Charitable Gift of Property Subject to a Mortgage, writing a Memorandum to the Client's File Facts: Your clients are Kai and Jo Lee, a married couple. The Lees owned 210 acres of land located near Charlotte, North Caro-lina. The land was in an area where a great number of new houses and other buildings were being built. The Lees purchased the land several years ago as an investment. They intended to sell the land at a profit a few years later, when less undeveloped land would be available in this high demand area. In April of last year, the Lees learned that the Charlotte Theatre Company ("CTC") wanted to build a new theatre building and school in the area where their land was located. As lifelong theatre goers, the Lees wanted to help CTC, which is a 501(c)(3) charitable organization. They agreed to give the 210 acres of land to CTC. The Lees transferred the land to CTC on June 30th of last year. At the time of the transfer, the land had a fair market value of $800,000 and was subject to a $350,000 mortgage, and the Lees' adjusted basis in the land was $500,000.

Required: Is there any authority indicating what, if any, effect the mortgage has on the deductibility of the Lees' contribution of the land to CTC? Research this question considering the relevant Code Section(s), regulation(s), cases, and/or rulings, and write a brief memorandum to the clients* file that addresses this question.