TAX COURT OPINION

Case: Eugene M. Bond & Mary K. Bond
Docket Number: 29706-11
Judge: Gustafson
Opinion Type: bench
Filed: 01/15/2013
Pages: 23

UNITED STATES TAX COURT WASHINGTON, DC 20217 RMM EUGENE M. & MARY K. BOND, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 29706-11. ) ) ) ) ) ) ) ) ) O R D E R Pursuant to the opinion of the Court as set forth in the pages of the transcript of the proceedings before Judge David Gustafson at Washington, D.C., on November 14, 2012, containing his oral findings of fact and opinion, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Gustafson at Washington, D.C., containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) David Gustafson Judge Dated. Washington, D.C. January 15, 2013 SERVED Jan 16 2013 Capital Reporting Company 3 1 2 3 4 Bench Opinion by Judge David Gustafson November 14, 2012 EUGENE M. & MARY K. BOND v. COMMISSIONER Docket No. 29706-11 .5 THE COURT: The Court has decided to render 6 7 8 9 10 11 12 13 14 15 16 oral Findings of Fact and Opinion in this case. The following represents the Court's oral Findings of Fact and Opinion which shall not be relied on as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by Section 7459(b) of the Internal Revenue Code and Rule 152 of the Tax Court Rules of Practice and Procedure. By notice of deficiency, dated November 14, 2011, (Ex. 2-J), the Internal Revenue Service (IRS) determined a deficiency in the Federal income tax of 17 Petitioners Eugene M. and Mary K. Bond for the year 18 19 20 21 2009, along with an accuracy-related penalty under Section 6662(a). The issues for decision are whether the Bonds are entitled to deductions for medical and dental expenses, charitable contributions, and 22 miscellaneous itemized deductions and whether they 23 24 25 are liable for the accuracy-related penalty. For the reasons explained hereafter, we largely sustain the IRS's determinations. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 Trial of this case was conducted on November 14, 2012, in Washington, D.C. The Bonds represented themselves and Erin R. Hines represented respondent. The parties' Stipulation of Facts and Supplemental 5 Stipulation of Facts were admitted into evidence, 6 7 8 9 along with the attached Exhibits. Only Mr. Bond testified. We find the following facts: FINDINGS 10 In 2009, Mr. Bond was employed as an 11 Administrative Law Judge at the Social Security 12 Administration, as he is today. Mrs. Bond was 13 retired. 14 Miscellaneous Expenses 15 16 17 18 19 20 21 22 23 24 25 In their pretrial memorandum, the Bonds listed seven miscellaneous expenses. Employing the legal principles and the burden of proof discussed below, we find the following facts as to these seven claimed expenses: "Judge's Office security parking totaling $2,880.00 for the year." Mr. Bond paid this amount as the standard parking charge for parking in the building where he worked. Public parking was not permitted in that garage. Access to the garage was gained by use of the card key and access to the ) 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 elevator was similarly restricted. The garage was patrolled. Members of the public who gained access to the building could not thereby access the elevator to the garage. Employees of the Social Security 5 Administration who were not ALJs also parked in that 6 7 8 9 10 11 12 13 14 15 lot. However, Mr. Bond used the secure parking because of risks specific to and inherent in his work as an ALJ. Occasional disappointed claimants who were unstable or were in desperate circumstances sometimes made threats to ALJs and it was reasonable for Mr. Bond to incur this expense because of the special risks he faced. "Judge's home security totaling $598.00 for the year." Because of those risks, Mr. Bond paid this amount for private security service at his home. 16 Although many persons purchase home security, Mr. 17 18 19 20 21 22 23 24 25 Bond reasonably concluded it was expedient to incur this expense because of the circumstances of his employment as an ALJ. "Professional subscriptions total $1,975.91," and "Memberships charges totaling $375.97." Mr. Bond offered no documentary evidence and gave virtually no testimony about these items and we find no such expenditures. "Business related telephone charges for the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Judge's personal Tracfone telephone totaling $392.85." Mr. Bond put on no documentary evidence of these cell phone charges. He kept no log to distinguish business from personal use of the phone. He had a phone in his office that he could use for business, and the SSA did not require him to maintain a cell phone. We find he did not prove any business expenditure for cell phone use. "Non-reimbursed home expenses for government- related business totaling $1,649.99." Mr. Bond did not describe in any detail any specific portion of his home used for an office, nor did he offer any documentary evidence to prove any expenses incurred. The SSA provided him an office in a public building and did not require him to maintain a home office. We find that he did not prove any deductible home office expense. "Turbo Tax software for tax preparation totaling a $120.00." The IRS concedes that the Bonds are entitled to a miscellaneous deduction of a $120 for this software. 22 Charitable Contributions 23 24 On their 2009 return the Bonds reported charitable contributions of $3,534. In their 25 pretrial memorandum, they list eight contributions 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1- totaling a larger amount --$3,986. Employing legal 2 3 4 5 6 principles and the burden of proof discussed below, we find the following facts as to these eight claimed contributions: "Book Gifts Purchased from Barnes & Noble for a total of $194.98"; "Gift Cards to accompany personal 7 gifts purchased from the National Geographic Society 8 9 10 11 12 13 totaling $38.95"; "Gifts collectively purchased from a gift catalog in the amount totaling $555.00"; "Gift certificates from Macy's in the total amount of $750.00." Mr. Bond's testimony at trial disclosed that all of these items represent claimed gifts to individuals (chiefly support staff and coworkers of 14 Mr. Bond's) and not to qualified organizations 15 16 17 18 19 20 21 22 23 24 25 described in Section 501(c) (3). "Receipts for Articles Donated to UCM-Community Solutions and Vietnam Vets Charities totaling $390.00." The Bonds made in-kind contributions to charitable donees on several occasions in 2009. The largest of these gifts was for $215pand the total was $390. The amounts correspond to estimates that ) he Bonds made as to the value of the gifts. The examining agent allowed $50 of this amount, consisting of a contribution to UCM-Community Solutions and it is not in dispute. As to the ) 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 remaining $340, the IRS concedes that in-kind contributions took place but disputes their value. We find that the values that the Bonds stated were reasonable and that they did make qualifying in-kind contributions in the amounts claimed. "Estimated cash donations claimed totaling $1,200.00, and less than one-half of actual cash donation amounts." The examining agent evidently allowed a $127 of this amount and it is not Än dispute. As to the remaining $1,023, Mr. Bond's trial testimony disclosed that it consists of his conservative estimate f gifts made to individuals, support staff and coworkers, not to qualified organizations described in Section 501(c) (3). "Donations to Holy Name School by Petitioner Eugene M. Bond totaling $300.00." Mr. Bond contributed $300 to his wife's alma mater at the same time she made a gift of the same size. Based on his credible testimony, we find that he made the donation, received no consideration in return and received a written acknowledgement from the donee at the time (but evidently misplaced it). "Wife's donation separately listed and totaling $557." Mrs. Bond made contributions totaling $427 25 which the IRS allowed as deductions during the exam. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 She also made a $100 contribution to an individual (not to a qualified Section 501(c) (3) donee organization). We do not find charitable contributions by Mrs. Bond beyond what the IRS allowed and conceded. 6 Medical and Dental Expenses 7 8 9 10 11 On their 2009 return, the Bonds reported medical and dental expenses totaling $27,585. Because of the 7.5 'percent limitation of section 213(a) discussed below, these expenses will yield a deduction only to the extent that they exceed $13,656. In their 12 pretrial memorandum, the Bonds list six components 13 making up these expenses. Employing the legal 14 15 16 17 18 principles and the burden of proof discussed below, we find the following facts as to these six components of the claimed expenses: "Federal employee deductions for health benefits totaling (BlueCros s/BlueShield payments) $4, 259. 64 . " 19 Mr. Bond participated in the federal employees health 20 21 22 23 24 25 insurance program. Consistent with that program, his erriployer paid a portion of his premiums and he elected to have the remainder taken out of his salary as. "pre-tax dollars". "Federal employee deductions for long-term care totaling $6,803.42." The IRS concedes that the Bonds 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 paid these amounts for qualifying long-term care insurance. "Federal employee deductions for Medicare payments totaling $2,289.78." Medicare taxes totaling this amount were withheld from Mr. Bond's wages. "Doctor and hospital payments totaling $5,540.98" and "Prescriptions payments totaling . $389.~94 . " The IRS has conceded $3, 600 of this amount; it appears that it has conceded all the amounts for which documentation has been produced by the Bonds. However, even if we found deductible expenditures in the amounts petitioners allege, they would not affect the outcome here because of the 7 percent floor, so we do not address the additioñal claimed expenses. "Hospital transportation for eye surgerles . totaling approximately $300.00." Mr. Bond incurred car service charges to transport him to and fro hospital for eye surgery, because Mrs. Bond does not drive and because the nature of the surgery rendered him unable to drive himself. He produced no documentation to substantiate the expenditure but his testimony was specific and credibleµ and we find that he incurred the expense alleged. ) 1 2 3 4 5 6 7 8 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com ' Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 The Bonds' Tax Return The Bonds timely filed their joint federal income tax return for taxable year 2009 on April 15, 2010. On Schedule A to their return, the Bonds claimed charitable contributions of $3,534, medical and dental expenses of $27,585 (yielding a claimed deduction of $13,929 after the 7.5 percent limitation of Section 213(a)), and miscellaneous expenses of $15,271 (yielding a deduction of $11,629 after the 2 percent limitation of Section 67(a)). IRS Examination In 2011, the IRS selected the Bonds' 2009 tax return for examination. The initial contact letter, dated July 21, 2011, included check-boxes on the first page on which the box for "Gifts to Charity" was checked but on which there was not check marks for the boxes for "Medical & Dental Expensq", "Unreimbursed Employee Expense" or "Other Hedical 19 Deductions". On an "Explanation of Items" attached 20 21 22 23 24 25 to the letter the IRS asked the Bonds to send information not only about "Contributions" but also about "Medical & Dental Expenses" and "Employee Business Expenses". The Bonds and the IRS thereafter exchanged correspondence and information. After the conclusion of the examination, the IRS 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 issued on November 14, 2011, the statutory notice of deficiency. The IRS disallowed all +0- $477 of the claimed charitable contributions and disallowed both 4 medical and dental expenses and miscellaneous 5 6 7 8 9 10 11 12 expenses to an extent sufficient to take the totals below the statutory limits, thus disallowing entirely the actual deductions claimed. The IRS therefore determined a deficiency of tax and an accurag - related penalty. On December 28, 2011, the Bonds timely filed their Petition in this Court challenging the IRS's determinations. At that time they resided in 13 Virginia. 14 15 16 17 18 19 20 21 22 23 24 25 OPINION I. A. Evidentiary Principles General Rules The IRS's determination is presumed correct, and the taxpayer generally bears the burden to prove his entitlement to any deductions he claims. Rule 142 (a). Deductions are a matter of legislative grace, and taxpayers must satisfy the specific requirements for any deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Furthermore, taxpayers are required to maintain records sufficient to substantiate their claimed 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 deductions. See sec. 6001; 26 C.F.R. sec. 1-6001- 1(a); see also id. sec.-1(e) ("The books or records * * * shall be retained so long as the contents thereof may become material in the administration of any internal revenue law"). The Bonds failed in many respects to keep records that would substantiate their deductions. 8 Mr. Bond several times expressed annoyance with the 9 suggestion that he should have kept receipts and 10 other records and stated that the amounts were "not 11 worth haggling over". It was of course within the 12 13 14 15 16 17 18 19 Bonds' rights to waive their right to claim deductions and to decide not to keep their documentation. However, since they did claim deductions, they were obliged to maintain the records of the subject expenditures. Under Section 6501 there was a 3-year period of limitations within which the IRS could assert a greater liability than the Bonds had reported when they filed their return in 20 April 2010, and only 15 months later, the IRS sent 21 22 23 24 25 its first inquiry. Even now, it has only been 2-1/2 years since the Bonds filed their 2009 return, and they should be able to substantiate the deductions they claimed. Their failure to do so worked against them on many of the disputed issues in this case. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 B. Defects in the IRS's Examination Process The Bonds appear to contend that IRS personnel erred in requesting information from the Bonds and in evaluating the information that the Bonds received. They may contend that the notice of deficiency is in some way invalid because of those defects and that the Bonds were therefore not required to substantiate some of the items in dispute here. Those contents cannot avail. If the IRS does a poor job of examining a taxpayer's return, then the taxpayer who has good evidence and a meritorious position that were overlooked or misunderstood by the IRS will presumably fare well in Tax Court when that evidence and that position are finally ventilated. But.the position must be sound and the evidence must be there. Section 6212(a) simply requires the IRS to. determine that a deficiency exists before issuing a notice of deficiency. If a purported notice of deficiency reveals on its face that no determination of a tax deficiency has been made with respect to the taxpayer who is named in the notice, then it does not 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 meet the requirements of section 6212(a), and this 24 Court has no jurisdiction to hear a case arls1ng 25 therefrom. Scar v. Commissioner, 814 F.2d 1363, 1370 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 (9th Cir. 1987), rev'g 81 T.C. 855 (1983). However, under Campbell v. Commissioner, 90 T.C. 110, 113 (1988), if the "notice of deficiency does not reveal on its face that the Commissioner failed to make a determination, a presumption arises that there was a deficiency determination. " This presumption is made "conclusive" upon the presentation of further evidence that ties the calculations in the notice of .deficiency to the taxpayer who is named in the notice. For example, in Campbell we held that the existence of other supporting schedules in the IRS's case file that clearly tied the notice of deficiency to items reported on the correct taxpayer's tax return made the presumption of a valid determination conclusive. In this case, the preceding correspondence and the supporting schedules attached to the notice do the same, and the petitioner's 18 pretrial memorandum affirmatively states that the 19 deficiencies arise from disallowing deductions that 20 Petitioner claimed. That ends our inquiry. 21 22 23 24 25 In this case, the notice of deficiency is facially valid and the presumption of correctness applies because the notice states a deficiency and the tax years for which the deficiency is determined, correctly refers to petitione and was sent to their 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 last known address. Moreover, this presumption is made "conclusive both because he supporting documents attached to the notice of deficiency directly relate to petitioners' tax return and because petitioners' admissions to the same effect. Thus, the notice of deficiency is valid, and the Bonds have the burden to prove where it erred. II. Miscellaneous Deductions A. Parking In general, the cost of daily commuting to and from work is a non-deductible personal expense, see Commissioner v. Flowers, 326 U.S. 465, 473-474 (1946); 26 C.F.R. sec. 1.162-2(e), Income Tax Regs., and an employee's expense of parking at his place of work is usually a commuting expense. However, Mr. Bond established that his parking expenditures were a security expense made necessary by risks associated 18 with his work as an ALJ. Even if under Section 274 19 we employ a heightened standard of proof to evaluate 20 Mr. Bond's assertion that the expense was security- 21 22 23 24 25 related, we find that he satisfies that standard. B. Home Security Similarly, because of risks associated with Mr. Bond's work, the Bonds' expense to maintain a security system was reasonably related to his 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 17 1 2 3 4 employment as an ALJ. C. Subscriptions and Memberships The Bonds failed to prove the fact or the nature of any expenditures for subscriptions and 5 memberships, so the IRS's disallowance of those 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 deductions is sustained. D. Telephone Cell phones are "listed property" subject to the strict substantiation requirements of Section 274 (d). See sec. 280F(d) (4) (A) (v). A taxpayer must establish the amount of business use and the amount of total use for the property to substantiate the amount of expenses for isted property. Sec. 1.274- ST(b) (6) (i) (B). Mr. Bond gave no documentation to prove the fact of his expenditures and his testimony did not convince us that any cell phone expense he incurred was a business expense. E. Home Expense Section 280-A(c) (1) (A) allows a taxpayer to deduct expenses for the business use of his residence but only as to - a portion of the dwelling unit which is exclusively used on a regular basis-- (A) as the principal place of business for any trade or business of the taxpayer, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 (B) as a place of business which is used by patients, clients, or customers in meeting or.dealing 3 with the taxpayer in the normal course of his trade 18 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 or business, or (C) in the case of a separate structure which is not attached to the dwelling unit, in connection with the taxpayer's trade or business. In the case of an employee, the preceding sentence shall apply only if the exclusive use referred to in the preceding sentence is for the convenience of his employer. The Bonds failed to prove any of the elements of a home office expense deduction, so the IRS's disallowance is sustained. F. Tax preparation software The IRS has conceded this deduction. III. Medical Expenses A. Allowed expenses The IRS has conceded the long-term care insurance expense of $6,803 and the majority of the expense for doctors, hospitals, and prescriptions for which the total claimed was $5,951. And we have found that the Bonds are entitled to the $300 deduction for hospital transportation. These categories of expenses total $13,054. However, pursuant to Section 213(a), the Bonds will benefit from medical expenses only to the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 19 1 2 3 extent they exceed 7.5 percent of adjusted gross income- - i.e., if they exceed 7.5 percent of $182,087 or $13,656. Because the remaining claimed 4 medical expenses must be disallowed, the Bonds' 5 medical expenses do not exceed this floor. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 B. Disallowed expenses 1. Health insurance premiums The Bonds included in their claimed medical and dental expenses $4,260 in "Blue Cross Payments", which were health insurance premium payments deducted from Mr. Bond's wages. The Bonds have admitted that the Blue Cross payments were made from pre-tax dollars. The Blue Cross payments, therefore, were not the Bonds' payments for deductible medical .expenses under Section 213 but, instead, were a part of a Section 125 employer-provided cafeteria plan. Under Section 125, an employer may establish a cafeteria plan that permits an employee to choose among two or more benefits, consisting of cash (generallypsalary) and qualified benefits, including ) accident or health coverage. Sec. 125(d) (1). Pursuant to section 125(a), the amount of an employee's salary reduction applied to purchase such coverage (in this case Blue Cross health insurance coverage) is not included in gross income, even 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 20 though it is available to the employee and the employee could have chosen to receive cash instead. If an employee elects, as Mr. Bond did in this case, to forego the cash (i.e., to suffer a salary reduction) pursuant to section 125, the health insurance coverage is excludable from gross income under Section 106 as employer-provided accident or health coverage. Thus, the Blue Cross health insurance coverage is a benefit paid by Mr. Bond's employe and the Blue Cross payments that the Bonds attempted to deduct are in fact wages that he elected to forego in order to receive this benefit. Section 213(a) allows a medical expense deduction only for health insurance premium payments paid by an individual. See sec. 213(d) (1) (D). The Blue Cross payments are not expenses paid for medical care that are deductible under Section 213(a). 2. Medicare Payments Mr. Bond's testimony disclosed that the amounts for which the Bonds claimed a deduction for "medicare payments" were not medicare premiums (cf sec. 213(d) (1) (D)) but were the medicare portion of the social security tax withheld from his wages. Social security taxes are not deductible for income tax 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 21 1 2 3 4 5 6 7 8 9 10 11 12 purposes. IV. Charitable Contributions Section 170(a) allows as a deduction any charitable contribution made within the taxable year. Deductions for charitable contributions are allowable only if verified under the regulations prescribed by the Secretary. Sec. 170 (a) (1). To verify a charitable contribution of money, the regulations require the taxpayer to maintain one of the following for each contribution: (1) a cancelled check; (2) a receipt from the donee; or (3) in the absence of a check væE receipt, other reliable 13 written records. A receipt or record used for this 14 15 16 purpose must show the name of the donee, the date of the contribution, and the amount of the contribution. 26 C.F.R. sec. 1.170A-13(a) (1). The reliability of 17 written records is determined on the basis of all the 18 19 20 21 22 23 24 25 facts and circumstances. 26 C.F.R. sec. 1.170A- 13(a) (2) (i). However, the taxpayer has the burden to establish reliability. Id. To verify a charitable contribution of property, other than money, the regulations require the taxpayer to maintain a receipt from the donee for each contribution showing: (1) the name of the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 22 1 2 3 4 5 6 7 8 donee; (2) the date and location of the contribution; and (3) a description of the property. A letter or other written communication from the donee acknowledging receipt of the contribution, showing the date thereof, and containing the required description of the property contributed constitutes a receipt. Where it is impractical to obtain a receipt, the taxpayer must maintain other reliable 9 written records of the noncash contributions. 26 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 C.F.R. sec. 1.170A-13(b) (1). The reliability of the other reliable written records is determined on the basis of all of the facts and circumstances. 26 C.F.R. sec. 1.170A-13(a) (2). Those are the general rules. Additional rules require even more substantiation for contributions of cash or property of $250 or more. These larger contributions must be substantiated by a contemporaneous written acknowledgement from the donee. See sec. 170(f) (8); 26 C.F.R. sec. 1.170A- 13(f) (1). A written acknowledgement is contemporaneous if it is obtained by the taxpayer on or before the earlier of the date the taxpayer files the original return for the taxable year of the contribution or the due date (including extensions) for the filing of the original return for the year. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 23 1 2 3 4 Sec. 170 (f) (8) (C); 26 C.F.R. sec. 1.170A-13(f) (3). That acknowledgement, which must be furnished by the donee, must (1) state the amount of the cash and describe the other property contributed, (2) indicate 5 whether the donee organization provided any goods or 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 services in consideration of the contribution, and (3) provided a description and good faith estimate of the value of any goods or services provided by the donee. Sec. 170 (f) (8) (13);26 C. F. R. sec. 1.170A- 13(f) (2). Under these rules, the Bonds are entitled.to the amounts that the IRS conceded, to an additional I deduction of $340 for in-kind contributions that the IRS disallowed, and to a deduction for Mr. Bond's $300 cash contribution to Mrs. Bond's alma mater that the IRS disallowed. Otherwise, we sustain respondent's disallowance of the Bonds' deductions for charitable contributions in 2009. V. Accuracy-Related Penalty Section 6662 1mposes an accuracy-related penalty of 20 percent of the portion of the underpayment of tax that is attributable to the taxpayer's negligence or disregard of rules or regulations or that is attributable to any substantial understatement of income tax. The precise amount of the 2009 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 24 understatement that will result from the adjustments that we have sustained is yet to be determined pursuant to Rule 155 but it seems clear that it will be "substantial" under Section 6662(d)-- i.e., that it will exceed both $5,000 and 10 percent of the tax that should have been reported. We therefore need not reach the issue of negligence. The Bonds cannot successfully invoke any of the defenses that a taxpayer might assert against an accuracy-related penalty. They had no "substantial authority" for their position (see sec. 6662(d) (2) (B)); they did not disclose their problematic reporting on their return and have a reasonable basis for it (see sec. 6662(d) (2) (B))); and they did not show reasonable cause and good faith for their erroneous reporting (see sec. 6664 (c) (1)). We therefore hold the Bonds liable for the accuracy- related penalty for 2009. So that the liability can be recalculated, decision will be entered pursuant to Rule 155. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 5:45 p.m., the bench opinion in the above-entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com