T.C. Mem o. 2 01 5- 71

UNITED STAT ES TAX COURT

KENNET H JAMES KUNKEL AND SUSAN K ATHRYN KUNK

EL, Peti ti on ers v. COM MIS SIONER OF INTERNAL REVENUE , Res po nd en t

Doc ke t No . 21 98 2- 13
. Fi le d Ap ril 8, 2 01 5.

Ken ne th James Kun ke l an d S us anKath ry n Ku nk el , pro ses e. In a Su san Wein er an d Ki rs te n E. Bri m er, fo r res po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION LAUBER, Ju dg e: The In te rn al Rev enue Serv ic e (IR S o r res po nd en t) d et erm in edfor pe ti ti on ers ’ 20 11 tax ab le y ear ade fic ie nc y of $ 12 ,33 8 andanaccu racyrel at edpe na lty

of $ 2,4 68 . The i ss ue s fo r de ci si on are: (1) whet he r pe ti ti on ers are en ti tl edto a ch ari tabl e co ntrib ut io n d educ ti oninanam ou ntlar ge r th anth e IRS al-- 2 -

[* 2] lo wed ; an d (2 ) whe th er p et it io ne rs are l iabl e fo r th e se ct io n 6 66 2( a) p en al ty. 1 W e res ol ve bo th is su es infav orof r es po nd en t. FINDINGS OF FACT The pa rti es fil eda st ip ul at io n o f fact s wi th acco m pa nyin g e xh ib it s tha t ar e in co rp or at edby thi s re fere nc e. Pet it io ne rs res id edinPen ns y lv an iawhen th ey pe ti
ti on edth is Co urt. On Sc he du le A, Item iz edDedu ct io ns , of t he ir t im el y fil ed20 11 Fed eral in co m e ta x re tu rn , pet it io ne rs cla im eda ch ari tabl e co nt rib ut io n d educ ti on of $4 2,4 55 . Of th is am ou nt , $5 ,14 0 re pr es en te d a ll eg edcas h c on tri bu ti on s. Th e IRS de te rm in edth atpe ti ti on ers ha d s ub st an ti at ed$4 ,84 0 o f cas h c on tri bu ti on s; pe ti
ti on ers do no t d is pu te th e d is al lo wan ce o f th e rem ai ni ng $3 00 . This cas e fo cu se s on pe ti ti on ers ’ cl ai m edde du ct io n o f $3 7,3 15 forno nc as h c harit ab le co ntrib ut io ns , whi chth e IRS di sa ll owe d i n i ts en ti rety . Pet it io ne rs co nt en d t ha t the y do na te d p ro pe rty durin g 2 01 1 t o fo urch ari
tabl e o rg an iz at io ns : the Upp er Dubl in Luthe ranChur ch(Ch ur ch ), Goo dwi ll Indu st rie s (Go odwil l), t he Mi li ta ry Orde r of th e Pu rp le HeartServ ic e Fo un da ti on (Pu rp le Heart ), an d Vi etnam Vete ran s o f Am eri ca (Vi etna m Vete ran s) . Peti ti on All st atut ory

refe ren ces are t o t he Int ern al Rev enue Co de (Co de ) as in 1 effe ctforth e ta x year atis su e. All Ru le refe ren ces are t o t he Tax C ou rt R ul es of Prac ti ce an d P ro cedur e. W e ro un d a ll do ll ar am ou nt s t o t he ne ares t d ol la r.- 3 -

[* 3] ers ’ no nc as h c on tri bu ti on s t o t he Chur chco ns is te d o f it em s the y all eg ed ly do na te d t o i ts 20 11 an nu al fle a m ark et . Thes e it em s i nc lu de d b oo ks va lu edat $8 ,00 0, h ou se ho ldit em s v al ue d a t $ 1,3 03 , clo th in g v al ue d a t $ 1,0 00 , to y s v al ue d at$8 22 , tel es co pe s v al ue d a t $ 80 0, jewel ry va lu edat $ 78 0, an d h ou se ho ld fu rn itur e v al ue d a t $ 41 0, fo r a t ot al of $ 13 ,11 5. Pet it io ne rs di d n otpro du ce a re cei ptor a n a ckno wled gm en t fr om th e Ch ur chforth ei r do na ti on s o f an y of t he se it em s. Th e Ch ur chwas e vi de nt ly equi pp edto pro vi de su chrece ip ts , bec au se pe ti ti on ers cla im edto ha ve a rece ip t fro m th e Ch ur chforth ei r co nt rib ut io ns to th e 2 01 2 fl ea m ark et . Peti ti on ers pr oduc edno ev id en ce, s uc h a s p ho to gr ap hs , th atany of the li st edit em s wer e actua ll y de li ve redto th e Ch ur ch . The Ch ur chdi d n otin fo rm pe ti ti on ers whet he r an y of t he it em s al le ge dl y

co nt rib ut edwere s ol d o r atwhatpri ce. Pet it io ne rs ’ no nc as h c on tri bu ti on s t o Go od wil l, Pu rp le Heart , andViet na m Vete ran s al le ge dl y

co ns is te d o f cl ot hi ng va lu edat $ 20 ,92 0, h ou se ho ldfurni tu re va lu edat $ 2,6 80 , ho us eh ol d i te m s v al ue d a t $ 35 0, an d t oys va lu edat $ 25 0, fo r a to ta l o f $2 4,2 00 . Peti ti on ers pro du cedno do cu m en ta ry ev id en ce, an d h adno reco ll ect io n, as to whi chit em s wer e d on at edto whi chch ari ty. They pro du ceda sp read sh eet , creat eddu rin g t he IRS au di t, tha t l is te d v ari ou s i te m s- -e.g ., 67 bl ou se s, 4 5 dres se s, 7 0 dres s s hi rts , 22 dre ss co at s, an d 1 00 baby ou tfi ts --an d- 4 -

[* 4] as si gn ed“ es ti m at edam ou nt s” as t he fai r m ark etva lu es of t he se it em s. Pet it io ne rs co nt en de d t ha t the se it em s, i n the ag gr eg at e, were d iv id edinso m e m an ne r am on g t he th ree c harit ie s. Fo r Goo dwi ll , pet it io ne rs tes ti fie d t ha t the y to okba tc he s o f it em s atva rio us ti m es to a Goo dwi ll lo cat io n. Th ey ge ne ral ly m ad e th es e tr ip s i n t he earl y m ornin g o r ev en in g, wh enth e Goo dwi ll wareh ou se was u na tt en de d. Th ey pl acedso ft go od s i n l arg e b in s i nt en de d fo r aft er-h ou rs dro po ffs . They le ft l arg e it em s, s uc h
as furni tu re, o ut si de th e wareh ou se do or . Peti ti on ers tes ti fie d tha t the y were ca refu l t o e ns ur e th atth e it em s i n e ach ba tc h wer e worth les s tha n $ 25 0 b ecau se th ey th ou gh t thi s el im in at edth e n eedto ge t re cei pt s. Fo r Pu rp le Heartan d Vi etna m Vete ran s, p et it io ne rs all eg ed ly sch edul eda pi ckup an d l eftth e it em s o ut si de th ei r ho us e. The c harit y sen t a tru ckto pi ckup th e it em s, g en eral ly whi le pe ti ti on ers were away, andus ua ll y lef t a d oo rkno b ha ng er s ay in g, “ Tha nky oufory ou r co ntrib ut io n.” Thes e d oo rkno b h an ge rs co nt ai ne d n o o th er i nf

orm at io n. Th ey

were u nd at ed ; the y

were n otsp eci fic to pe ti ti on ers ; an d the y

di d n otli stor d es cri be th e p ro pe rty con tri bu te d. Pet it io ne rs tes ti fie d t ha t the y crea te d i nd ex card s re co rd in g the it em s as th ey were d el iv eredto Goo dwi ll or l eftforpi ckup by Purp le Heartor Vi etna m Vete ran s. Pet it io ne rs lat er ag gr eg at edth is in fo rm at io n i nt o am as te r li st . Whe n t he ti m e- 5 -

[* 5] cam e to pre pa re the ir 2 01 1 t ax return, the y ass ig ne d e st im at edva lu es to th e it em s. Pet it io ne rs di d n otin tro du ce i nt o e vi de nc e th e in de x c ard s the y all eg ed ly pr ep aredor a ny oth er co nt em po ran eo us reco rd s s up po rti ng th ei r co nt en ti on th at th ey m ad e th e al le ge d g ift s. Th ey supp li edno ev id en ce co nc ern in g the ir c os t ba se s i n t he se it em s o r th e m an ne r in whi chth ey de te rm in edfai r m ark etva lu es . The IRS t im el y

is su edpe ti ti on ers a no ti ce o f de fic ie nc y di sa ll owi ng forlac k of subs ta nt ia ti on $3 00 of t he ir c la im edcas h c on tri bu ti on s an d a ll of t he ir c la im ed
no nc as h c on tri bu ti on s t ot al in g $ 37 ,31 5. Th e IRS als o d et erm in edanaccu racyrel at edpe na lty . Peti ti on ers ti m el y so ug htrev ie w inth is Co urt. OPINION I. Bu rd enof P ro of The Co m m is si on er’s d et erm in at io ns ina no ti ce o f de fic ie nc y are g en eral ly pr es um edco rrec t, an d t he tax pa y er b ears th e b ur de n o f pr ov in g tho se de te rm ina ti on s erro ne ou s. Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (19 33 ). Deduc ti on s ar e a m at te r of leg is la ti ve gra ce; tax pa y ers m us t d em on st rat e th ei r en ti tl em en t t o d educ ti on s al lo wedby the Co de an d s ub st an ti at e th e am ou nt s o f cl ai m edde du ct io ns . INDOPCO, Inc . v. Co m m is si on er, 5 03 U.S. 79 , 84 (19 92 );
se c. 1.6 00 1- 1( a), In co m e Tax Reg s. Pet it io ne rs do no t co nt en d, an d t he ev id en ce do es no t es tabl is h, tha t the bu rd enof p ro of as t o a ny factu al is su e sh ou ldsh iftto- 6 -

[* 6] res po nd en t u nd er s ect io n 7 49 1( a). Pet it io ne rs thus be ar the bu rd enof p ro vi ng th ei r en ti tl em en t t o t he cla im edno nc as h c ha rit ab le co ntrib ut io n d educ ti on s. II. Ch ari tabl e Co nt rib ut io ns A. St atut ory

Fram ewo rk Sect io n 1 70 all ows as ade du ct io n a ny con tri bu ti on m ad e wit hi n t he tax ab le y ear t o ach ari tabl e o rg an iz at io n s uc h a s tho se in vo lv edhe re. Sec . 17 0( a)(1 ), (c). Su chde du ct io ns are al lo wedon ly if th e ta xp ay er s at is fie s s ta tu to ry an d re gu la to ry subs ta nt ia ti on requi rem en ts . See s ec. 1 70 (a)( 1) ; s ec. 1 .17 0A- 13 , Inc om e Tax Reg s. Th e n atur e o f th e requi redsubs ta nt ia ti on de pe nd s o n t he si ze o f th e co nt ribu ti on an d o n wh ethe r itis a gi ft o f cas h o r pr op erty . Fo r al l co nt rib ut io ns of $ 25 0 o r m or e, th e ta xp ay er g en eral ly m us t o bt ai n a co nt em po ran eo us writte n a ckno wled gm en t fr om th e d on ee. Sec . 17 0( f)(8 ). “ Sepa rat e co nt rib ut io ns of l es s t han $ 25 0 a re n otsubjec t t o t he requi rem en ts of s ecti on17 0( f)(8 ), reg ard le ss of wh ethe r th e su m of t he co nt rib ut io ns m ad e b y a ta xpa y er t o ado ne e o rg an iz at io n dur in g atax ab le y ear e qu al s $ 25 0 o r m or e.” Sec
. 1.1 70 A-1 3( f)(1 ), In co m e Tax Reg s. Add it io na l s ub st an ti at io n re qu ire m en ts are i m po se d fo r co nt rib ut io ns of p ro pe rty with a cl ai m edva lu e ex ceed in g $ 50 0. Se c. 17 0( f)(1 1) (B). St il l m or e ri go rou s s ub st an ti at io n re qu ire m en ts , in cl ud in g t he ne edfora “ qu al ifi edap pr ai sa l,” a re- 7 -

[* 7] im po se d fo r co nt rib ut io ns of p ro pe rty with a cl ai m edva lu e ex ceed in g $ 5,0 00
. Sec. 1 70 (f)(1 1) (C). “ Si m il ar i te m s o f pr op erty ” m us t b e ag gr eg at edinde te rm in in g whe th er g ift s ex ceedth e $ 50 0 and$5 ,00 0 t hr es ho ld s. See sec . 17 0( f)(1 1) (F) (“ Fo r pu rp os es of d et erm in in g t hr es ho ld s u nd er thi s p arag rap h, p ro pe rty andall si m il ar it em s o f pr op erty

do na te d t o 1 or m or e d on ees sh al l b e tr eat edas 1 pro pe rty.”). The term “ si m il ar i te m s o f pr op erty ” is de fin edto m ean “pr op erty of t he same ge ne ric cat eg ory

or t y pe ,” su chas c lo th in g, jewel ry , furni tu re, el ectro ni c equi pm en t, h ou se ho ldap pl ia nc es , or k it ch en ware. Sec . 1.1 70 A-1 3( c)(7 )(i ii ), In co m e Tax Reg s. B. Ana lysis Pet it io ne rs co nt en d t ha t the y do na te d p ro pe rty in 2 01 1 wi thanag gr eg at e va lu e o f $3 7,3 15 . The p ro pe rty the y all eg ed ly con tri bu te d m ay be gro up edin to th e fo ll owi ng sev encat eg or ie s:

Item s Clai m edva lu e Clo th in g $2 1,9 20 Boo ks 8,0 00 H ou se ho ldfurni tu re 3,0 90 H ou se ho ldit em s 1,6 53 T oys 1,0 72 T el es co pe s 80 0 Jewel ry 78 0 Tot al 37 ,31 5- 8 -

[* 8] Pet it io ne rs do no t m ean in gf ul ly chal le ng e th is cat eg or iz at io n o f th ei r al le ge d gi fts , an d e ach cat eg ory

ha s a c la im edva lu e ex ceed in g $ 50 0. Th eref or e, in 2 ad di ti on to m eet in g t he ge ne ral subs ta nt ia ti on requi rem en ts of s ect io n 1 70 (f)(8 ), pe ti ti on ers m

us t s at is fy

th e ad di ti on al requi rem en ts of s ect io n 1 70 (f)(1 1) (B) fo r al l
se ve n c at eg or ie s o f gi fts
. Forth e two cat eg or ie s wi th all eg edva lu es ex ceed in g 3 $5 ,00 0 (c lo th in g a ndbo ok s) , pet it io ne rs m us t m eetth e ri go ro us subs ta nt ia ti on requ ire m en ts im

po se d b y sec ti on 17 0( f)(1 1) (C). 1. Co nt rib ut io ns of $ 25 0 o r Mo re Sect io n 1 70 (f)(8 )(A) p ro vi de s tha t an in di vi du al m ay de du cta gi ft o f $2 50
orm or e o nl y

if h e subs ta nt ia te s t he de du ct io n wi th“ a co nt em po ran eo us writ te n

Pet it io ne rs arg ue th atno t al l t ex tb oo ks sh ou ldbe ag gr eg at edbe cau se “ a 2 Ph arm aco lo gy tex tb oo k i s n otsi m il ar t o aSp an is h t ex tb oo k.” W e d is ag ree. Th e reg ul at io ns de fin e “ si m il ar i te m s o f pr op erty ” as “pr op erty of t he same gen eri c cat eg ory or t y pe .” Sec. 1 .17 0A- 13 (c)( 7) (ii i), In co m e Tax Reg s. Th e reg ul at io ns pr ov id e th e fo ll owi ng ex am pl e: “ [I]f a do no r cl ai m s o n h er re tu rnforth e y ear d edu ct io ns of $ 2,0 00 forbo ok s g iv enby her t o C ol le ge A, $2 ,50 0 fo r bo ok s g iv enby he r to Co ll eg e B, an d $ 90 0 fo r bo ok s g iv enby her t o C ol le ge C, th e $ 5,0 00 th res hol d o f pa rag rap h (c )(1 ) of th is sec ti on is ex ceed ed .” Ib id . Und er the reg ul at io ns , a ph arm aco lo gy tex tb oo k i s i n t he “ sam e g en eri c cat eg ory ” as a Sp an is h t ex tb oo k. Pet it io ne rs arg ue th atth ey were u na ware o f th e requi rem en t t o a gg reg at e 3 pr op erty . Butth ey

tes ti fie d t ha t the y

rel ie d o n IR S Publ ic at io n 5 26 , Charit ab le Co nt rib ut io ns , inpre parin g t he ir 2 01 1 re tu rn . Thatpubl ic at io n s pe ci fic al ly inst ru ct s t ax pa y ers th at , “ [i]n f ig ur in g wh ethe r y ou r de du ct io n i s $ 50 0 o r m or e, [y ou m us t] com bi ne y ou r cl ai m edde du ct io ns forall si m il ar i te m s o f pr op erty do na te d to an y ch ari tabl e o rg an iz at io n dur in g t he y ear.”- 9 -

[* 9] ackno wled gm en t o f th e co nt rib ut io n b y th e d on ee o rg an iz at io n.” See Weyts v. Co m m is si on er, T.C. Mem o. 2 00 3- 68 (di sc us si ng leg is la ti ve hi st ory of t hi s p ro vi si on ). Thi s ac kn owl ed gm en t m us t: (1) in cl ud e “ a d es cri pt io n (b utno t v al ue ) of
an y pro pe rty oth er tha n c as h c on tri bu te d” ; (2 ) st at e whe th er the do ne e p ro vi de d
an y go od s o r se rv ic es inex ch an ge forth e g ift ; an d (3 ) if th e d on ee d idpro vi de go od s o r se rv ic es , in cl ud e a d es cri pt io n a ndgo od -fai th est im at e o f th ei r va lu e. Sec. 1 70 (f)(8 )(B) ; s ec. 1 .17 0A- 13 (f)(2 ), In co m e Tax Reg s. Th e ackno wled gm en t is “ co nt em

po ran eo us ” if

th e ta xp ay er o bt ai ns itfro m th e d on ee o n o r be fo re the earl ie r of : (1 ) th e d at e th e ta xp ay er fi le s a r eturn fo r th e y ear o f co nt rib ut io n; or (2 ) th e due da te , in cl ud in g e xt en si on s, fo r fi li ng th atreturn. Se c. 17 0( f)(8 )(C)
. Pet it io ne rs di d n otpro vi de to th e IRS or t he Co urt a “ co nt em po ran eo us writ te n a ckno wled gm en t” fro m an y of the fou r ch ari tabl e o rg an iz at io ns . Peti ti on ers pro du cedno ackno wled gm en t o f an y ki ndfro m

th e Ch ur chor Go od wil l. An d th e d oo rkno b h an ge rs lef t b y th e truc k driv ers fro m

Vietna m Vete ran s an d P ur

pl e Heartcle arl y

do no t s at is fy

th e reg ul at ory

requi rem en ts . Thes e d oo rkno b h an ge rs are u nd at ed ; the y

are n otsp eci fic to pe ti ti on ers ; the y do no t d es cri be th e p ro pe rty
co nt rib ut ed ; an d t he y

co nt ai n n on e o f th e o th er re qu ire d i nf orm at io n. Pet it io ne rs co nt en d t ha t the y di d n otne edto ge t wri tt enackno wled gm en ts be cau se th ey

m ad e al l o f th ei r co nt rib ut io ns inba tc he s wo rth les s than $ 25 0. We- 10 -

[* 10 ] di d n otfin d t hi s t es ti m on y cred ib le . Peti ti on ers all eg ed ly don at edpro pe rty
worth$1 3,1 15 to th e Ch ur ch ; thi s d on at io n o ccu rredinco nju nc ti on with asi ng le
ev en t, the Chur ch ’s ann ua l fl ea m ark et . Peti ti on ers ’ te st im on y th atth ey in te nt io na ll y

m ad e al l o th er co nt rib ut io ns inba tc he s wo rth les s tha n $ 25 0 re qu ire s th e as su m pt io n t ha t the y

m ad e th es e d on at io ns , with an a ll eg edva lu e o f $2 4,2 00 , on 97 di st in ctoc cas io ns . This ass um pt io n i s i m

pl au si bl e an d h as no supp ort i n t he
reco rd . Mor eo ve r, pe ti ti on ers tes ti fie d tha t the y di d n otass ig n v al ue s t o t he do na te d i te m s u nt il th ey

pre pa redth ei r ta x re tu rnin20 12 . Thatbe in g s o, i t i s h ard to see ho w th ey

co ul d h av e en sured , at the ti m e th ey co nt rib ut edth e p ro pe rty, tha t each in di vi du al ba tc h was wort h l es s tha n $ 25 0. 4

Eve n i f pe ti ti on ers co ul d b e ex cu se d fr om th e “ co nt em

po ran eo us writ te n 4 ackno wled gm en t” requi rem en t o n t he th eo ry th atth ey m ad e al l g ift s i n b at ch es worthles s t ha n $ 25 0, the y were s ti ll requi redto m ai nt ai n re co rd s t o d oc um en t th ei r do na ti on s, wh ic h g en eral ly m us t i nc lu de “ rece ip ts ” fro m th e d on ees . See s ec. 1.1 70 A-1 3( b) (1 ), In co m e Tax Reg s. Re cei pt s ar e n otrequi redwher e a co nt rib uti onis m ad e “ incir cu m st an ces wher e itis im pr act ic al to ob ta in a rece ip t (e .g., b y de po si ti ng pro pe rty at a ch ari ty’ s u na tt en de d dro p s it e).” Ib id . In tha t ev en t, h owev er, “ th e ta xp ay er s ha ll m ai nt ai n re li ab le writ te n re co rd s wi thres pe ctto each it em of do na te d p ro pe rty,” in cl ud in g t he nam e o f th e d on ee, the da te an d l oc at io n o f th e co nt rib ut io n, a d es cri pt io n o f th e p ro pe rty, andth e m etho d u se d t o d et erm in e it s fai r m ark etva lu e. Id .; s ec. 1 .17 0A- 13 (b )(2 ), In co m e Tax Reg s. If we a ss um e arg ue nd o tha t i t was im

pr act ic al forpe ti ti on ers to ob ta inrece ip ts fro m Goo dwi ll or th e truc k driv ers who pi ck edup th ei r go od s, the y ne ve rth el es s fa il edto ke ep “ rel iabl e wri tt enreco rd s” be cau se th ey di d n otreco rdth e d at es of a ny of th ei r co nt rib ut io ns ; the y

di d n otreco rdwhi chit em s wer e d on at edto whi chch ari ty; an d th ey di d n otreco rdho w th ey

de te rm in edth e fai r m ark etva lu e o f an y it em s.- 11 -

[* 11 ] Fo r th es e rea so ns , we con cl ud e th atpe ti ti on ers were re qu ire d t o o bt ai n, b ut di d n otob ta in , con te m

po ran eo us writ te n a ckno wled gm en ts forth ei r co ntrib ut io ns of pro pe rty durin g 2 01 1. Th ei r cl ai m edde du ct io ns m us t ac co rd in gl y

be de ni edfor la ckof s ub st an ti at io n u nd er s ect io n 1 70 (f)(8 )(A).

2. Co nt rib ut io ns Exce ed in g $ 50 0 Altho ug h p et it io ne rs ’ fai lu re t o s at is fy th e subs tant ia ti onrequi rem en ts for
co nt rib ut io ns of $ 25 0 o r m or e is fat al to th ei r cl ai m , we wil l b rie fly addres s, fo r sa ke of c om

pl et en es s, the ot he r ap pl ic ab le subs ta nt ia ti on requi rem en ts . For n on cas h c on tri bu ti on s i n e xc es s o f $5 00 , tax pa y ers are re qu ire d t o m ai nt ai n a dd it io na l rel iabl e wri tt enreco rd s wi th res pe ctto each it em of d on at edpro pe rty. Sec. 1.1 70 A-1 3( b) (2 ) an d (3 ), In co m e Tax Reg s.; see Gaert tn er v . Comm is si on er, T.C. Mem o. 2 01 2- 43 . Thes e rec or ds m us t i nc lu de , am on g o th er thi ng s: (1) th e ap pr ox im at e d at e th e p ro pe rty was acqui redan d t he m an ne r of it s ac qu is it io n; (2) a de sc rip ti on of t he pro pe rty in d et ai l re as on ab le un de r th e ci rcu m st an ces ; (3 ) th e co stor o th er b as is of t he pro pe rty; (4 ) th e fai r m ark etva lu e o f th e p ro pe rty at th e ti m e itwas c on tri bu te d; an d (5 ) th e m etho d u se d i n d et erm in in g i ts fai r m ark et
va lu e. Sec. 1 70 (f)(1 1) (B); sec . 1.1 70 A-1 3( b) (2 )(i i)( C) an d (D) , (3) (i) (A) an d (B ), In co m e Tax Reg s.- 12 -

[* 12 ] Pet it io ne rs all eg ed ly m ad e n on cas h c on tri bu ti on s t o fo urdi ffer en t ch ari ti es of sev encat eg or ie s o f it em s, ea chwith acla im edva lu e ex ceed in g $ 50 0. Bu t the y di d n otm ai nt ai n wri tt enreco rd s es tabl is hi ng when or h ow the se it em s wer e acqu ire d o r wha t the ir c os t b as es were. Nor di d p et it io ne rs m ai nt ai n wri tt enreco rd s es tabl is hi ng ho w th ey

cal cu la te d t he it em s’ fai r m ark etva lu e. No d educ ti onis all owe d fo r “ an y co nt rib ut io n o f cl othi ng or aho us eh ol d it em ” unl es s s uc h p ro pe rty is “ in go odus edco nd it io n o r be tt er.” Se c. 17 0( f)(1 6) (A). “ The term ‘ ho us eh ol d i te m s’ in cl ud es furni tu re, fu rn is hi ng s, el ectro ni cs , app li an ces , li ne ns , andot he r si m il ar i te m s.” Se c. 17 0( f)(1 6) (D). Mo st of th e it em s p et it io ne rs all eg ed ly don at edco ns is te d o f cl ot hi ng an d h ou se ho ld it em s. Th ey

fai le d t o p res en t cr ed ib le ev id en ce tha t the se it em s wer e “ in go od
us edco nd it io n o r be tt er,” an d t he y di d n otfurni sh a qu al ifi edap pr ai sa l wi th th ei r return. Se e se c. 17 0( f)(1 6) (C) (e xc ep ti on wher e “ qu al ifi edap pr ai sa l” is supp li ed ). Fo r al l the se reas on s, p et it io ne rs ha ve no t s at is fie d the subs ta nt ia ti on requi rem en ts fo r do na ti on s o f pr op erty va lu edov er $ 50 0. 5 Fo r co nt rib ut io ns of p ro pe rty (othe r th anpubl ic ly trad edsec ur it ie s) or 5 si mil ar i te m s o f pr op erty

va lu edov er $ 5,0 00 , th e ta xp ay er m us t g en eral ly sati sf

y th e subs ta nt ia ti on requi rem en ts di sc us se d i n the tex t an d m us t al so : (1 ) ob ta in a “ qu al ifi edap pr ai sa l” of t he it em s; an d (2 ) at ta chto hi s t ax return aful ly com pl et ed ap pr ai sa l s umm ary. Sec. 1 70 (f)(1 1) (C); sec . 1.1 70 A-1 3( c)(2 ), In co m e Tax Reg s. Pet it io ne rs di d n otob ta in a qu al ifi edap pr ai sa l fo r an y of t he it em s an d d idno t

(co nt in ue d...)- 13 -

[* 13 ] The Co urt h as no do ub t tha t p et it io ne rs di d d on at e so m e p ro pe rty to c ha ritabl e o rg an iz at io ns du rin g 2 01 1. Bu t the Co de im po se s a s eri es of i nc reas in gl y rig or ou s s ub st an ti at io n re qu ire m en ts forlar ge r gi fts , esp eci al ly whe n t he y co ns is t of pro pe rty rath er than c as h. Be cau se pe ti ti on ers di d n otsat is fy th es e requi rem en ts , we are u nabl e to all ow a d educ ti on forth ei r cl ai m edno nc as h g ift s. III. Accu racy-Rel at edPen al ty Sect io n 6 66 2 i m

po se s a 2 0% p en al ty upo n t he po rti on of any un de rp aym en t at tri bu tabl e to (am on g o th er thi ng s) ne gl ig en ce o r di sr eg ardof r ul es or r eg ul at io ns . The term “ ne gl ig en ce” i nc lu de s an y fai lu re t o m ak e a rea so nabl e at te m ptto co m pl y with t he tax laws , and“ di sr eg ard ” in cl ud es an y care le ss , reck le ss , or i nt en ti on al di sr eg ard . Sec. 6 66 2( c). Neg li ge nc e al so in cl ud es an y fai lure t o k eep ad equ at e b oo ks an d re co rd s o r to subs ta nt ia te it em s p ro pe rly. Sec. 1.6 66 2- 3( b) (1 ), In co m e Tax Reg s.; see Oli ve v. Co m m is si on er, 1 39 T.C. 19 , 43 (20 12 ). W it h re sp ectto anin di vi du al tax pa y er’s l iabi li ty for a p en al ty, se ct io n 74 91 (c) p la ces on th e Co m mis si on er the bu rd enof p ro du ct io n, the reb y requi rin g th e Co m m is si on er t o c om e fo rwardwith s uf fic ie ntev id en ce i nd ic at in g t ha t (...co nt inue d) 5 at ta cha fu ll y

co m pl et edap pr ai sa l s umm ary to th ei r 20 11 tax return. Th ey th us fai le d t o s at is fy

th e subs ta nt ia ti on requi rem en ts forth ei r cl ai m edco nt rib ut io ns of cl ot hi ng ($2 1,9 20 ) an d b oo ks ($8 ,00 0)
.- 14 -

[* 14 ] im po si ti onof ape na lt y

is ap pr op ria te . Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 46 -4 47 (20 01 ). Once th e Co m m is si on er m eet s h is bu rd enof p ro du ct io n, the ta xp ay er b ears th e b ur de n o f pr ov in g t ha t the Co m m is si on er’s d et erm in at io n i s in co rrec t. Ib id .; s ee Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. at 1 15 . W e fi nd th atres po nd en t h as di sc harg edhi s b ur de n o f pr oduc ti on by sho win g tha t p et iti on ers fai le d t o k eep ad equa te reco rd s. See sec . 1.6 66 2- 3( b) (1 ), In co m e Tax Reg s. Sect io n 6 66 4( c)(1 ) pr ov id es anex cep ti onto th e im po si ti onof t he accu racyrel at edpe na lty

if t he tax pa y er es tabl is he s tha t the re was reas on ab le cau se for , and th athe act edingo odfai thwith re sp ectto , th e und erp aym en t. The de ci si on as t o whe th er the tax pa y er ac te d wi th reas on ab le cau se an d i n g oo d fa it h i s m ad e o n a cas e-b y -cas e b as is , tak in g i nt o a cco un t al l p ert in en t fa ct s an d c irc um st an ces . See
se c. 1.6 66 4- 4( b) (1 ), In co m e Tax Reg s. Ci rcu m st an ces th atm ay si gn al reas on ab le
cau se an d g oo d fa it h “ in cl ud e anho ne stm is un de rs ta nd in g o f fac t o r la w th atis
reas on ab le inli gh t o f al l o f th e fac ts an d c irc um st an ces , in cl ud in g t he expe rie nc e, kn owl ed ge , andeduc at io n o f th e ta xp ay er.” Ib id
. Pet it io ne rs tes ti fie d a s t o the ir b el ie f th atth ey di d n otne edto ob ta in rece ip ts
orackno wled gm en t l ette rs be cau se th ey lef t d on at io ns at u na tt en de d dro po ff l oc ati on s an d b ecau se each ba tc h o f it em s the y de li ve redor l eftfor

pi ckup was wo rth- 15 -

[* 15 ] les s t ha n $ 25 0. As no te d e arl ie r, we were unp ers ua de d b y th is tes ti m on y . The se rat io na le s h av e n o app li cat io n t o p et it io ne rs ’ al le ge d d on at io n o f pr op erty worth$1 3,1 15 to th e Ch ur ch . Thei r te st im on y th atth ey in te nt io na ll y

m ad e al l ot he r co nt rib ut io ns inba tc he s wo rth les s tha n $ 25 0 re qu ire s the im pl au si bl e as su m pt io n t ha t the y

m ad e th es e d on at io ns on 97 di st in ctoc cas io ns . In an y ev en t, pe ti ti on ers fai le d t o k eep rel iabl e wri tt enreco rd s o f th ei r gi fts be cau se th ey di d n ot
reco rdth e d at es of any of th ei r co ntrib ut io ns ; the y di d n otreco rdwhi chit em s wer e do na te d t o wh ic h c ha rit y ; an d t he y di d n otreco rdho w th ey

de te rm in edth e fai r m ark etva lu es of a ny ite m s. See sec . 1.1 70 A-1 3( b) (1 ), (2 ), an d (3 ), In co m e Tax Reg s. Insu m , we fin d t ha t p et it io ne rs were n eg li ge ntinpre parin g t he ir 2 01 1 return andth atno po rti on of the ir 2 01 1 u nd erp aym en t m etth e “ reas on ab le cau se ”
ex cep ti on . W e wil l ac co rd in gl y su st ai n re sp on de nt ’s im

po si ti on of t he sec ti on 66 62 (a) p en al ty. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red fo r res po nd en t.