T.C. Mem o. 2 01 4- 20 5

UNITED STAT ES TAX COURT

GUST KALAPODIS AND FRANCES L. KALAPODIS, Peti ti on ers v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 26 74 2- 12 . Fi le d Oct ob er 6 , 20 14 . Gus t Kal ap od is an d F ran ces L. Kalap od is , pro se. Nan cy P. Kli ng sh irn an d Den ni s G. Dri sc ol l, fo r res po nd en t.

MEMORANDUM OPINION BUCH, Ju dg e: Res po nd en t i ss ue d M r. an d M rs . Kalap od is a no ti ce o f de fic ie nc y

forth e 2 00 8 t ax ab le y ear i nc reas in g t he ir g ro ss in co m e, de nyin g va rio us de du ct io ns , andim po si ng anad di ti on to tax forfai lu re t o t im el y fil e u nd er- 2 -

[* 2] se ct io n 6 65 1( a)(1 ). Afterco nc es si on s b y th e p art ie s, the so le is su e 1 rem ai ni ng forde ci si on is whet he r th e Kal ap od is es are en ti tl edto a ch ari tabl e co nt rib ut io n d educ ti on forsch ol ars hi p p aym en ts m ad e b y a tr us t. We ho ldth at th ey are n ot . Bac kg ro un d In20 06 Mr. an d M rs . Kalap od is rece iv ed$7 5,0 00 inli fe i ns ur an ce p ro ceed s fro m th e p as si ng of t he ir s on . Thatsame y ear, the Kalapo di se s u se d the li fe in su ran ce p ro ceed s t o e st ab li sh th e Jo hnGus t Kal ap od is Mem or ia l Sc ho la rs hi p Fu ndin ho no r of

th ei r so n. Th e sc ho la rs hi p fu ndwas s tru ctur edas a n i rrev oc ab le tru st . The tru stag reem en t s ta te s t ha t i nc om e fro m th e tr us t i s t o b e u se d ex cl us iv el y

foreduc at io na l p ur

po se s. Th e tr

us t i s i rrev oc ab le , alt ho ug h t he Kalapo di se s re se rv edth e ri gh t t o a m en d the tru stso lo ng as a ll fun ds wou ldbe di st rib ut edto stud en ts so le ly for educ at io na l p ur po se s. Th e trus t h as no t ap pl ie d fo r orrece iv edtax -ex em

ptst atus as ach ari tabl e o rg an iz at io n und er s ect io n 5 01 . Dur in g 2 00 8 t he tru stm ad e p aym en ts of $ 2,0 00 each to th ree h ig h s ch oo l stud en ts . Each p aym en t was by checkdi rect ly to the stud en t. The m on ey forth e Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o t he Int ern al 1 Rev enue Co de in effe ctforth e y ear i n i ss ue , andall Ru le refe ren ces are t o t he Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e. All m on et ary am ou nt s ar e ro un de d t o t he ne ares t d ol la r.- 3 -

[* 3] pa ym en ts cam e fro m th e trus t’s i nv es tm en t i nc om e, an d t he ch eck s wer e writ te n o n a n a cco un t o wne d s ol el y inth e n am e o f th e trus t. Infil in g t he ir 2 00 8 F orm 10 40 , U.S. Ind iv idua l In co m e Tax Return, the Kalapo di se s d idno t i nc lu de th e in ve st m en t i nc om e fro m th e tr us t i n t he ir g ro ss in co m e; ho wev er, the y

cla im edth e $ 6,0 00 of p aym en ts as ach ari tabl e co nt rib ut io n d educ ti on on th ei r Sch edul e A, Ite m iz edDedu ct io ns . On Aug us t 9 , 20 12 , res po nd en t i ss ue d t he Kalapo di se s a n ot ic e o f de fic ie nc y m ak in g m

ul ti pl e ad jus tm en ts . One o f th os e ad jus tm en ts was t o d is al lo w a si gn ifi can t am ou ntof th ei r cl ai m edch ari tabl e co nt rib ut io n d educ ti on . As is rel ev an t h ere, re sp on de nt di sa ll owe d t he po rti on of the cla im edch ari tabl e co nt rib ut io n d educ ti onth at or ig in at edin th e trus t. Whil e li vi ng inOhi o, the Kalapo di se s t im el y pe ti ti on ed . Afte r co nc es si on s b y

th e p art ie s, thi s ca se was s ub m it te d wi th ou t tria l u nd er Ru le 12 2 wi th th e o nl y

rem ai ni ng is su e b ei ng whet he r th e Kal ap od is es are en ti tl edto de du ctth e $ 6,0 00 pa idby the tru st . Dis cu ss io n I. Sta nd ardof R ev ie w Exc ep t i n l im it edcir cu m st an ces , ina de fic ie nc y pro ceed in g t he po si ti on s o f th e p art ie s ar e rev ie wedde no vo an d t he Co urt wi ll no t “ ‘loo k b eh in d ade fic ie nc y no ti ce t o e xam in e th e ev id en ce u se d o r th e p ro pr ie ty of res po nd en t’s m ot iv es or o f- 4 -

[* 4] th e ad m in is tra ti ve po li cy or p ro cedur e in vo lv edinm ak in g h is de te rm in at io ns .’ ” The ra ti on al e u nd erl y in g t hi s ru le is th atth e ta xp ay er’s l iabi li ty 2 m us t b e b as edonth e m eri ts of t he cas e b efo re u s an d n otany pre vi ou s adm in is tra ti ve reco rd . 3 Mo stof t he Kalapo di se s’ bri ef ad dr es se s d iff ic ul ti es th ey

en co un te redwith va rio us pe op le fro m

th e In te rn al Rev enue Serv ic e. Our ro le he re i s t o d eci de whe th er the Kalapo di se s ar e en ti tl edto th e ch ari tabl e co nt rib ut io n d educ ti onan d no t t o re vi si t the m an ne r inwhi ch th e IRS co nduc te d i ts au di t. II. Bu rd enof P ro of The Co m m is si on er’s d et erm in at io ns inth e n ot ic e o f de fic ie nc y are g en eral ly pr es um edco rrec t, an d t ax pa y ers be ar the bu rd enof p ro vi ng ot he rwis e. Altho ug h 4 th e b ur de n m ay

sh iftto th e Co m

m is si on er und er s ect io n 7 49 1( a) wi th res pe ctto a rel ev an t fa ctua l i ss ue , th e Kal ap od is es do no t cl ai m th atth e b ur de n h as sh ift edto res po nd en t, an d l ik ewis e we d o n otfin d i t ap pr op ria te to sh iftth e b ur de n t o res po nd en t.

TG Mo. Co rp . v. Co m

m is si on er, 1 33 T.C. 27 8, 2 83 (20 09 ) (quo ti ng 2 Greenbe rg ’s Exp res s, In c. v. Co m m is si on er, 6 2 T.C. 3 24 , 32 7 (1 97 4) ). Greenbe rg ’s Exp res s, In c. v. Co m m is si on er, 6 2 T.C. at32 7. 3 Ru le 14 2( a); W el ch v. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (19 33 ). 4- 5 -

[* 5] III. Ch ari tabl e Co nt rib ut io n Deduc ti on In co m e ta x d educ ti on s ar e a m at te r of leg is la ti ve gra ce, an d t he burd enof pr ov in g e nt it le m en t t o a ny clai m edde du ct io n re st s o n t he tax pa y er. Sub ject t o 5 ap pl ic ab le li m it at io ns , sec ti on17 0( a) al lo ws a d educ ti on for an y ch ari tabl e co nt rib ut io n a s l on g a s t he co nt rib ut io n c anbe ve rif ie d u nd er re gu la ti on s pr es cri be d b y

th e Sec ret ary. In re le va ntpa rt, s ect io n 1 70 (c) d efi ne s a c harit ab le 6 co nt rib ut io n a s a co nt rib ut io n o r gi ft t o o r fo r th e u se of- -

(1 ) A Sta te , a po ss es si on of t he Uni te d S ta te s, o r an y po li ti cal subd iv is io n o f an y of t he for eg oi ng , or t he Uni te d St at es or t he Dis tri ctof C ol um bi a, bu t o nl y

if the co nt rib ut io n orgi ft i s m ad e fo r ex cl us iv el y publ ic pu rp os es . (2 ) A co rp or at io n, tru st , or c omm un it y ch es t, fu nd , or fo un da ti on -- (A) cre at edor o rg an iz edinth e Uni te d S ta te s o r in an y po ss es si on th ereo f, orun de r th e law of t he Uni te d St at es , any Stat e, th e Dis tri ctof C ol um bi a, orany po ss es si on of t he Uni te d S ta te s; (B) o rg an iz edan d o pe rat edex cl us iv el y for rel ig io us , cha rit ab le , sci en ti fic , li te rary, or educ at io na l pu rp os es , or t o fo st er n at io na l o r in te rn at io na l am at eu r INDOPCO, In c. v. Co m

m is si on er, 5 03 U.S. 79 , 84 (19 92 ); s ee al so Ru le 5 14 2( a). Sec. 1 70 (a)( 1) , (b) .

6- 6 - [* 6] sp orts co m

pe ti ti on (bu t o nl y

if n o p artof i ts act iv it ie s i nv ol ve th e p ro vi si on of a th le ti c fac il it ie s o r equi pm en t), o r fo r th e p rev en ti on of c ru el ty to ch il dr en oran im al s; (C) n o p artof t he ne t ea rn in gs of wh ic h i nu res to th e b en efi t o f an y

pri va te sh areh ol de r orin di vi du al ; an d (D) whi ch is no t d is qu al ifi edfor tax ex em pt io n un de r se ct io n 5 01 (c)( 3) by reaso n o f at te m pt in g t o in flu en ce l eg is la ti on , andwhi ch do es no t p art ic ip at e in , orin te rv en e in (in cl ud in g the publ is hi ng or d is tri bu ti ng of st at em en ts ), an y

po li ti cal cam

pa ig n o n b eh al f of

(orin op po si ti on to ) an y

can di da te forpubl ic off

ic e. A con tri bu ti on or g iftby a corp or at io n t o atru st , che st , fun d, o r fo un da ti on sh al l b e d educ ti bl e b y reas on of thi s p arag rap h o nl y if i t i s t o b e u se d wi th in th e Uni te d S ta te s o r an y of i ts po ss es si on s ex cl us iv el y

forpurp os es sp eci fie d i n s ub pa rag rap h (B). Ru le s s im il ar t o t he rul es of s ect io n 5 01 (j) sh al l ap pl y for pu rp os es of t hi s p arag rap h. (3 ) A po stor o rg an iz at io n o f war v et eran s, o r an au xi li ary un itor s oc ie ty of, ortru stor f ou nd at io n fo r, an y

su ch po stor o rg an iz at io n- -

(A) o rg an iz edinth e Uni te d S ta te s o r an y of i ts po ss es si on s, an d (B) n o p artof t he ne t ea rn in gs of wh ic h i nu res to th e b en efi t o f an y

pri va te sh areh ol de r orin di vi du al . (4 ) Inth e cas e o f a co nt rib ut io n o r gi ft b y anin di vi du al , a d om es ti c fra te rn al so ci ety , ord er, o r as so ci at io n, o pe rat in g un de r th e lo dg e syst em , bu t o nl y if s uc h c on tri bu ti onor g iftis to be us edex cl us iv el y

forrel ig io us , cha rit ab le , sci en ti fic ,- 7 - [* 7] li te rary, or educ at io na l p ur po se s, o r fo r th e p rev en ti on of cru el ty to ch il dr enor a ni m al s. (5 ) A cem et ery co m

pa ny owne d a ndop erat edex cl us iv el y fo r th e b en efi t o f it s m em be rs , or any corp or at io n c ha rte red so le ly for b ur ia l p ur

po se s as a cem et ery co rp or at io n a ndno t pe rm it te d b y

it s ch art er t o e ng ag e in an y bu si ne ss no t ne ces sa ril y

in ci de ntto th atpu rp os e, if su ch co m

pa ny or co rp or at io n i s n otop erat edforpro fitan d n o p artof the ne t earn in gs of s uc h c om

pa ny or co rp or at io n i nu res to th e b en efi t of an y pri va te sh areh ol de r orin di vi du al . Fo r pu rp os es of t hi s s ect io n, the term “ ch ari tabl e co nt rib ut io n” als o m ean s an am ou nttre at edun de r subs ect io n (g ) [rel at in g t o a m ou nt s pa idto m ai nt ai n c ert ai n s tu de nt s as m em be rs of atax pay er’s ho us eh ol d] as p ai d fo r th e u se of a n o rg an iz at io n d es cri be d i n pa rag rap h (2 ), (3 ), or(4) . Inord er t o s ub st an ti at e m on et ary ch ari tabl e co nt rib ut io ns , th e ta xp ay er m us t m ai nt ai n o ne of t he fol lo win g: (1) a can cel edch eck ; (2 ) a rec ei ptfro m th e d on ee ch ari tabl e o rg an iz at io n s ho win g t he na m e o f th e d on ee, the da te of t he co nt rib ut io n, an d the am ou ntof the co nt rib ut io n; or ( 3) ot he r rel iabl e wri tt en reco rd s s ho win g the na m e o f th e d on ee, the da te of t he co ntrib ut io n, an d t he am ou ntof t he co nt rib ut io n. Howev er, a ch ari tabl e co nt rib ut io n o f $2 50 or m or e 7 m us t b e subs ta nt ia te d b y

a co nt em po ran eo us writ te n a ckno wled gm en t o f th e

VanDus env. Co m

m is si on er, 1 36 T.C. 51 5, 5 33 (20 11 ); s ec. 1 .17 0A- 7 13 (a)( 1) , Inc om e Tax Reg s.- 8 -

[* 8] co nt rib ut io n b y

th e d on ee o rg an iz at io n. The ac kn owl ed gm en t m us t co nt ai n: 8 (1 ) a d es cri pt io n o f th e am ou ntof c as h o r a d es cri pt io n o f an y pro pe rty co nt rib ut ed , (2) a st at em en t as to whet he r th e d on ee o rg an iz at io n p ro vi de d a ny go od s o r se rv ic es in co ns id erat io n fo r an y pro pe rty con tri bu te d, an d (3 ) a de sc rip ti on an d g oo d- fai th est im at e o f th e v al ue of a ny pro vi de d g oo ds or s erv ic es orif s uc h g oo ds or s erv ic es co ns is t o f in ta ng ib le rel ig io us be ne fit s, a s ta te m en t t o th ateffe ct . In o rd er fo r th e ackno wled gm en t t o b e co nt em po ran eo us , itm

us t b e 9 ob ta in edon or b efo re the earl ie r of th e d at e o n wh ic h t he tax pa y er fi le s a r eturn fo r th e ta xabl e y ear i n wh ic h t he co nt rib ut io n was m ad e o r th e due da te (in cl ud in g ex te ns io ns ) fo r fi li ng su ch return. 1 0 The Kalapo di se s ar e n oten ti tl edto th e $ 6,0 00 ch ari tabl e co nt rib ut io n de du ct io n fo r m

ul ti pl e rea so ns . Fi rs t, i t was th e trus t-- no t the Kalapo di se s- -th atpa idth e m on ey ou t as sc ho lars hi ps . Sect io n 6 71 an d t he pro vi si on s t ha t fo ll ow i t l ay ou t the rul es for whe n atax pa y er i s t reat edas t he own er o f a tru st . If tr eat edas t he own er o f th e 1 1 Sec. 1 70 (f)(8 )(A). 8 Sec. 1 70 (f)(8 )(B) . 9 Sec. 1 70 (f)(8 )(C) . 1 0 Secs . 67 1- 67 9. 1 1- 9 -

[* 9] tru st , th e Kal ap od is es m ig hthave be enen ti tl edto rep ort the tax att rib ut es of th e trus t o n t he ir p ers on al return wh enco m pu ti ng th ei r pe rs on al tax li ab il it y . But th e trus t ag reem en t s ta te s t ha t the tru stis irr ev oc ab le ; an d i n re vi ewin g t he tru st ag reem en t, we d o n otsee , no r ha ve th e Kal ap od is es di rect edus to , any pro vi si on th atwou ldha ve th e eff

ectof a ll owi ng th e Kal ap od is es to rep ort the tax att rib ut es of th e trus t o n t he ir p ers on al return. J us t as th ey di d n otrep ort the tru st ’s in co m e on th ei r return, the y

are n oten ti tl edto de du ctan y ch ari tabl e co nt rib ut io ns th e trus t m ig htha ve m ad e. Seco nd , eve n i f th e Kal ap od is es co ul d re po rt t he tru st ’s tax att rib ut es on th ei r pe rs on al return, the y wou ldst il l n otbe en ti tl edto a ch ari tabl e co nt rib ut io n de du ct io n b ecau se th e trus t’s p aym en ts do no t qua li fy as c ha rit ab le co nt rib ut io ns . Sect io n 1 70 (c) l ay s o utsp eci fic rul es forwho m us t b e th e rec ip ie ntof a co nt rib ut io n o r gi ft i n o rd er fo r th e p aym en t t o qua li fy as ach ari tabl e co nt rib ut io n de du ct io n. Here , th e trus t p ai d t he m on ey di rect ly to the stud en ts , andth e stud en ts do no t fa ll in to an y

of the reci pi en t ca te go rie s u nd er s ect io n 1 70 (c). Last ly, th e Kal ap od is es di d n otpro du ce an y ev id en ce o f a co nt em

po ran eo us writ te n a ckno wled gm en t o f th e ch ari tabl e co nt rib ut io n. Th e cl os es t thi ng to a co nt em po ran eo us writ te n a ckno wled gm en t tha t the Kalapo di se s p ro vi de d was th e li stof c ha rit ab le co nt rib ut io ns th atth ey att ach edto th ei r 20 08 Sch edul e A, whi ch- 10 -

[* 10 ] sh owe d thr ee $ 2,0 00 co nt rib ut io ns . Thatdo cu m en t d oe s n otsh ow the da te s of th e co nt rib ut io ns or a ny of th e o th er i nf orm at io n re qu ire d t o c om pl y with t he m or e st rin ge ntsubs ta nt ia ti on requi rem en ts forco ntrib ut io ns ov er $ 25 0. IV. Con cl us io n The Kalapo di se s ar e n oten ti tl edto a ch ari tabl e co nt rib ut io n d educ ti on for th e th ree $ 2,0 00 pa y

m en ts by the tru st . They are n ottre at edas o wne rs of the tru st an d m ay no t re po rt i ts tax attrib ut es . Evenif t he y co ul d re po rt t he tru st ’s tax at tri bu te s, the pa ym en ts m ad e b y th e trus t d o n otqu al ify as ch ari tabl e co nt rib ut io ns . Andev enif t ho se pa ym en ts ha d qua li fie d, the Kalapo di se s d idno t m eetth e subs ta nt ia ti on requi rem en ts forch ari tabl e co nt rib ut io ns inex ces s o f $2 50 . To re fle ctth e fo reg oi ng an d t he co nc es si on s o f th e p art ie s, Deci si on wil l b e en te red un de r Ru le 15 5.