TAX COURT OPINION

Case: Gregg A. Sato
Docket Number: 5369-09S
Judge: Colvin
Opinion Type: bench
Filed: 07/27/2010
Pages: 8

UNITED STATES TAX COURT WASHINGTON, DC 2021 7 GREGG A . SATO, Petitioner , V . Docket No . 5369-09 S COMMISSIONER . OF INTERNAL REVENU E 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 Honolulu, Hawaii, on June 22, 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 for respondent . (Signed) David Gustafson Judg e Dated : Washington, D .C . July 27, 2010 SERVED Jul 28 2010 2 1 Bench Opinion by Judge David Gustafson -. June 22, 2010 2 GREGG A . SATO Docket No : 5369-09S 3 THE COURT : The Court has decided t o 4 render oral Findings of Fact and Opinion in this case, 5 and the following represents the Court's oral Findings 6 of Fact and Opinion . The oral Findings of Fact an d 7 Opinion shall not be relied on as precedent in an y 8 other case . 9 This Bench Opinion is made pursuant to 10 the authority granted by section 7459(b) in th e 11 Internal Revenue Code of 1986, as amended, and Rule 12 152 of the Tax Court Rules of Practice and Procedure . 13 By a statutory notice of deficiency dated 14 December 16, 2008 (Ex . 1-J), the Internal Revenue 15 Service (IRS) determined a deficiency of $9,888 in the 16 Federal income tax of petitioner Gregg A . Sato for the 17 year 2005 . 18 Trial of this case was conducted on June 19 21, 2010, in Honolulu, Hawaii . Only Mr . Sato 20 testified . The parties' Stipulation of Facts, with 21 Exhibits 1-J and 2-J, was admitted into evidence, as 22 was Exhibit 3-P, offered by Mr . Sato . We find the 23 following facts . 24 Findings of Fact . 25 Mr . Sato has a bachelor's degree and a Heritage Reporting Corporation (202) 628-4888 3 1 master's degree in communication . He has worked for 2 25 years as a financial advisor -- during the year in 3 issue for Morgan Stanley (Ex . 2-J, Form W-2), an d 4 currently for Wells Fargo . He has hundreds o f 5 thousands of dollars invested in the stock and bond 6 markets, and he advises clients how to invest their 7 funds . 8 On Schedule A to his 2005 tax return (Ex . 9 2-J), Mr . Sato claimed a charitable contributio n 10 deduction of $37,700 . We find that he did not make 11 contributions in that amount . 12 On audit the IRS questioned hi s 13 charitable contribution deduction, and to substantiate 14 that deduction Mr . Sato produced a 2005 calendar on 15, which were notations asserting contributions to Word 16 of Life Christian Center in the amount of $240--two on 17 every Sunday and one on every Wednesday of th e 18 year--and four contributions to the First Assembly of 19 God in amounts under $250 . The IRS concluded that he 20 had not substantiated the contributions, and i t 21 disallowed the deductions and issued the notice of 22 deficiency . 23 Mr . Sato timely filed his petition in 24 March 2009 . At that time he resided in Hawaii . 25 Opinion . Heritage Reporting Corporation (202) 628-4888 4 1 Legal standards . As a general rule, the 2 IRS's determinations are presumed correct, and th e 3 petitioners have the burden of establishing that the 4 determinations in the notice of deficiency ar e 5 erroneous . See Rule 142 ( a) ; Welch v . Helvering, 290 6 U .S . 111, 115 ( 1933 ) . Mr . Gregg contends that the 7 burden of proof has shifted because of section 8 7491 ( a) ; but that section applies only where " a 9 taxpayer introduces credible evidence " ; and for the 10 reasons discussed herein, we hold that Mr . Sato' s 11 evidence -- his calendar and his testimony -- is not 12 credible . 13 Deductions are strictly a matter of 14 legislative grace, and taxpayers must satisfy the 15 specific requirements for any deduction claimed . See 16 INDOPCO , Inc . v . Commissioner , 503 U .S . 79, 84 ( 1992) . 17 Furthermore, taxpayers are required to maintai n 18 records sufficient to substantiate their claimed 19 deductions . See sec . 6001 ; 26 C .F .R . sec . 20 1 .6001-1 ( a) . Section 170(a ) allows as a deduction any 21 charitable contribution made within the taxable year . 22 Deductions for charitable contributions are allowable 23 only if verified under the regulations prescribed by 24 the Secretary . Sec . 170 ( a)(1) . 25 To verify a charitable contribution o f Heritage Reporting Corporation (202) 628-4888 5 1 money, the regulations require the taxpayer t o 2 maintain one of the following for each contribution : 3 (1) A canceled check ; (2) a receipt from the donee ; or 4 (3) in the absence of a check or receipt, othe r 5 reliable written records . A receipt or record used 6 for this purpose must show the name the donee, the 7 date of the contribution, and the amount o f 8 contribution . 26 C .F .R . sec . 1 .170A-13(a)(1) . The 9 reliability of written records is determined on the 10 basis of all the facts and circumstances . 26 C .F .R . 11 sec . 1 .170A-13(a)(2)(i) . However, the taxpayer has 12 the burden to establish reliability . Id . 13 Mr . Sato invokes the provision allowing 14 "other reliable written records" in the absence of a 15 receipt . Mr . Sato testified that both Word of Life 16 and FAOG provided envelopes that a cash donor coul d 17 use to make his contribution and receive a receipt for 18 it . However, Mr . Sato said he chose not use th e 19 receipts because his method -- allegedly writing down 20 the amount of his contribution on his calendar after 21 returning home -- was supposedly simpler and easier, 22 and because it allowed him to keep the churches from 23 knowing about his donations and pressuring him t o 24 attend more services and give more money . He alleges 25 not that getting receipts was impractical but that h e Heritage Reporting Corporation (202) 628-4888 6 1 simply did not want to do it . We do not find 2 Mr . Sato's explanation for substituting his own record 3 keeping in lieu of simply accepting receipts from the 4 churches to be credible, and he has failed to meet his 5 burden to prove that he kept alternative records that 6 are "reliable," in view of all the facts an d 7 circumstances . 8 His calendar is not a reliable record of 9 contributions . In the first place, it bears entries 10 allegedly made over the course of an entire year -- 11 but all (he admits) written with the same pen . 12 Second, it reflects a perfect attendance 13 record -- both morning and evening services ever y 14 Sunday without fail, and the evening service every 15 Wednesday without fail. According to his testimony, 16 his attendance was never hindered by work demands , 17 family obligations, vacation, sickness, car problems, 18 or any other impediment . This would be a remarkable 19 record even for a loyal and committed church member, 20 but by Mr . Sato's account he never joined the church 21 because he wanted instead to maintain a sort o f 22 distance or anonymity there, lest they try to impose 23 unwanted attendance requirements on him or pressure 24 him to tithe . But to tithe is to give a tenth , 25 Mr . Sato already gave the church much more than a 'Heritage Reporting Corporation (202) 628-4888 1 tenth of his wages (which were $98,696 in 2005) ; he 2 more than triple-tithed . And few churches woul d 3 expect a more regular attendance than Mr . Sato alleges 4 he already practiced . 5 Mr . Sato testified that he never really 6 got to know anyone at Word of Life, and that no on e 7 could testify of his attendance there . He stated that 8 no friend or family member ever attended with him . 9 Mr . Sato's account of his relationship with Word o f 10 Life Christian Center -- absolutely regular attendance 11 by someone who "didn't want to get heavily involved" 12 . and therefore maintained virtual invisibility -- i s 13 simply not credible . We conclude that if he eve r 14 attended Word of Life Church, his attendance there was 15 not nearly at the level he alleged. We therefor e 16 conclude that the calendar is a fabrication . 17 Mr . Sato testified that he ha d 18 maintained, in a locked filing cabinet, a cash hoard ..19 of between $50,000 and $100,000 (but the amount o f 20 which he .said he was not sure) . . He testified that he 21 made these contributions from this hoard . Thi s 22 testimony, too, is not credible . Mr . Sato claims that 23 he started this hoard when he turned 21 and his mother 24 gave him a large sum of his youthful earnings an d 25 savings that she had kept for him -- an allege d Heritage Reporting Corporation (202) 628-4888 8 1 transfer for which he presented no evidence other than 2 his own testimony . He alleged that he added to i t 3 over the years when he made cash withdrawals fro m 4 ATMs -- which withdrawals he did not corroborate with 5 any evidence . Mr . Sato is a financial advisor wel l 6 versed in cash- equivalent investment vehicles less 7 risk than a filing cabinet . He would never advise a 8 client to maintain such a hoard, yet he alleges h e 9 chose to do so himself, thereby passing up gains that 10 (he admits) an investment was likely to have earned in 11 2005 . 12 We find that Mr . Sato's testimony is not 13 credible and that his only documentary evidence, his 14 calendar, does not substantiate his allegations . 15 Decision will be entered in favor of 16 respondent . 17 This concludes the Court's oral Findings 18 of Fact and opinion in this case . 19 (Whereupon, at 9 :21 a .m ., the bench opinion in 20 the above-entitled matter was concluded . ) 2 1 2 2 2 3 2 4 25 Heritage Reporting Corporation (202) 628-4888