1 All section references are to the Internal Revenue Code (Code)

in effect for the year at issue. All Rule references are to the

Tax Court Rules of Practice and Procedure.

T.C. Memo. 1996-81

UNITED STATES TAX COURT

MARTIN H. DROZ, Petitioner v. 

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 25672-93. Filed February 26, 1996.

Martin H. Droz, pro se.

Glorianne Gooding-Jones, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, Judge: Respondent determined a deficiency in

petitioner's Federal income tax for 1991 in the amount of $69,952

and an addition to tax under section 6651(a)(1)1 and an accuracy-
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related penalty under section 6662(a) in the amounts of $15,672

and $11,967, respectively. 

The issues remaining for decision are:

(1) Is petitioner entitled for 1991 to a charitable contribution deduction under section 170(a) for a flight helmet that

he donated to a museum during that year? We hold that he is

entitled to a deduction in the amount of $500.

(2) Is petitioner liable for 1991 for self-employment tax? 

We hold that he is.

(3) Is petitioner liable for 1991 for the accuracy-related

penalty under section 6662(a)? We hold that he is.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

Petitioner had a mailing address in Arcadia, California, at

the time the petition was filed.

At all relevant times, petitioner operated a sole proprietorship that engaged in the business of distributing plumbing

products.

In June 1977, in response to a newspaper advertisement by an

individual in Downey, California, petitioner purchased for $100 

a high-altitude, full-pressure flight helmet made in 1959 that

was used by the U.S. Navy and that is known, and hereinafter

referred to, as a Mark IV helmet.

A Mark IV helmet is not a space helmet and was not at any
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time employed in trips into space, although its development was

one step in a multiple-step design and development process that

ultimately led to production of the Mercury helmet, a space

helmet that was used in trips into space. Although certain Mark

IV helmets were used in training Mercury astronauts, the serial

number on the Mark IV helmet at issue indicates that it was not

made at a time when Mercury astronauts were in training and that

it was not used for that purpose.

A Mark IV helmet is not an unusual or scarce helmet. To the

contrary, it is, and at all relevant times has been, the most

common and most available high-altitude, full-pressure flight

helmet.

Throughout the years 1977 to 1991, petitioner kept the Mark

IV helmet at issue in its case and stored it in a closet in his

residence. During that period, petitioner did not insure that

helmet against loss, nor did he insure his residence against

fire, theft, or other catastrophe. 

Around 1990 or 1991, petitioner placed an advertisement in a

newspaper offering the Mark IV helmet at issue for sale. That

advertisement stated that petitioner was "taking bids" for a

"SPACE TEST FLIGHT HELMET--USED IN MERCURY PROGRAM WITH CASE". 

In response to his advertisement, petitioner received telephone

calls from Keith R. Jamieson, M.D. (Dr. Jamieson) and Dennis

Gilliam (Mr. Gilliam), both of whom expressed an interest in the
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helmet that petitioner described in that advertisement.

Dr. Jamieson, a general surgeon, has been a collector of

flight helmets and combat helmets, including Mark IV helmets, for

about 25 years. At the time of the trial herein, he had over

1,000 helmets in his collection, 150 of which were flight helmets

and seven to 10 of which were Mark IV helmets. Just prior to

1990, Dr. Jamieson purchased a Mark IV helmet, suit, and gloves

for a total price of $700. At about the same time, he also

purchased two incomplete Mark IV helmets for a total price of

$400. During 1990 or 1991, Dr. Jamieson purchased a Mark IV

helmet for $350 at a flea market in Long Beach, California. In

addition, sometime during 1990 or 1991, he received two Mark IV

helmets as gifts from two different individuals.

During his telephone conversation with petitioner that took

place around 1990 or 1991, Dr. Jamieson identified himself as a

collector of helmets and asked petitioner for a description of

the helmet that he was offering for sale. Based on petitioner's

description of that helmet, Dr. Jamieson determined that the

helmet petitioner was offering for sale was a Mark IV helmet, and

not a space helmet as advertised by petitioner in the newspaper.

Petitioner offered to sell Dr. Jamieson the Mark IV helmet

at issue for $10,000. Based on his personal knowledge of sales

of other Mark IV helmets, Dr. Jamieson informed petitioner that

the Mark IV helmet at issue was worth approximately $300 to $500.
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Mr. Gilliam, an engineer employed in the aerospace industry,

has been a collector of space helmets, suits, and other space

memorabilia. At the time of the trial herein, he had over 30

helmets in his collection, two of which were Mark IV helmets. 

During 1985, Mr. Gilliam bought a suit and a Mark IV helmet for a

total price of about $250. In November 1988, he purchased

another suit and Mark IV helmet for a total price of $1,100. 

Shortly before Mr. Gilliam made that second purchase, a catalogue

of aviation artifacts that was published in the summer of 1988

listed an identical suit and Mark IV helmet for sale at $1,300.

During his telephone conversation with petitioner that took

place around 1990 or 1991, Mr. Gilliam asked petitioner for a

description of the helmet that he was offering for sale. Based

on petitioner's description of that helmet, Mr. Gilliam determined that the helmet petitioner was offering for sale was a Mark

IV helmet, and not a space helmet as advertised by petitioner in

the newspaper. Mr. Gilliam specifically inquired about the

serial number on the Mark IV helmet that petitioner was offering

for sale. Based on that serial number, Mr. Gilliam determined

that that particular helmet had not been used for the purpose of

training Mercury astronauts.

Petitioner offered to sell Mr. Gilliam the Mark IV helmet at

issue for $10,000. Based on his personal knowledge of sales of

other Mark IV helmets, Mr. Gilliam informed petitioner that the
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Mark IV helmet at issue was worth approximately $400 to $500, and

he offered to purchase it for a price within that range.

About one to two years after his initial telephone conversation with Dr. Jamieson, petitioner telephoned Dr. Jamieson and

offered to sell him a Mercury helmet. Dr. Jamieson recognized

the caller's voice as that of petitioner, informed petitioner

that the helmet that he was offering for sale was a Mark IV

helmet and not a Mercury helmet, and advised petitioner that the

value of the helmet petitioner owned was approximately $400 to

$500.

About two months after his initial telephone conversation

with Mr. Gilliam, petitioner telephoned Mr. Gilliam. Upon

discovering that he had had a prior telephone conversation with

Mr. Gilliam, petitioner terminated that second telephone conversation.

During 1991, petitioner donated the Mark IV helmet that he

had purchased in June 1977 to the Liberal Air Museum (museum) in

Liberal, Kansas. By letter dated June 23, 1992, Stephen G.

Brown, Executive Director of the museum, confirmed that that

helmet was in the possession of the museum. 

In his 1991 Federal income tax return (1991 return), petitioner, who had no expertise in personal property valuation,

valued the Mark IV helmet that he had donated to the museum at

$76,700 and claimed a charitable contribution deduction in the
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2 Petitioner calculated the amount of the deduction reported in

his 1991 return on the basis of the claimed fair market value of

the Mark IV helmet at issue, reduced to take account of the

limitation prescribed in sec. 170(b)(1)(A) that the deduction not

exceed 50 percent of his contribution base for 1991.

3 Mr. Hetz' purported resume states, inter alia, that he is "a

Fee Appraiser, specializing in the market valuation of industrial

machinery and transportation equipment."

4 The Hetz report noted, inter alia, that the various factors to

be considered in determining that value included the "Sale of [a]

similar Helmet." That report further stated, with no explanation: "WE have elected to use the Cost Approach." It described

the cost approach as an estimate of "value based on the current

cost in dollars of a new replacement Property Unit of similar

design, capacity, materials and utility." The Hetz report

concluded that the total design and material cost of "the MARK IV

Pressure Helmet" as of the time the Hetz report was prepared was

$338,000. It then allocated that cost to the Mark IV helmet that

was the subject of the Hetz report as follows: 

In order to spread the development costs for High Technology Projects such as this MARK IV Helmet, the first 2 units

produced are tested to their limits, usually to destruction. We say the subject Helmet was the first one built

after the tests and we shall spread the Design and Material

Cost over the First Three Units.

 

 3 $338,000 = $112,933 [sic] Allocated Cost for the Subject Helmet.

The Hetz report adjusted that $112,933 allocated cost for depreciation using a

100-year useful life for the helmet that was the subject of that report and

arrived at a recommended "Rounded Estimate [sic] Fair Market Value" of $76,700

for that helmet.

amount of $19,795.2 Attached to petitioner's 1991 return was a

report (Hetz report) that contains what purports to be the signature of Russell W. Hetz (Mr. Hetz).3 The Hetz report indicated

that, based on the cost approach, "We recommend a Rounded Estimate [sic] Fair Market Value" for "the MARK IV United States

Navy Helmet, Circa 1959" of $76,700.4
- 8 -

As of the date of the trial herein, a Mark IV helmet was

being offered for sale for $800 by an individual in San Francisco, California.

OPINION

Petitioner bears the burden of proving that respondent's

determinations are erroneous. Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933). Deductions are strictly a matter of

legislative grace, and petitioner bears the burden of proving

that he is entitled to any deduction claimed. New Colonial Ice

Co. v. Helvering, 292 U.S. 435, 440 (1934).

Petitioner attempted to satisfy his burden of proof in this

case principally through his testimony and the Hetz report that

was attached to his 1991 return. We found petitioner's uncorroborated testimony at times questionable, general, vague, and

conclusory. Under the circumstances presented here, we are not

required to, and we do not, rely on petitioner's testimony to

sustain his burden of establishing error in respondent's determinations. See Lerch v. Commissioner, 877 F.2d 624, 631-632 (7th

Cir. 1989), affg. T.C. Memo. 1987-295; Geiger v. Commissioner,

440 F.2d 688, 689-690 (9th Cir. 1971), affg. per curiam T.C.

Memo. 1969-159; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). 

As for the Hetz report, for the reasons discussed below, we place

no weight on that report.

At trial, respondent presented as an expert witness the
- 9 -

5 Petitioner renews on brief his contention at trial that the

testimony of respondent's witnesses, Dr. Jamieson and Mr. Gilliam, should be excluded because their identity was omitted from

respondent's trial memorandum dated Jan. 5, 1995, and, as a

result of that omission, he did not have the opportunity to

prepare for the testimony of those witnesses. The identity of

respondent's witnesses, Dr. Jamieson and Mr. Gilliam, was disclosed to petitioner, inter alia, in an amendment to trial

memorandum for respondent dated Jan. 12, 1995 (respondent's

amendment to trial memorandum). Petitioner was aware of the

identity of those witnesses almost two weeks before the trial

herein, made no effort to ascertain their whereabouts, did not

ask respondent how he could contact them, and chose not to

contact them. We reaffirm our finding at trial that under those

circumstances petitioner's ability to present his case was not

prejudiced by respondent's calling Dr. Jamieson and Mr. Gilliam

as witnesses.

 Petitioner also renews on brief his suggestion at trial that

this Court should not rely on the testimony of Dr. Jamieson and

Mr. Gilliam because they were not credible. The determination of

the credibility of witnesses is a question of fact that is within

our discretion. Friedman v. Commissioner, 235 F.2d 86 (6th Cir.

1956), affg. T.C. Memo. 1954-198. As noted above, we found each

of respondent's two fact witnesses credible.

 Petitioner also renews on brief his contention at trial that

the testimony of respondent's witness, Dr. Jamieson, should be

excluded because it was beyond the scope of testimony stated in

respondent's amendment to trial memorandum. Petitioner also

objects on brief to the testimony of respondent's witness, Mr.

Gilliam, on the same grounds. Petitioner's contentions about the

(continued...)

individual who prepared the written report that respondent timely

submitted to the Court and served on petitioner as required by

Rule 143(f). We determined that that individual was not an

expert qualified to opine on the fair market value of the Mark IV

helmet as issue. Respondent called two fact witnesses, Dr.

Jamieson and Mr. Gilliam, who testified at trial. We found each

of them credible.5
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5(...continued)

scope of testimony of Dr. Jamieson and Mr. Gilliam are unfounded. 

Respondent's amendment to trial memorandum stated that Dr.

Jamieson and Mr. Gilliam would testify with respect to the respective telephone conversations that they had had with petitioner concerning the Mark IV helmet at issue. Dr. Jamieson and

Mr. Gilliam testified about what transpired during those respective telephone conversations, including their respective views as

to the fair market value of the Mark IV helmet at issue and the

basis for those views. Much of the testimony about which petitioner appears to complain was elicited by him as a result of

questions he asked on cross-examination and recross-examination

of those witnesses.

 

 Even assuming arguendo that we were to exclude from the record

the testimony of respondent's witnesses, Dr. Jamieson and Mr.

Gilliam, that record would contain no reliable evidence from

which we would have been able to find that petitioner satisfied

his burden of showing error in respondent's determination that he

did not substantiate the fair market value of the Mark IV helmet

at issue that he claimed in his 1991 return.

Charitable Contribution Deduction

Section 170(a) provides that a taxpayer is entitled to a

deduction for any charitable contribution as defined in section

170(c) that is made during the taxable year. If a charitable

contribution is made in property other than money, the amount of

the contribution is generally the fair market value of the

property at the time of the contribution. Sec. 1.170A-1(c)(1),

Income Tax Regs. The fair market value of property is the price

at which the property would change hands between a willing buyer

and a willing seller, neither being under any compulsion to buy

or sell and both having reasonable knowledge of relevant facts. 

Sec. 1.170A-1(c)(2), Income Tax Regs.

The parties do not dispute that petitioner contributed the
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Mark IV helmet at issue to the museum. Nor do they dispute that

the museum qualifies as a charitable organization. The only

dispute is the fair market value of that helmet. 

Petitioner contends that, as of the date he donated the Mark

IV helmet at issue to the museum, its fair market value was

$76,700. Respondent determined in the notice of deficiency she

issued to petitioner for 1991 that petitioner did not substantiate the charitable contribution deduction he reported in his

1991 return that was based on that claimed value. On brief,

respondent contends that, based on the record in this case, the

fair market value of the Mark IV helmet at issue was between $300

and $500 as of the time petitioner donated it to the museum.

The fair market value of property that is the subject of a

charitable contribution is an issue of fact to be determined from

an examination of the entire record. Zmuda v. Commissioner, 79

T.C. 714, 726 (1982), affd. 731 F.2d 1417 (9th Cir. 1984). In

arriving at that determination, the Court will weigh its judgment

heavily against the taxpayer who is responsible for any deficiencies in the proof required to substantiate the value claimed. 

Id. 

The only testimonial evidence relating to petitioner's

claimed valuation of the Mark IV helmet at issue is petitioner's

testimony. As stated above, we are unwilling to rely on that

testimony. Even assuming arguendo that we were willing to rely
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6 Respondent timely submitted the written report of her proffered expert as required by Rule 143(f) and the Court's standing

pretrial order. Petitioner did not timely submit a written

report prepared by Mr. Hetz or any other proffered expert. On

Jan. 3, 1995, the Court had a telephonic, pretrial conference

with the parties for the purpose of confirming that petitioner

did not intend to introduce expert testimony at trial, since he

had not submitted a written report as required by Rule 143(f) and

the Court's standing pretrial order not later than 30 days before

Jan. 23, 1995, the date on which this case was to be called from

the trial calendar. The Court informed petitioner during that

telephonic conference that since no such written report had been

timely submitted, he could not introduce expert testimony at

trial unless he were to file, and the Court were to grant, a

motion seeking the Court's permission to submit out of time a

written report pursuant to Rule 143(f). Petitioner did not at

any time file such a motion.

on petitioner's testimony, we do not believe that it establishes

error in respondent's determination regarding the charitable

contribution deduction claimed with respect to the Mark IV helmet

at issue. 

The principal documentary evidence on which petitioner

relies to support his contention as to the fair market value of

the Mark IV helmet at issue is the Hetz report that was attached

to his 1991 return. We do not place any weight on that report in

determining the fair market value of that helmet. Petitioner did

not intend or attempt to call Mr. Hetz, who purportedly signed

and prepared that report, as a witness at trial.6 Mr. Hetz was

not even present at the trial herein. Thus, we are left with a

report that was attached to petitioner's 1991 return, that

contains what purports to be the signature of Mr. Hetz, and that,
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on its face, is both ambiguous and suspect. We do not even know

whether the Mark IV helmet that was the subject of the Hetz

report is in fact the Mark IV helmet at issue here. Nor can we

determine solely on the basis of the document in the record that

purports to be Mr. Hetz' resume whether Mr. Hetz was qualified to

prepare the report that was attached to petitioner's 1991 return. 

In this connection, since petitioner did not offer Mr. Hetz as a

witness at trial, respondent did not have the opportunity to voir

dire Mr. Hetz on his qualifications as an expert or to examine

him on the Hetz report, nor did the Court have the opportunity to

question him about his qualifications as an expert in valuing the

Mark IV helmet at issue or about the Hetz report. It is also

significant that the Hetz report does not set forth in detail the

reasons for its recommendation that a "Rounded Estimate [sic]

Fair Market Value" for the Mark IV helmet that was the subject of

the report be $76,700. For example, the Hetz report offers no

explanation as to why the cost approach on which the report

purports to rely is the most appropriate method to use in determining the fair market value of the Mark IV helmet that was the

subject of that report. By way of further illustration, although

the Hetz report acknowledged that various factors, including the

"Sale of [a] similar Helmet", were to be taken into account,

apparently that factor was not considered, and the Hetz report

provides no explanation as to why it was ignored.
- 14 -

7 Petitioner provided no credible explanation as to why that

helmet, which he purchased for $100 in June 1977, would have so

substantially appreciated in value to $76,700 approximately 14

years later. See Tripp v. Commissioner, 337 F.2d 432, 434-435

(7th Cir. 1964), affg. T.C. Memo. 1963-244.

In sum, petitioner has presented no reliable evidence to

establish that the fair market value of the Mark IV helmet at

issue was $76,700 at the time he donated it to the museum.7

Based on our examination of the entire record before us, we find

that petitioner has failed to satisfy his burden of proving that

the Mark IV helmet at issue had a fair market value of $76,700 at

that time. We further find on that record that the fair market

value of that helmet at the time he donated it to the museum was

$500.

Self-Employment Tax

Petitioner presented no evidence and makes no argument

regarding his liability for self-employment tax for 1991. We

note that petitioner's failure to pay self-employment tax for

1988 was an issue raised in this Court in Droz v. Commissioner,

an Oral Opinion of this Court dated Oct. 14, 1992. In that case,

petitioner challenged the constitutionality of section 1402(g)(1)

to the extent that it provided that a self-employed individual

who raised religious objections to the social security system but

who did not belong to a religious organization was not entitled

to an exemption from self-employment tax. In our Oral Opinion,

we rejected petitioner's constitutional challenge. Petitioner
- 15 -

appealed our decision to the U.S. Court of Appeals for the Ninth

Circuit, and that appeal was pending at the time of the trial

herein. After the present case was submitted, the Court of

Appeals rendered its decision upholding the constitutionality of

section 1402(g)(1), affirming this Court's decision, and holding

petitioner liable for self-employment tax for 1988. Droz v.

Commissioner, 48 F.3d 1120 (9th Cir. 1995), affg. an Oral Opinion

of this Court, cert. denied, ___ U.S. ___, 64 U.S.L.W. 3167 (Jan.

8, 1996).

On the record before us, we sustain respondent's determination that petitioner is liable for 1991 for self-employment tax. 

Droz v. Commissioner, supra.

Accuracy-Related Penalty

Respondent determined that petitioner is liable for 1991 for

the accuracy-related penalty under section 6662(a) because his

underpayment of tax for that year was due to negligence or

disregard of rules or regulations. For purposes of section

6662(a), the term "negligence" includes any failure to make a

reasonable attempt to comply with the provisions of the Code,

failure to exercise due care, or failure to do what a reasonable

person would do under the circumstances. Sec. 6662(c); Leuhsler

v. Commissioner, 963 F.2d 907, 910 (6th Cir. 1992), affg. T.C.

Memo. 1991-179; Antonides v. Commissioner, 91 T.C. 686, 699

(1988), affd. 893 F.2d 656 (4th Cir. 1990). The term "disregard"
- 16 -

includes any careless, reckless, or intentional disregard of the

Code and the temporary or final regulations issued under the

Code. Sec. 6662(c); sec. 1.6662-3(b)(2), Income Tax Regs.

The accuracy-related penalty under 6662(a) does not apply to

any portion of an underpayment if it is shown that there was a

reasonable cause for such portion and that the taxpayer acted in

good faith with respect to such portion. Sec. 6664(c)(1). The

determination of whether the taxpayer acted with reasonable cause

and in good faith depends upon the pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. Factors taken

into account include the taxpayer's efforts to assess his or her

proper tax liability and the knowledge and experience of the

taxpayer. Id. Reliance on the advice of a professional, such as

an accountant or an appraiser, does not necessarily demonstrate

reasonable cause and good faith unless, under all the circumstances, such reliance was reasonable and the taxpayer acted in good

faith. Id.

Although petitioner's argument is not entirely clear, he

appears to contend that he was not negligent in the preparation

of his 1991 return because the claimed charitable contribution

deduction was based on the advice of his accountant who prepared

that return and on the advice of Mr. Hetz who, he claims, prepared the report attached to his 1991 return that indicated that

the fair market value of the Mark IV helmet that was the subject
- 17 -

of that report was approximately $76,700.

With respect to petitioner's reliance on the accountant who

prepared his 1991 return, petitioner did not call him as a

witness. Thus, the record is devoid of any evidence relating to

what information petitioner may have provided him or what advice

he might have given petitioner with regard to the value placed on

the helmet at issue for purposes of the charitable contribution

deduction at issue. Based on our review of the instant record,

we find that petitioner has failed to establish that his reliance

on the advice of the return preparer was reasonable or that he

acted in good faith. 

With respect to petitioner's reliance on Mr. Hetz, petitioner did not call him as a witness. Thus, the record is devoid of

any evidence relating to what information petitioner may have

provided to Mr. Hetz about the Mark IV helmet that Mr. Hetz was

asked to value. Nor does the record contain any reliable evidence establishing, inter alia, (1) that Mr. Hetz was qualified

in appraising personal property of the type at issue, (2) that

the Mark IV helmet that was the subject of the Hetz report is the

Mark IV helmet at issue, (3) why Mr. Hetz employed the cost

approach in arriving at the fair market value of the Mark IV

helmet that was the subject of the Hetz report, or (4) why Mr.

Hetz did not consider the "Sale of [a] similar Helmet." We also

note that around 1990 or 1991, shortly before petitioner donated
- 18 -

the Mark IV helmet at issue to the museum, petitioner offered to

sell that helmet to Dr. Jamieson and to Mr. Gilliam for $10,000. 

Both Dr. Jamieson and Mr. Gilliam informed petitioner that the

helmet that he was offering for sale was a Mark IV helmet, and

not a space helmet, and that it was worth approximately $300 to

$500. Petitioner's offer to sell the Mark IV helmet at issue for

$10,000 indicates that he was aware that a value of $76,700 for

that helmet was grossly overstated. In addition, he was aware

that, at least as far as Dr. Jamieson and Mr. Gilliam were

concerned, a value of $76,700 for the helmet at issue was very

substantially overstated. Based on our review of the present

record, we find that petitioner has failed to establish that his

reliance on the advice of Mr. Hetz was reasonable or that he

acted in good faith. See Van Zelst v. Commissioner, T.C. Memo.

1995-396; Harding v. Commissioner, T.C. Memo. 1995-216.

On the record before us, we find that petitioner has not

established that he acted with reasonable cause and in good faith

in placing a value of $76,700 on the Mark IV helmet at issue. We

therefore sustain respondent's determination for 1991 imposing

the accuracy-related penalty on petitioner. 

To reflect the foregoing and the concessions of the parties,

Decision will be entered

under Rule 155.