his contribution base while being subject to the reduction requirements of section 170(e)(1).
Section 170(e)(2) provides that for purposes of section 170(e)(1), if a taxpayer contributes less than his entire interest in the property, the taxpayer’s basis in such property shall be allocated between the portion contributed and any portion not contributed in accordance with the regulations. Any gain to the taxpayer on the sale portion of a charitable bargain sale is determined under section 1011(b), which provides that the adjusted basis for determining gain is that portion of the adjusted basis which bears the same ratio to the total adjusted basis as the amount realized bears to the fair market value of the property.
The regulations under these sections provide that, for a charitable bargain sale under section 170(e)(1), no charitable contribution deduction is allowable unless the contribution portion of the bargain sale exceeds the amount of the reduction required under section 170(e)(1) for the unrealized appreciation in the entire property. The majority opinion holds that the taxpayers in the instant case are entitled to claim a deduction because these regulations are invalid to the extent that they require reduction of the contribution portion of the bargain sale by a percentage of the unrealized appreciation in the entire property rather than by a percentage of the unrealized appreciation in the contributed portion. The concurring and dissenting opinion, however, attempts to circumvent this reasoning by concluding that, because the taxpayers in the instant case elected to have section 170(e)(1) apply, they are not subject to the mandatory reduction of section 170(e)(1)(B) for purposes of determining whether a deduction is allowable, and that the bargain sale at issue therefore meets the test of the regulations as written. This analysis is not supported by the statute or the regulations.1
If a taxpayer contributes property of the type described in section 170(e)(l)(B)(i) or 170(e)(l)(B)(ii), the charitable contribution must be reduced by 50 percent of the amount of gain which would have been long-term capital gain had the property been sold at its fair market value. The concurring and dissenting opinion concludes that, in the absence of a contribution of property described in these subparagraphs, the 50-percent reduction is not required in order to determine whether a deduction is allowable for such contribution. If section 170(e)(1)(B) does not apply when a taxpayer makes this election, the election has no effect on the determination of the allowability of such deduction because section 170(e)(1)(A) does not apply to long-term capital gain property.
Under the analysis in the concurring and dissenting opinion, section 1.1011-2(a)(l), Income Tax Regs., is correctly used to make an initial determination as to whether a charitable contribution deduction is allowable under section 170. The analysis used bifurcates section 170(e)(1) into “mandatory” and “elective” elements. Specifically, the concurring and dissenting opinion treats the application of the reduction provisions of section 170(e)(1)(B) as applying to the determination of allowability only where such reductions are mandatory; i.e., where the taxpayer contributes property of the type described in section 170(e)(l)(B)(i) or (ii). If the taxpayer has elected the application of section 170(e)(1), however, the concurring and dissenting opinion concludes that the reduction under section 170(e)(1)(B) need not be made at this point. In reaching this conclusion, the concurring and dissenting opinion assumes that the language in section 1.1011-2(a)(2), Income Tax Regs., provides a wholesale exclusion of section 170(b) for purposes of determining whether a deduction is allowable under section 1.1011-2(a)(1). Neither the statute nor the regulations at issue herein provide authority for this reasoning.
The concurring and dissenting opinion, at note 3, states that the reference to the percentage limitations of section 170(b) in section 1.1011-2(a)(l), Income Tax Regs., was intended to apply only with respect to bargain sales to organizations described in section 170(b)(1)(B). Section 1.1011-2(a)(2), Income Tax Regs., provides that basis must be allocated under section 1011(b) for charitable contributions which are carried over under section 170(b)(l)(C)(ii) or section 170(d) to subsequent taxable years. Because section 170(b) contains the annual percentage limitations, and therefore necessitates carryovers, the concurring and dissenting opinion concludes that section 170(b) is irrelevant to the determination of allowability under section 1.1011-2(a)(1), Income Tax Regs., except with respect to .contributions of property described in section 170(b)(1)(B). However, the limited exception carved out by section 1.1011-2(a)(2), Income Tax Regs., does not support the conclusion that section 170(b) is to be disregarded entirely, including the provisions for the election to apply section 170(e)(1) contained in section 170(b)(l)(C)(iii).2
The election under section 170(b)(l)(C)(iii) requires a reduction of the charitable contribution portion of the bargain sale in the instant case. There is no authority in either the Code or the regulations which permits the type of analysis adopted in the concurring and dissenting opinion. In the absence of such authority, a deduction is unavailable to the petitioners herein unless the regulations which require consideration of the unrealized appreciation in the entire property are invalid. For the reasons stated in the majority opinion, I believe this to be the correct result. Thus, although the concurring and dissenting opinion reaches the correct result, for the reasons stated above, it does so for the wrong reasons. I therefore join in the majority opinion.
Goffe, Chabot, Hamblen, Cohen, and Williams, JJ., agree with this concurring opinion.
See also secs. 170A-4(b)(2) and 1.170A-8(d)(2)(i)(o), Income Tax Regs., treating “elective” and “mandatory” reductions under section 170(e)(1)(B) identically.
The concurring and dissenting opinion reads the term “allowable5’ in sec.l.l011-2(a)(l), Income Tax Regs., to mean allowable without regard to the percentage limitations of sec. 170(b). The word allowable, however, cannot be so narrowly defined in this context. In drafting sec. 170 Congress used the terms “allowed55 and “allowable” interchangeably. See sec. 170(a); compare sec. 170(b)(1)(A) (flush language) and sec. 170(b)(1)(B) (introductory language) with sec. 170(b)(l)(B)(ii). Further, as used in sec. 1.1011-2(a)(2), Income Tax Regs., the term “allowable” is used to mean allowable after application of the percentage limitations of sec. 170(b), because only after such limitations are applied could a contribution be carried over to a subsequent year.