T.C. Mem o. 2 01 5- 20 0

UNITED STAT ES TAX COURT

DONALD A. W ESLEY AND SANDRA F. W ESLEY, Peti ti on ers v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 24 87 -1 4. Fi le d Oct ob er 1 3, 2 01 5. Don al d A. Wesl ey

an d S an dr a F. W es le y , pro ses e. Je ss ic a R. Nol en , forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION CHIECHI, J ud ge : Re sp on de ntde te rm in eda de fic ie nc y in , andanaccu racyrel at edpe na lty

un de r se ct io n 6 66 2( a) on , pet it io ne rs ’ Fed eral in co m e ta x (t ax ) fo r 1 th ei r ta xabl e y ear 2 01 1 o f $1 5,6 49 an d $ 2,6 70 , res pe ct iv el y . All sec ti on refe ren ces are t o t he Int ern al Rev enue Co de (Co de ) in effe ctfor 1 th e y ear a t i ss ue . All R

ul e ref eren ces are t o t he Tax C ou rt Rul es of P ract ic e an d Pro cedur e.- 2 -

[* 2] The is su es rem ai ni ng forde ci si on forpe ti ti on ers ’ ta xabl e y ear 2 01 1 a re: (1 ) Are p et it io ne rs en ti tl edto a de du ct io n u nd er s ect io n 1 70 (a) fo r cl ai m ed ch ari tabl e co nt rib ut io ns inex ces s o f th e d educ ti on th atres po nd en t al lo wedun de r th atsec ti on ? W e h ol d t ha t the y are n ot . (2 ) Are p et it io ne rs li ab le forth e acc ur acy-rela te d p en al ty und er s ect io n 66 62 (a)? W e h ol d t ha t the y are. FINDINGS OF FACT So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Pet it io ne rs res id edinMi ss ou ri a t the ti m e th ey fil edth e p et it io n. Dur in g 2 01 1, p et it io ne rs Don al d A. Wesl ey (Mr. Wesl ey ) an d S an dr a F. W es le y (Ms . W es le y ) op erat edDis ci pl es Em po weredby Chri stMi ni strie s, a co m m un ity ou tre ach pro gr am . (W e sh al l s om et im es refe r to Dis ci pl es Em po wered by Chri stMi ni st rie s as th e m in is try.) At all rel ev an t t im es , pet it io ne r Mr. Wesl ey se rv edas p as to r of

th e m in is try. In hi s capa ci ty as pa st or , Mr. W es le y co nt ro ll ed th e m in is try. Pet it io ne rs ti m el y

fil eda ta x re tu rn(return) for th ei r ta xabl e y ear 2 01 1. Pet it io ne rs att ach edto th atreturn S ch edul e A, Ite miz edDedu ct io ns , andcla im eda ch ari tabl e co nt rib ut io n d educ ti on of $ 28 ,69 7.- 3 -

[* 3] Res po nd en t i ss ue d t o p et it io ne rs a no ti ce o f de fic ie nc y (no ti ce) f

orth ei r ta xabl e y ear 2 01 1. In th atno ti ce, res po nd en t d et erm in ed , in te r al ia , th at pe ti ti on ers are l iabl e fo r th ei r ta xabl e y ear 2 01 1 fo r th e acc ur acy-rela te d p en al ty un de r se ct io n 6 66 2( a). 2 Afte r res po nd en t i ss ue d the no ti ce t o p et it io ne rs , pet it io ne rs subm it te d t o res po nd en t Fo rm

10 40 X, Am en de d U.S. In di vi du al Inc om e Tax Return (a m en de d return) , for

th ei r ta xabl e y ear 2 01 1. In pe ti ti on ers ’ am en de d re tu rn , pet it io ne rs sh owe d, i nt er al ia , an a dd it io na l d educ ti on forcla im edch ari tabl e co nt rib ut io ns in ex ces s o f th e am ou ntth atth ey ha d c la im edinth ei r return a ndth atres po nd en t d id no t d is al lo w inth e n ot ic e. OPINION Pet it io ne rs be ar the burd enof e st ab li sh in g t ha t the de te rm in at io ns inth e no ti ce tha t re m ai n a t i ss ue are erro ne ou s. See Ru le 14 2( a); W el chv. Hel ve rin g, 3 29 0 U.S. 1 11 , 11 5 (1 93 3) . Dedu ct io ns are a m atte r of leg is la ti ve gra ce, an d pe ti ti on ers m

us t p ro ve th ei r en ti tl em en t t o a ny deduc ti on s cl ai m ed . See INDOPCO, In c. v. Co m

m is si on er, 5 03 U.S. 79 , 84 (19 92 ). The C od e an d t he Res po nd en t d idno t d is al lo w th e ch ari tabl e co nt rib ut io n d educ ti on of 2 $2 8,6 97 th atpe ti ti on ers cla im edinth ei r 20 11 return. Pet it io ne rs co nc ed e th atth ey ha ve un rep orte d i nc om e o f $5 0,8 30 th at 3 res po nd en t d et erm in edinth e n ot ic e.- 4 -

[* 4] reg ul at io ns th ereu nd er re qu ire d p et it io ne rs to m ai nt ai n re co rd s s uf fic ie ntto es tabl is h t he am ou ntof a ny deduc ti on cla im ed . See s ec. 6 00 1; sec . 1.6 00 1- 1( a), In co m e Tax Reg s. W e co ns id er fi rs t p et it io ne rs ’ po si ti on th at , inad di ti on to th e ch ari tabl e co nt rib ut io n d educ ti on th atth ey ha d c la im edinth ei r 20 11 return a ndth at res po nd en t d idno t d is al lo w inth e n ot ic e, th ey are en ti tl edto a ch ari tabl e co nt rib ut io n d educ ti on of $ 3,9 76 .51 forco nt rib ut io ns th atth ey cla im th ey m ad e 4 du rin g 2 01 1 t o o r fo r th e u se of the m in is try. (W e sh al l re fer t o t he ad di ti on al ch ari tabl e co nt rib ut io n d educ ti on of $ 3,9 76 .51 th atpe ti ti on ers are cl ai m in g h ere a s th e ch ari tabl e co nt rib ut io n am ou ntat i ss ue .) In s up po rt o f th ei r po si ti on , pe ti ti on ers rel y

on th ei r res pe ct iv e te st im on ie s an d c ert ai n d oc um en ts , eachof whi chis ti tl ed“ Co nt rib ut io ns Sta te m en t” . (W e sh al l re fer t o t he do cu m en ts ti tl ed

“ Co nt rib ut io ns Sta te m en ts ” as pe ti ti on ers ’ cl ai m eddo cu m en ts . ) 5 W e h av e in crea se d t he ch ari tabl e co nt rib ut io n a m ou ntat i ss ue to co rrec t a 4 73 -cen t erro r m ad e in on e o f th e p art ie s’ st ip ul at io ns of f act s. See Cal -Ma in e Fo od s, In c., 93 T.C. 18 1, 1 95 (19 89 ). The he ad in g a t the to p o f eac h o f pe ti ti on ers ’ cl ai m eddo cu m en ts is 5 “ Dis ci pl es Em

po weredby Chri stMi ni st rie s” . In ad di ti on to pe ti ti on ers ’ nam es an d a ddres s, ea ch of t ho se do cu m en ts sh ows a da te on whi chth e d oc um en t was pu rp orte dl y

pre pared(pu rp orte d p rep arat io n d at e) an d d es cri be s t he co nt rib ut io n th atwas p ur

po rte dl y m ad e to th e m in is try. T he bo tt om of e ach of p et it io ne rs ’ cl ai m eddo cu m en ts st at es inpe rti ne ntpa rt: “ Tha nky ouso m uc h fo r y ou r (co nt in ue d...)- 5 -

[* 5] W it h re sp ectto th e res pe ct iv e te st im on ie s o f Mr. Wesl ey an d M s. Wesl ey , we fo un d t he ir t es ti m on ie s t o b e in cert ai n m at eri al res pe ct s u nc orro bo rat edan d se lf- se rv in g. We sh al l n otrel y on th e res pe ct iv e te st im on ie s o f Mr. Wesl ey an d Ms . W es le y

to est ab li shpe ti ti on ers ’ po si ti on th atth ey are en ti tl edto de du ctth e ch ari tabl e co nt rib ut io n a m ou ntat i ss ue . See, e.g ., Tok ars ki v. Co m m is si on er, 8 7 T.C. 74 , 77 (19 86 ). W it h re sp ectto pe ti ti on ers ’ cl ai m eddo cu m en ts , Mr. W es le y ackno wled ge d du rin g h is tes ti m on y

th athe “ m anuf

actur ed ” th os e d oc um en ts in20 14 , ap pr ox im at el y

th ree years a fte r pe ti ti on ers ’ ta xabl e y ear a t i ss ue . Non ethe le ss , th e res pe ct iv e p ur

po rte d p rep arat io n d at es on m an y of p et it io ne rs ’ cl ai m eddo cu m en ts sh ow a d at e in20 11 , no t i n 2 01 4. By way of f urth er i ll us tra ti on of t he un rel iabl e na tu re o f pe ti ti on ers ’ cl ai m eddo cu m en ts , on e o f pe ti ti on ers ’ cl ai m eddo cu m en ts sh ows a co nt rib ut io n p ur

po rte dl y m ad e to th e m in is try wheninfact , as M r. W es le y ackno wled ge d a t tria l, the am ou ntsh own on th atdo cum en t was pu rp orte dl y gi ve n to Uni te d Way . Ano th er o f pe ti ti on ers ’ cl ai m eddo cu m en ts sh ows a co nt rib ut io n pu rp orte dl y

m ad e to th e m in is try wheninfact , as M r. W es le y ackno wled ge d a t tri al , th e am ou ntsh own on th atdo cu m en t was pa idby use of acred itcardinth e (...co nt inue d) 5 co nt rib ut io ns .”- 6 -

[* 6] na m e o f th e m in is try, nota cred itcardinth e n am e o f pe ti ti on ers . W e sh al l no t re ly on p et it io ne rs ’ cl ai m eddo cu m en ts to est ab li shpe ti ti on ers ’ po si ti on th at th ey are en ti tl edto de du ctth e ch ari tabl e co nt rib ut io n a m ou ntat i ss ue . Sect io n 1 70 (a) a ll ows a de du ct io n fo r an y ch ari tabl e co nt rib ut io n, as de fin ed in sec ti on 17 0( c), tha t i s m ad e dur in g atax ab le y ear. A ta xp ay er cl ai m in g a de du ct io n u nd er s ect io n 1 70 (a) m us t s at is fy

cert ai n s ta tu to ry

an d re gu la to ry requi rem en ts . (W e sh al l re fer c ol le ct iv el y to th e st atut ory

an d re gu la to ry requi rem en ts as t he ch ari tabl e co nt rib ut io n d educ ti on requi rem en ts .) See s ec. 17 0( a), (c) , (f); sec s. 1 .17 0A- 1, 1 .17 0A- 13 (a)- (c), In co m e Tax Reg s. Th e ch ari tabl e co nt rib ut io n d educ ti on requi rem en ts th ata ta xp ay er m us t s at is fy

va ry de pe nd in g o n (1 ) whe th er the cla im edco nt rib ut io n c on si st s o f m on ey or p ro pe rty ot he r th anm on ey

an d (2 ) th e v al ue of t he co nt rib ut io n. Se e se c. 17 0( a), (c) , (f); se cs . 1.1 70 A-1 , 1.1 70 A-1 3( a)-( c), In co m e Tax Reg s. Onth e rec or d b efo re u s, we fin d t ha t p et it io ne rs ha ve fai le d t o c arry the ir b ur de n o f es tabl is hi ng th atth ey sa ti sf y th e ap pl ic ab le ch ari tabl e co nt rib ut io n d educ ti onrequi rem en ts with re sp ect to th e ch ari tabl e co nt rib ut io n a m ou ntat i ss ue . On the reco rdbe fo re u s, we fi ndth atpe ti ti on ers ha ve fai le d t o c arry the ir bu rd enof e st ab li sh in g t ha t the y are en ti tl edto de du ctun de r se ct io n 1 70 (a) t he ch ari tabl e co nt rib ut io n a m ou ntat i ss ue .- 7 -

[* 7] W e co ns id er n ow the accu racy-rela te d p en al ty und er s ect io n 6 66 2( a) tha t res po nd en t d et erm in edinth e n ot ic e. Thatsec ti on im po se s anaccu racy-rela te d pe na lty of 2 0 p erce ntof t he un de rp aym en t t o wh ic h s ect io n 6 66 2 app li es . Sect io n 66 62 ap pl ie s t o t he po rti on of a ny un de rp aym en t wh ic h i s at tri bu tabl e to , in te r al ia , (1 ) ne gl ig en ce o r di sr eg ardof rul es or r eg ul at io ns , sec . 66 62 (b )(1 ), or(2) a subs ta nt ia l u nd ers ta te m en t o f ta x, s ec. 6 66 2( b) (2 ). Res po nd en t ar gu es th at pe ti ti on ers are l iabl e fo r th ei r ta xabl e y ear 2 01 1 fo r th e acc ur acy-rela te d p en al ty be cau se of n eg li ge nc e o r di sr eg ardof rul es or r eg ul at io ns an d b ecau se of a subs ta nt ia l u nd ers ta te m en t o f ta x. The term “ ne gl ig en ce” i n s ect io n 6 66 2( b) (1 ) in cl ud es an y fai lu re t o m ak e a reas on ab le att em

ptto co m pl y with t he Co de . Sec. 6 66 2( c). Neg li ge nc e h as als o be ende fin edas afai lu re t o d o wh ata reas on ab le pe rs on wou lddo un de r th e ci rcu m st an ces . Leuh sl er v . Comm is si on er, 9 63 F.2d90 7, 9 10 (6t h C ir. 1 99 2) , aff’g T.C. Me m o. 1 99 1- 17 9; Ant on id es v. Co m m is si on er, 9 1 T.C. 6 86 , 69 9 (1 98 8) , aff’d, 8 93 F.2d65 6 (4 th Cir . 19 90 ). The t erm “ ne gl ig en ce” a ls o i nc lu de s an y fai lu re b y

th e ta xp ay er t o k eep ad equa te bo ok s 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. Th e te rm “ 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).- 8 -

[* 8] Fo r pu rp os es of s ect io n 6 66 2( b) (2 ), anun de rs ta te m en t i s equa l t o t he ex ces s of th e am ou ntof t ax requi redto be sh own inth e ta x re turnov er the am ou ntof t ax sh own inth e return. Se c. 66 62 (d )(2 )(A). An u nd ers ta te m en t i s s ub st an ti al inth e cas e o f anin di vi du al if t he am ou ntof t he un de rs ta te m en t fo r th e ta xabl e y ear ex ceed s the gre at er o f 10 pe rcen t o f th e ta x re qu ire d t o b e sh owninth e ta x re tu rn fo r th aty ear o r $5 ,00 0. Se c. 66 62 (d )(1 )(A). The accu racy-rela te d p en al ty und er s ect io n 6 66 2( a) d oe s n otap pl y to an y po rti onof a n u nd erp aym en t i f itis sh own th atth ere was reas on ab le cau se for , and th atth e ta xp ay er ac te d i n g oo d fa it h wi th res pe ctto , su chpo rti on . Sec. 66 64 (c)( 1) . The d et erm in at io n o f 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 d ep en ds on all th e p ert in en t fa ct s an d c irc um st an ces , in cl ud in g t he tax pa y er’s eff orts to ass es s the tax pay er’s p ro pe r ta x l iabi li ty, th e kn owl ed ge an d e xp eri en ce o f th e ta xp ay er, an d t he rel ia nc e o n t he advi ce o f a pr of es si on al , su chas a n a cco un ta nt . Sec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s. Res po nd en t b ears th e b ur de n o f pr oduc ti on with re sp ectto th e acc ur acyrel at edpe na lty

un de r se ct io n 6 66 2( a) tha t re sp on de ntde te rm in edinth e n ot ic e. See s ec. 7 49 1( c); Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 46 -4 47 (20 01 ). To sa ti sf y res po nd en t’s b ur de n o f pr oduc ti on , res po nd en t m us t co m e fo rwardwith

“ su ffi ci en t ev id en ce i nd ic at in g t ha t i t i s ap pr op ria te to im po se ” th e p en al ty.- 9 -

[* 9] Hig be e v . Comm is si on er, 1 16 T.C. at 4 46 . Alth ou gh res po nd en t b ears th e bu rd enof p ro du ct io n wi thres pe ctto th e p en al ty und er s ect io n 6 66 2( a), res po nd en t

“ ne edno t i nt ro du ce ev id en ce re ga rd in g re as on ab le cau se * * * o r si m il ar pr ov is io ns . * * * [T]he t ax pa y er b ears th e b ur de n o f pr oo f wit h re gardto th os e is su es .” Id . Pet it io ne rs co nc ed e th atth ey ha ve th e unr ep orte d i nc om e o f $5 0,8 30 th at res po nd en t d et erm in edinth e n ot ic e. On the reco rdbe fo re u s, we fi ndth at 6 res po nd en t h as sat is fie d re sp on de nt ’s bu rd enof p ro du ct io n u nd er s ect io n 7 49 1( c) with re sp ectto th e acc ur acy-rela te d p en al ty und er s ect io n 6 66 2( a). Sect io n 1 .66 62 -3 (b )(1 )(i ) of th e In co m e Tax Reg ul at io ns pro vi de s t ha t ne gl ig en ce i s s tro ng ly ind ic at edwher e “ [a] tax pa y er fa il s t o i nc lu de [i]n an in co m e ta x re turnanam ou ntof i nc om e sh own [i]n an in fo rm at io n re tu rn ”. Pet it io ne rs pr es en t the fol lo win g a rg um en t as to why th ey were n otne gl ig en t: The pe ti ti on ers ackno wled ge th ei r la ck of due di li ge nc e reg ard in g t he ti m el in es s o f fi li ng th e o rig in al 20 11 10 40 form . * * * Th e p et it io ne rs di d e ve ntua ll y

fil e a return fo r 20 11 [us in g F orm ] 10 40 X andwhen th ey real iz edth ei r m is take , th ey di d a tt em

ptto rect ify it b y m ai nt ai ni ng di al og ue with t he lo cal IRS Offi ce an d t he U.S. Tax Co urts [si c]. * * * They didrep ort the ir c orrectin co m e to th e IRS .

See s up ra n ot e 3 . 6- 10 -

[* 10 ] W e d o n otun de rs ta ndho w pet it io ne rs ’ ab ov e-quo te d a rg um en t re la te s t o whe th er the accu racy-rela te d p en al ty sho ul d b e im po se d o n t he m

forth ei r ta xabl e y ear 2 01 1, l etalo ne ho w itest ab li sh es th atth ey are n otli ab le forth aty ear f orth at pe na lty . On th e rec or d b efo re u s, we fi ndth atpe ti ti on ers ha ve fai le d t o m eetth ei r bu rd enof p ro vi ng th atth ey were n otne gl ig en t i n fa il in g t o i nc lu de $5 0,8 30 of un rep orte d i nc om e in th ei r 20 11 return. On the reco rdbe fo re u s, we fi ndth atpe ti ti on ers ha ve fai le d t o c arry the ir bu rd enof e st ab li sh in g t ha t the re was reas on ab le cau se for , andth atth ey act edin go odfai th with re sp ectto , th e und erp aym en t fo r th ei r ta xabl e y ear 2 01 1. On the reco rdbe fo re u s, we fi ndth atpe ti ti on ers ha ve fai le d t o c arry the ir bu rd enof e st ab li sh in g t ha t the y are n otli ab le forth ei r ta xabl e y ear 2 01 1 fo r th e accu racy-rela te d p en al ty und er s ect io n 6 66 2( a). 7

W e fo un d t ha t p et it io ne rs are l iabl e fo r th e acc ur acy-rela te d p en al ty und er 7 se c. 66 62 (a) b ecau se of n eg li ge nc e. As a re su lt , we nee d n otad dr es s re sp on de nt ’s al te rn at iv e arg um en t tha t p et it io ne rs are l iabl e fo r th e acc ur acy-rela te d p en al ty be cau se of asubs tant ia l u nd ers ta te m en t o f ta x u nd er s ec. 6 66 2( b) (2 ).- 11 -

[* 11 ] W e h av e co ns id eredall of t he co nt en ti on s an d a rg um en ts of p et it io ne rs an d 8 res po nd en t tha t ar e n otdi sc us se d h erei n, an d we f in d t he m to be witho utm eri t, irr el ev an t, an d/ orm oo t. To re fle ctth e fo reg oi ng an d p et it io ne rs ’ co nc es si on , Deci si on wil l b e en te redfor res po nd en t.

W e h av e co ns id ered , in te r al ia , pet it io ne rs ’ arg um en t tha t Co ha n v . 8 Co m m is si on er, 3 9 F .2d54 0 (2 d C ir. 1 93 0) , ent it le s p et it io ne rs to de du ctun de r se c. 17 0( a) the ch ari tabl e co nt rib ut io n a m ou ntat i ss ue . W e h av e co nc lu de d t ha t Co ha n is in ap po si te to ou r res ol ut io n o f th atis su e.