TAX COURT OPINION

Case: Peter & McLu Buah
Docket Number: 8832-09S
Judge: Colvin
Opinion Type: bench
Filed: 04/29/2010
Pages: 13

UNITED STATES TAX COURT WASHINGTON , DC 2021 7 PETER & MCLU BUAH , Petitioners , v . Docket No . 8832-09 S COMMISSIONER OF INTERNAL REVENUE Respondent O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge David Gustafson at Washington, D .C ., on April 12, 2010, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance-with the oral findings of fact and opinion, decision will be entered under Rule 155 . (Signed) David Gustafson Judg e Dated : Washington, D .C . April 29, 2010 SERVED May 03 2010 3 1 Bench Opinion by Judge David Gustafson April 15, 2010 2 Peter & McLu Buah v . Commissioner Docket No . 8832-09S 3 THE COURT : The Court has decided to render 4 oral Findings of Fact and Opinion in this case, an d 5 the following represents the Court's oral Findings of 6 Fact and Opinion . The oral Findings of Fact an d 7 Opinion shall not be relied on as precedent in any 8 other case . 9 This Bench Opinion is made pursuant to the 10 authority granted by section 7459(b) of the Internal 11 Revenue Code of 1986, as amended, and Rule 152 of the 12 Tax Court Rules of Practice and Procedure . 13 By a statutory notice of deficiency dated 14 January 12, 2009, the Internal Revenue Service (IRS) 15 determined a deficiency of $732 in the Federal income 16 tax of petitioners Peter and McLu Buah for the year 17 2006 . 18 Trial of this case was conducted on 19 April 12, 2010, in Washington, D .C . Mr . Buah 20 testified . The parties' Stipulation of Facts, with 21 Exhibits 1-J through 14-P, was admitted into evidence, 22 as were Exhibits 15-P through 25-P, offered by 23 petitioners . We find the following facts . 24 Findings of Fac t 25 At the time the Buahs filed their return, Heritage Reporting Corporatio n (202) 628-4888 4J 4 they resided in Virginia . Cash contribution s In 2006 Mr . Buah made contributions by chec k in the following amounts to these charitabl e organizations : Love International Church $1,67 2 Church of the Living God Disabled American Veterans Winning Walk Total 35 0 5 0 12 0 $2,19 2 At trial respondent conceded that Mr . Buah made deductible contributions in those amounts . We fin d that Mr . Buah did not substantiate contributions i n any greater amount . Noncash contribution s Sometime in 2006 Mr . Buah received a solicitation from the Lupus Foundation, a charitabl e organization, to contribute property . He gave the organization his name and address, and at some poin t it arranged to make a pick up from his home . In Jun e 2006 Mr . and Mrs . Buah gathered old clothing and othe r items and placed them on their front porch . Mr . and Mrs . Buah did not at that time make a list of th e property they were donating, but they did tak e 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 photographs o f Heritage Reporting Corporation (202) 628-4888 1 The photographs show that their contribution 2 consisted of approximately eight bags, ten to twelve 3 jackets or coats, the central processing unit of a 4 computer, a television set, and a cardboard box . From 5 the photographs one cannot tell the age or quality of 6 any of the goods, nor the contents of the bags or box . 7 The Lupus Foundation came by as schedule d 8 and picked up the donated property . The Lupus 9 Foundation left a receipt showing the date of the 10 contribution but giving no identification of the 11 property . 12 We find that the Buahs did not substantiate 13 that they donated property with a value greater than 14 or equal to $250 . 15 Creation of the lis t 16 Around March 2007 Mr . Buah hired a return 17 preparer to prepare his Federal tax return for 2006 . 18 The preparer told him that he needed a detailed list 19 identifying the items he had contributed and stating 20 their value . Mr . Buah therefore attempted t o 21 reconstruct such a list, about nine months after the 22 donation . To make the list, he consulted receipt s 23 that he and Mrs . Buah had retained over the years from 24 various stores . He prepared a list that showe d 25 individual items or classes of items and their cost . Heritage Reporting Corporatio n (202) 628-4888 1 His tally showed that the purchase price of the listed 6 2 items allegedly totaled $6,381 .42 . 3 Tax retur n 4 In about March 2007, Mr . and Mrs . Buah 5 signed and filed their 2006 tax return on Form 1040, 6 U .S . Individual Income Tax Return [Ex . 1-J .] On that 7 return's Schedule A, Itemized Deductions, the Buah s 8 claimed charitable contribution deductions tha t 9 totaled $7,302 . These consisted of alleged cash gifts 10 of $4,652 and alleged non-cash gifts of $2,650 . On an 11 attached Form 8283, Noncash Charitable Contributions, 12 the Buahs identified "LUPUS" as the donee, described 13 the property in block 1(b) as "APPLIANCE CLOTHIN G 14 TOOLS", stated their basis in the property as $6,540 15 (i .e ., approximately the $6,381 on Mr . Buah's list), 16 and stated the fair market value of the property as 17 $2,650 (i .e ., about 40 percent of his alleged cost 18 basis) . The form states that they determined the 19 value by "Replacement cost" . 20 It appears that the Buahs may not have 21 understood the amounts of contributions claimed on 22 Schedule A and that the return preparer may have 23 included amounts that the Buahs-did not intend to 24 claim . 25 Heritage Reporting Corporation (202) 628-4888 7 1 Dealings with the IRS 2 The IRS examined the Buahs' 2006 return and 3 tentatively proposed to disallow in full thei r 4 charitable contribution deductions . [Ex . 2-J .] The 5 Buahs did not respond to this proposal, and o n 6 January 12, 2009, the IRS issued a notice of 7 deficiency reflecting these disallowances an d 8 determining a tax deficiency of $732 . [Stip . 4 ; Ex . 9 3-J .] Thereafter, over the next three months, the 10 Buahs made various submissions of various documents to 11 various personnel in the IRS in order to attempt t o 12 substantiate their contributions . [Stip . 5-14 .] One 13 of those documents was a revised Form 8283 [Ex . 13-P] 14 that gave, in block 1(b), a somewhat more detaile d 15 description of donated property and that bore a 16 signature of an employee of the Lupus Foundation in 17 Part IV ("Donee Acknowledgment") that is date d 18 April 8, 2009 . 19 When the IRS did not respond to the Buahs' 20 submissions by agreeing to the charitable contribution 21 deduction, the Buahs then timely filed their petition 22 in this Court on April 13, 2009 . 23 Opinio n 24 I . Legal standard s 25 As a general rule, the IRS's determinations Heritage Reporting Corporatio n (202) 628-4888 8 1 are presumed correct, and the petitioners have th e 2 burden of establishing that the determinations in the 3 notice of deficiency are erroneous . See Rule 142(a) ; 4 Welch v . Helvering , 290 U .S . 111, 115 (1933) . Mr . and 5 Mrs . Buah do not contend that the burden of proof has 6 shifted because of section 7491(a), and the record in 7 this case suggests no basis for such a contention . 8 Deductions are strictly a matter o f 9 legislative grace, and taxpayers must satisfy th e 10 specific requirements for any deduction claimed . See 11 INDOPCO, Inc . v . Commissioner , 503 U .S . 79, 84 (1992) . 12 Furthermore, taxpayers are required to maintai n 13 records sufficient to substantiate their claimed 14 deductions . See sec . 6001 ; 26 C .F .R . sec . 1 .6001- 15 1(a) . Section 170(a) allows as a deduction any 16 charitable contribution made within the taxable year . 17 Deductions for charitable contributions are allowable 18 only if verified under the regulations prescribed by 19 the secretary . Sec . 170(a)(1) . 20 To verify a charitable contribution of 21 money , the regulations require the taxpayer t o 22 maintain one of the following for each contribution : 23 (1) A canceled check ; (2) a receipt from the donee ; or 24 (3) in the absence of a check or receipt, othe r 25 reliable written records . A receipt or record used Heritage Reporting Corporatio n (202) 628-4888 9 1 for this purpose must show the name of the donee, the 2 date of the contribution, and the amount of th e 3 contribution . 26 C .F .R . sec . 1 .170A-13(a)(1) . 4 To verify a charitable contribution o f 5 property other than money , the regulations require the 6 taxpayer to maintain a receipt from the donee for each 7 contribution showing : (1) the name of the donee ; (2) 8 the date and location of the contribution ; and (3) a 9 description of the property . A letter or othe r 10 written communication from the donee acknowledgin g 11 receipt of the contribution, showing the date thereof, 12 and containing the required description of the 13 property contributed constitutes a receipt . Where it 14 is impractical to obtain a receipt, the taxpayer must 15 maintain other reliable written records of the noncash 16 contributions . 26 C .F .R . sec . 1 .170A-13(b)(1) . The 17 reliability of the other reliable written records is 18 determined on the basis of all of the facts an d 19 circumstances . 26 C .F .R . sec . 1 .170A-13(a)(2) . 20 Those are the general rules . Additional 21 rules require even more substantiation fo r 22 contributions of cash or property of $250 or more . 23 They must be substantiated by a contemporaneous 24 written acknowledgment from the donee . See sec . 25 170(f)(8) ; 26 C .F .R . sec . 1 .170A-13(f)(1) . A written Heritage Reporting Corporatio n (202) 628-4888 10 1 acknowledgment is contemporaneous if it is obtained b y 2 the taxpayer on or before the earlier of the date the 3 taxpayer files the original return for the taxabl e 4 year of the contribution or the due date (including 5 extensions) for filing the original return for the 6 year . Sec . 170(f)(8)(C) ; 26 C .F .R . sec . 1 .170A- 7 13(f)(3) . That acknowledgment, which must b e 8 furnished by the donee, must (1) state the amount of 9 cash and describe other property contributed, (2 ) 10 indicate whether the donee organization provided any 11 goods or services in consideration for th e 12 contribution, and (3) provide a description and good 13 faith estimate of the value of any goods or services 14 provided by the donee . Sec . 170(f)(8)(B) ; 26 C .F .R . 15 sec . 1 .170A-13(f)(2) . 16 II . Cash contribution s 17 Respondent conceded that Mr . and Mrs . Buah 18 are entitled to deduct the $2,192 of contributions 19 listed above, which are substantiated by credibl e 20 receipts from the donee organizations . The Buahs' 21 claimed deduction for cash contributions was $4,652, 22 and the difference of $2,460 seems to be largel y 23 attributable to their including in their claimed 24 deduction amounts that are plainly nondeductible -- 25 monthly dues to a condominium association totaling Heritage Reporting Corporatio n (202) 628-4888 1 1 1 $1,021 .52, payments to an elementary school totaling 2 $256 .20, and payments to a preschool totaling $694 . 3 [See Ex . 4-P .] At trial Mr . Buah seemed to hav e 4 abandoned any claim that these are deductible . 5 One item about which Mr . Buah seemed to be 6 equivocal was an alleged contribution to Presbyterian 7 Church of Springfield, for which his substantiatio n 8 was a purported receipt for two contributions , 9 totaling $370, that lacked any statement that no goods 10 or services had been received for the contribution . 11 See sec . 170(f)(8)(B)(ii) ; 26 C .F .R . sec . 1 .170A- 12 13 (f) (2) (ii) . Mr . Buah testified that he had given 13 these checks to a friend and was uncertain as t o 14 whether they had ever actually been devoted to the 15 purposes for which they had been solicited . Th e 16 signature on the receipt is illegible, and the receip t 17 bears other questionable characteristics . 18 Mr . Buah did substantiate the contributions 19 that respondent has conceded, but no others . 20 III . Noncash contribution s 21 Mr . Buah's substantiation for his non-cash 22 gift to the Lupus Foundation consists of (1) the June 23 2006 receipt left by the Lupus Foundation on hi s 24 porch, (2) the photographs he took, (3) the list he 25 created in March 2007, (4) the purchase receipts that Heritage Reporting Corporatio n (202) 628-4888 12 1 he allegedly used to prepare the list, (5) the revise d 2 Form 8283 signed by the Lupus Foundation in Apri l 3 2009, and (6) his testimony . We find the June 200 6 4 Lupus receipt and the photographs to be authentic and 5 to be reliable for the little that they show (i .e . , 6 that some property was contributed, and that most of 7 it was contained in bags and a box) . We find hi s 8 testimony, his purchase receipts, his March 2007 list, 9 and the revised Form 8283 to be unreliable, for the 10 following reasons : 11 The list was not contemporaneous with the 12 gift, but was an attempted reconstruction nine months 13 later . The photographs would have been little help in 14 making that reconstruction . They show almost no 15 detail about the contents of the bags and box . 16 A few of the purchase receipts used to make 17 up the list bear dates after the contribution, casting 18 doubt on Mr . Buah's method for identifying th e 19 relevant receipts . 20 Where multiple items were purchased on a 21 single occasion, Mr . Buah's donation list includes the 22 total from that receipt, thus indicating a claim that 23 all of the items purchased on that occasion wer e 24 donated simultaneously in June 2006 . It seems all but 25 impossible that all of the numerous items purchased on Heritage Reporting Corporatio n (202) 628-4888 13 1 a given shopping trip would happen to become outworn 2 or obsolete on the same schedule . It thus appear s 3 that Mr . Buah was overinclusive in identifying donated 4 items . 5 Mr . Buah's method of valuing the use d 6 property at 40 percent of its original purchase price 7 overstates the values considerably . 8 The Lupus employee who signed the revised 9 Form 8323 in April 2009 -- almost three years after 10 the gift had been made -- made an uninformed an d 11 uncritical attestation of the facts that Mr . Buah 12 represented to her . She had no way of knowing the 13 items he had contributed . Her statement depended 14 completely on Mr . Buah's representations, which i n 15 turn rested entirely on his unreliable reconstruction 16 of the donation . Her statement was no t 17 contemporaneous with the gift . 18 Taken together, we find that the Buahs' 19 photos and other evidence substantiates a noncash 20 contribution of only $249 . 99 . (Since we find the 21 value of their noncash contribution to be less than 22 $250, the requirement for a contemporaneous written 23 acknowledgment under section 170(f)(8) i s 24 inapplicable .) That amount, combined with thei r 25 substantiated cash contributions of $2,192, entitles Heritage Reporting Corporatio n (202) 628-4888 1 4 1 them to a charitable contribution deduction totaling 2 $2,441 .99, rather than the $7,302 that they claimed . 3 Decision will be entered under Rule 155, to 4 allow recomputation of Mr . and Mrs . Buah's income tax 5 liability for 2006 in accordance with this opinion . 6 This concludes the Court's oral Findings of 7 Fact and opinion in this case . 8 (Whereupon, at 9 :23 a .m ., the bench opinion 9 in the above-entitled matter was concluded . ) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888