TAX COURT OPINION

Case: Debrah Greene
Docket Number: 22323-06S
Judge: Colvin
Opinion Type: bench
Filed: 01/06/2009
Pages: 14

ADM . I RECORDED SERVIC E CAL . STAT . S .T . JUDGE FILE S UNITED STATES TAX OURT WASHINGTON , DC 20217 1 DEBRAH GREENE, Petitione r V . Docket No . 22323-06S . COMMISSIONER OF INTERNAL REVENUE , Respondent O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice an d Procedure, it is ORDERED that the Clerk of the Cour shall transmit herewith to petitioner and to respondent a copy transcript of the trial of the above ca Judge Robert N . Armen, Jr . at Chicago, 2008, containing his oral findings of f at the conclusion of the trial . f the pages of th e e before Special Trial llinois, on December 9 , Oct and opinion rendere d In accordance with the oral findin Decision will be entered under Rule 155 qs of fact and opinion, a (Signed ) Robert N . Armen, Jr. Special Trial Judg e Dated : Washington, D .C . January 6, 2009 SERVED JAN 0 7 2009 3 1 Bench Opinion by Special Trial Judge Robert N . Armen Jr . 2 December 9, 200 8 3 Debrah Greene v . Commissioner Docket No . 22323-06S 4 I . 5 THE COURT : THE COURT HAS' DECIDED TO RENDER ORAL 6 FINDINGS OF FACT AND OPINION IN THIS CASE , AND THE FOLLOWING 7 REPRESENTS THE COURT 'S ORAL FINDINGS OF FACT AND OPINION . 8 THE ORAL FINDINGS OF FACT AND OPINI N SHALL NOT BE RELIED 9 UPON AS PRECEDENT IN ANY OTHER CASE . 10 II . 11 This proceeding was hear as a Small Tax Cas e 12 pursuant to the provisions of secti on 7463 of the Interna l 13 Revenue Code of 1986 , as amended , and Rules 170 through 175 14 of the Tax Court Rules of Practice and Procedure . 16 This bench opinion is made pursuant to the 17 authority granted by section 7459(b) of the Internal Revenue 18 Code of 1986, as amended , and Rule''152 of the Tax Cour t 19 Rules of Practice and Procedure . 20 Hereinafter in this bencY opinion, and unles s 21 otherwise indicated, all section numbers refer to th e 22 Internal Revenue Code, as amended and in effect for 2004, 23 the taxable year in issue . And alRule numbers refer to 24 the Tax Court Rules of Practice and Procedure . 25 Heritage Reporting Corporation (202) 628-48'1,.88 4 1 IV . 2 Debrah Greene appeared on her own behalf . Angel a 3 B . Friedman appeared on behalf of Respondent . 4 V . 5 Respondent determined a deficiency in Petitioner's 6 Federal income tax for 2004 in the amount of $3,193 .00 . 7 VI . 8 Respondent concedes that Petitioner is entitled to 9 the deduction for mortgage interests of $5,624 .00 as claime d 10 by Petitioner on Schedule A of her return . Respondent als o 11 concedes that Petitioner is entitled to a deduction for 12 charitable contributions of $1,855 .'100, which exceeds the 13 amount allowed in the Notice of Deficiency . Finally , 14 Respondent concedes that Petitionei incurred some medica l 15 expense , but in an amount less than the threshold fo r 16 deductibility . 17 After Respondent's concessions, the issues for 18 decision are as follows : 19 (1) Whether Petitioner is entitled to a 20 Schedule A deduction for medical and denta l 21 expenses . 22 (2) Whether Petitioner is entitled to a 23 Schedule A deduction for charitable contribution s 24 in excess of the amount allow d by Respondent i n 25 the Notice of Deficiency and conceded at trial . Heritage Reporting Corporatio n (202) 628-4$88 5 1 VII . 2 Some of the facts have been stipulated and they 3 are so found . 4 Petitioner resided in thelliState of Illinois at the 5 time that the petition was filed with the Court . 6 Petitioner is a devout Christian and practice s 7 Christian principles in her everyday life . She is a long- 8 time and active member of the Zion City Missionary Baptist 9 Church, a church founded by her father, the late Reveren d 10 George L . Taylor, in 1963 . Her brolther, Reverend Gregory G . 11 Taylor, has been the pastor for th e past 23 years . 12 Petitioner is a generous individual . She 13 contributes time and money to her church . She is also 14 generous to others, offering supporlt and assistance directly 15 to those in need of help . For example, Petitioner has for 16 some time given money and provided other aid directly to a 17 "street child' by the name of Jamal', . She has also done th e 18 same for other children whose parents are either unable to 19 care for them or uninterested in caring for them . 20 For many years, Petitioner, her sister Diethri c 21 Taylor-Langford, and her mother The'1ma Joyce Taylor have 22 maintained a joint checking account at Standard Bank an d 23 Trust Company . (We shall hereinafter refer to this account 24 as the joint checking account .) All three individuals have 25 signature authority over, and all three individuals writ e Heritage Reporting Corporation (202) 628-48''88 6 1 checks on, the joint checking acco nt . However , 2 Petitioner's sister writes relatively few checks because she 3 and her husband maintain their own separate family account . 4 Although the record is not completely clear, it appears that 5 neither Petitioner nor her mother maintains any checkin g 6 account other than the joint checking account . 7 Petitioner deposited her paychecks from American 8 College and Chicago Youth Centers into the joint checking 9 account . Petitioner's mother, who receives Social Security 10 benefits of approximately $1,000 .0 per month, had he r 11 checks directly deposited into the ',joint checking account . 12 Petitioner's sister was employed in 2004 ; however, th e 13 record does not disclose whether, and if so to what extent , 14 she made deposits to the joint checking account . 15 Petitioner timely filed 4 federal income tax 16 return (Form 1040) for 2004 . On her return Petitione r 17 listed her filing status as head-o4-household and claimed 18 dependency exemption deductions for her two sons . 19 Petitioner reported wages of $46,31f9 .00, and after an above- 20 the - line deduction for student loam interest , she reporte d 21 adjusted gross income (AGI) of $46,1238 .00 . 2 2 23 Petitioner attached a Schedule A (I temized beductionsY) to her return . On Schedule A Petitioner claime d 24 total itemized deductions of $29,303 .00 . This amount 25 consisted of deductions for the following items : (1) Heritage Reporting Corporatio n (202) 628-4$88 7 1 Medical and dental expenses of $4,657 .00 ; (2) Taxes paid of 2 $1,822 .00 ; (3) Interest paid of $5, 24 .00 ; and (4) Gifts to 3 charity of $17,200 .00 . 4 Petitioner reported the deduction for medical and 5 dental expenses as follows : 6 Medical and dental expens s $8,125 .00 7 less : 7 .5 percent of AGII -3,468 .00 8 Deductible amount $4,657 .0 0 9 Petitioner reported the deduction for charitable 10 contributions as follows : 11 Gifts by cash or check $16,750 .00 12 plus : gifts of property 450 .00 13 Deductible amount $17 .200 .0 0 14 In the Notice of Deficiency, Respondent disallowed 15 in their entirety Petitioner's deductions for medical and 16 dental expenses and for mortgage interest expense . 17 Respondent allowed $450 .00 of Petitioner's deduction for 18 charitable contributions and disallowed the balance, o r 19 $16,750 .00 . Respondent allowed Petitioner's deduction fo r 20 taxes paid, but substituted for it the standard deduction o f 21 $7,150 (applicable to a head-of-ho9sehold) because such 22 treatment was more advantageous to Petitioner . 23 Subsequently, at trial, Respondent made various 24 concessions as previously described . Heritage Reporting Corporation (202) 628-4888 8 114 1 Before turning to the substantive issues in this 2 case, we should first identify two fundamental principles 3 that inform our disposition of tho e issues . 4 As a general rule, the C mmissioner's 5 determinations 6fo-presumed correctland the taxpayer bear s CR , 6 the burden of proving that those d o terminations ar e 7 erroneous ; Rule 142(a) . This prince iple was firml y 8 established by the United States S preme Court as early as 9 1933 and has been reaffirmed by th Supreme Court a s 10 recently as 1992 ; See INDOPCO , Inca v . Commissioner , 503 11 U .S . 79, 84 ( 1992 ) ; Welch v . Helveiing , 290 U .S . 111, 11 5 12 (1933) . 13 Although section 7491(a) may serve to shift th e 14 burn of proof to the Commissioner under certai n 15 circumstances, that section has no ', application to th e 16 present case in view of the fact th at : (1) Petitioner has 17 not asserted its applicability, and more importantly ; (2 ) 18 Petitioner has failed to demonstrat le that she satisfied th e 19 conditions precedent for the applicability of that section ; 20 see section 7491(a)(2), related to the substantiation and 21 record keeping . Regarding substantiation and record 22 keeping, see generally section 6001Iand section 1 .6001-1(a) 23 and ( e), Income Tax Regs ., requiring taxpayers to maintain 24 records sufficient to permit verifiation of both income an d 25 expenses ; see also section 170(f) a d section 1 .170~-a f) , Heritage Reporting C rporation (202) 628-48$8 N 3CP6 IN 9 1 and Income Tax Regs ., regarding sp cific requirements 2 governing deductions for charitab l contributions . 3 Second, deductions are al matter of legislativ e 4 grace, and the taxpayer bears the urden of proving that he 5 or she is entitled to any deductio claimed . Rule 142(a) ; 6 7 8 Deputy v . Du Pont , 308 U .S . 488, 4 3 (1940) ; New Colonial Ice Company v . Helvering , 292 U .S . 435, 440 (1934) ; INDOPCO , Inc . v . Commissioner , supra ; Welchly . Helvering , supra . 9 This includes the burden of substa tiation . Hradesky v . 10 Commissioner , 65 T .C . 87, 90 (1975) I, affd . per curiam 54 0 11 F .2d 821 (5th Cir . 1976) . 12 IX . 13 We turn now to the substantive issues before us . 14 We begin with a comment that applies to both of th e 15 deductions at issue . 16 At trial, Petitioner off red checks written on th e 17 joint checking account as support or her claim t o 18 entitlement to deductions for medical and dental expense s 19 and for charitable contributions . Some of those checks were 20 drawn by Petitioner herself ; other$ were drawn b y 21 Petitioner's mother ; and a few were drawn by Petitioner' s 22 sister . 23 We do not regard checks drawn by Petitioner' s 24 mother and by Petitioner' s sister as proof that Petitione r 25 paid otherwise deductible expenses . After all, Petitioner' s Heritage Reporting orporation (202) 628-4 88 1 0 1 mother had her own source of funds, i .e ., Social Securit y 2 benefits , which totaled about $12,000 . 00 for the year, and 3 checks to Zion City Missionary Baptist Church drawn b y 4 Petitioner ' s mother do not remotely approximate $ 12,000 .00 . 5 In addition , over 90 percent (by dollar amount) of the 6 checks drawn by Petitioner ' s mothe and offered by 7 Petitioner as substantiation of medical expenses were 8 written to "cash' . 9 Further, none of the very) few checks drawn by 10 Petitioner's sister and offered byi,Petitioner a s 11 substantiation of charitable contributions identify Zio n 12 City Missionary Baptist Church as the payee . Moreover, all 13 but one of the checks drawn by Petitioner's sister an d 14 offered by Petitioner as substantiation of medical expense s 15 were written to pay life insurancei,premiums . In any event , 16 it was not demonstrated that Petitioner's sister never 17 deposited any of her own funds into the joint checkin g 18 account . 19 We turn now specifically 1 to the medical expense 20 deduction issue . 21 As relevant herein, section 213(a) allows as a 22 deduction the expenses paid by the taxpayer during th e 23 taxable year, not compensated for by insurance or otherwise, 24 for medical care of the taxpayer orb the taxpayer' s 25 dependents (as defined for tax purposes in section 152), but Heritage Reporting Corporatio n (202) 628-4888 11 1 only to the extent that such expenses exceed 7 .5 percent o f 2 the taxpayer's adjusted gross income for the year . 3 In the present case, Peti Toner's adjusted gross 4 income for 2004 was $46,238 .00, 7 .5 percent of which i s 5 $3,468 .00 . Thus, only the amount p id by Petitioner, no t 6 compensated for by insurance or oth rwise, for medical care 7 of herself and her two sons would b deductible on Schedul e 8 A . 9 The record demonstrates t at Petitioner ha d 10 medical insurance through her emplo er, for which Petitioner 11 paid (through payroll deductions fr m her wages) som e 12 $1,440 .00 for the year on a pre-tax basis . However, there 13 is nothing in the record to suggestl, much less demonstrate , 14 that the total amount paid by Petitioner, not compensated 15 for by such insurance or otherwise,,for medical car e 16 (including the amount paid by Petitioner to Dr . Darold 17 Tucker for dental work for herself and one of her sons) 18 exceeded $3,468 .00 . 19 There is also nothing in the record explaining, 20 much less substantiating, the $8,1215 .00 amount claimed by 21 Petitioner as medical and dental e penses on line one of her 22 Schedule A . In short, there is notiihing in the record o n 23 which we might base even an estimate of expenses in excess 24 of the threshold amount of $3,468 .00, i .e ., 7 .5 percent of 25 Petitioner's adjusted gross income .l See Williams v . Unite d Heritage Reporting Corporation (202) 628-4$88 1 2 1 2 3 4 States , 245 F .2d 559, 560 (5th Cir .11957) ; Vanicek v . Commissioner , 85 T .C . 731, 743 (198 $) ; cf . Cohan v . Commissioner , 39 F .2d 540, 543-54 4 (2d Cir . 1930) . Finally, we acknowledge t That Petitione r 5 undoubtedly paid amounts, perhaps e Oren significant amounts , 6 for medical and dental care of Jama l and other unfortunate 7 children whose parents could not, o r would not, provide for 8 them . However, Jamal and such chil dren were no t 9 Petitioner's tax dependents withi n the meaning of sectio n 10 152, so that amounts spent for thei r medical and dental care 11 do not come within the deductibl e mbit of section 213 . 12 Based on the foregoing, we are constrained to 13 sustain Respondent's determination, denying Petitioner's 14 deduction for medical and dental expenses . 15 We turn now to the remaining issue, charitabl e 16 contributions . 17 Section 170(a)(1) allows as a deduction an y 18 charitable contribution, as defined in section 170(c), 19 payment of which is made within th taxable year ; a 20 charitable contribution is allowable as a deduction only if 21 verified under regulations prescri ed by the Commissioner . 22 See section 1 .170A-13, Income Tax legs . ; see also section 23 170(f) . 24 Section 170(c) defines tYe term "charitabl e 25 contribution' as a contribution or gift to, or for the us e Heritage Reporting Corporation (202) 628-4$88 13 1 of, certain types of organizations . Such an organizatio n 2 includes a corporation , trust, or community chest, fund o r 3 foundation that is organized and op gyrated exclusively fo r 4 religious or charitable purposes, p ovided that none of the 5 net earnings inures to the benefit f any privat e 6 individual . See section 170(c)(2) ; see also section 7 501(c)(3) A qualified entity unde section 170 i s 8 9 10 1 1 essentially an organization that qu lifies for an exemption from tax under Section 501(c)(3) See, e .g ., Dew v . Commissioner , 91 T .C . 615, 623 (198 8) ; Kessler v . Commissioner , 87 T .C . 1285, 1288 (1 986), affd . withou t 1 2 published opinion 838 F .2d 1215 (6t h Cir . 1988) ; Taylor v . 13 Commissioner , T .C . Memo . 2000-17 ; tavis v . Commissioner , 14 T .C . Memo . 1990-588 . 15 The law is clear that donations made t o 16 individuals, as opposed to qualified organizations, do not 17 constitute charitable contributionsi i within the meaning of 18 Section 170(c) and are therefore not deductible by th e 19 donor . E .g ., Davis v . United States, 495 U .S . 472 (1990) . 20 There is nothing in the record explaining ho w 21 Petitioner determined the $16,750 .40 amount of gifts by cash 22 and check that she claimed on line 15 of her Schedule A . At 23 trial, Respondent conceded that every check drawn b y 24 Petitioner on the joint checking account and offered by he r 25 as proof of a contribution to Zion City Missionary Baptist Heritage Reporting orporation (202) 628-4 88 1 4 1 Church was allowable as a deduction even though the payee 2 on a number of those checks was oth r than the church . Th e 3 amount of these checks totaled $1 , .00, which is th e 4 amount that Respondent has conceded . 5 In addition to Respondent's concession, we find, 6 based on credible testimony, that P titioner made frequent 7 and periodic cash donations to her hurch, which we estimate 8 to total $1,500 .00 for the year . See Cohan v . Commissioner , 9 39 F .2d 540, 543-544 (2d Cir . 1930) . Further, we find , 10 based on credible testimony (if not on Respondent's apparent 11 allowance in the Notice of Deficiency) that Petitioner made 12 the gifts of property as claimed o Schedule A of he r 13 return . 14 We acknowledge that Petitioner is a generous 15 individual who lives her life in an exemplary fashio n 16 performing many good works . Specifically, Petitioner has 17 for some time given money and provided other assistance 18 directly to Jamal and to other chi dren whose parents are 19 either unable or unwilling to care for them . Each such act 20 of generosity is commendable, but s each is made directly 21 to an individual, it does not cons itute a "charitabl e 22 contribution' as defined by section 170(c) . 23 X . 24 To recapitulate : Petitioner is entitled to the 25 following Schedule A itemized dedutions : Heritage Reporting Corporation (202) 628-4$88 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 15 (1) Mortgage interest pai of $5,624 .00 , pursuant to Respondent's conce sion at trial ; (2) Charitable contributi ns of $3,805 .00 , pursuant, in part, to our disp sition of th e matter and, in part, to Respon ent's concessio n at trial and allowance in the otice o f Deficiency ; an d (3) taxes paid of $1,822 .00, as claimed on the return and allowed on exa ination . Because Petitioner is entitled to temized deductions i n excess of $7,150 .00, she is not en itled to the standar d d e d uc t i on . XI . In order to give effect to our disposition of the disputed issues, as well as Respondent's concessions , decision will be entered pursuant to Rule 155 . However, a s the parties were advised by the Court at trial, entry o f decision will be deferred until such time as the prematur e assessment made in this case is abated . XII . THIS CONCLUDES THE COURTfS ORAL FINDINGS OF FACT AND OPINION IN THIS CASE . (Whereupon, at 10 :56 a .m~, the bench opinion i n the above-entitled matter was concluded . ) Heritage Reporting Corporation (202) 628-4888