I work in the music industry, and as part of my job record labels send
me copies of their CDs to review.  Some of these promotional discs are
marked with a "Promo" stamp.  Others are sealed, new CDs without
promotional stamps.  The company I work for does not consider these
CDs to be company property, and I am free to take them  home to keep
as desired.

My question is two-fold:  1.  Is it legal for me to sell these CDs,
and 2.  Is it legal for me to donate some of these CDs to a charity,
and then take a charitable deduction for their value on my Federal
income taxes?

Artists do not recieve a royality for this music.

Sales are borderline legal (in the so called grey market), but the
promo label will upset buyers.

A donation is unlikely to be challanged by the IRS, because they don't
know about the circumstances and it is too much trouble.

Still if they do challenge it, how will you explain the donation of
something that cost you nothing.

Your in a grey area.

As Redfoxjumps says, "How will you explain the donation of
something that cost you nothing." 

This means "How will you value the donation?" 

The IRS will be interested in how a value is affixed to free items
that a company most likely has already taken a tax deduction for. If
you are audited (how likely is that?), this would be a bad thing.

Weight the amount of the deduction against the headaches and decide.

IRS has a publication "Charitable Contributions" which summarizes the
rules on donating property to a charitable organization.  The
publication can be found here:

http://www.irs.gov/pub/irs-pdf/p526.pdf

Assuming that your company and the record labels have no problem with
you taking the CDs, the CDs are probably classified as "tangible
personal property."

If you own tangible personal property for less than a year, it is
treated as "ordinary income property".  For ordinary income property,
your tax deduction is the lower of the fair market value of the
property or your basis in the property.  Since you paid nothing for
the CDs, your basis is zero, and you would get no charitable
deduction.

If you own tangible personal property for more than a year, it becomes
"capital gains property."  In that case, you get to deduct the fair
market value of the CDs.  Fair market value would probably be limited
to what the CD would sell for on ebay or in a used CD store.