TAX COURT OPINION

Case: Calvin McGee
Docket Number: 3621-07S
Judge: Colvin
Opinion Type: bench
Filed: 04/17/2008
Pages: 12

UNITED STATES TAX COURT WASHINGTON , D .C . 2021 7 CALVIN MCGEE, Petitioner , V . Docket No . 3621-07 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 of the above case before Judge Diane L . Kroupa at Hartford, Connecticut on March 5, 2008, containing her oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the oral findings of fact and opinion, a decision will be entered for respondent . (Signed ) Diane L. Kroupa Judg e Dated : Washington, D .C . April 17, 2008 SERVED APR 17 zoos 3 1 Bench Opinion by Judge Diane Kroupa March 5, 200 8 2 McGee v . Commissioner Docket No . 3621-07 S 3 THE COURT : The Court has decided to render 4 oral findings of Fact and Opinion in this case, and 5 the following represents the Court's oral findings o f 6 fact and opinion . The oral findings offact and 0 7 opinion shall not be relied upon as precedent in any 8 other case . 9 This proceeding was conducted as a Small Tax 10 Case under Section 7463 and Rules 170 through 175 . 11 This bench opinion is made pursuant to the authority 12 granted by Section 7459(b) and Rule 152 . All section 13 references are to the Internal Revenue Code for 2003, 14 and all rule references are to the Tax Court Rules of 15 Practice and Procedure . 16 Calvin McGee appeared on his own behalf and 17 Richard Cummings appeared on behalf of respondent . 18 FINDINGS OF FACT 19 Certain facts have been stipulated . The 20 stipulation of facts the parties filed, wit h 21 accompanying exhibits, is incorporated by this 22 reference . The facts are so found . 23 Off the record, we're going off . 24 (Off the record from 9 :12 a .m . to 9 :13 a .m .) 25 THE COURT : Back on the record . Heritage Reporting Corporation (202) 628-4888 4 1 Petitioner resided in Hamden, Connecticut, 2 at the time he filed the petition . 3 Petitioner electronically filed a join t 4 return with his wife for 2003, but his wife did not 5 file a petition and is therefore not a party to this 6 case . Petitioner claimed $59,363 for charitabl e 7 contributions made in 2003, of which 34,770 was cas h 8 contributions and 24,593 was property . Certain of the 9 property claimed was damaged in a flood t o 10 petitioner's home . Although petitioner said that the 11 flood occurred in late 2002, the record reflects that 12 the flood occurred on June 15th, 2002 . A receipt from 13 Goodwill Industry reflects that some unspecifie d 14 property was donated on September 13th, 2003, (some 15 fifteen months after the flood .) Petitioner tossed 16 some property that was destroyed in the flood, but 17 stored certain other property that was damaged but 18 nevertheless in working order, such as wine, beer, 19 furniture, books, VHS, CDs and electronic equipment 20 like a computer, microwave and home theater . 21 Petitioner and his wife contributed certain of these 22 stored items because they had a musty smell but kept 23 all sports memorabilia and sentimental items . 24 Petitioner failed to provide any itemized 25 list of any property contributed to Goodwill, and Heritage Reporting Corporatio n (202) 628-4888 5 1 failed to provide any names of any other charitie s 2 that petitioner may have contributed cash or property, 3 with the limited exception that he contributed som e 4 books to a library . Many of the receipts that 5 petitioner provided to substantiate propert y 6 contributions to Goodwill were undated and were 7 duplicate copies . 8 Respondent examined petitioner's return and 9 disallowed the entire charitable contribution claime d 10 at $59,363 . Respondent issued petitioner a statutory 11 notice of deficiency on January 11thh, 2007, in which 12 respondent determined a $15,459 deficiency agains t 13 petitioner and a $3,091 .80 accuracy-related penalty 14 for 2003 . Petitioner asserts that he would not have 15 contested the deficiency amount, had responden t 16 allowed petitioner a charitable contribution of some 17 amount . 18 This is primarily a substantiation case 19 involving whether petitioner is entitled to deduct 20 charitable contributions and whether petitioner is 21 liable for the accuracy-related penalty for 2003 . 22 OPINION 23 We begin with two fundamental principles of 24 tax litigation . First, the Commissioner' s 25 determinations are generally presumed correct and the Heritage Reporting Corporatio n (202) 628-4888 6 1 taxpayer bears the burden of proving that those 2 determinations are erroneous , Rule 142(a) . This 3 principle is not affected by Section 7491(a) because 4 petitioner failed to comply with the substantiation 5 requirement and failed to maintain adequate records . 6 See Sec . 7491 ( a)(2)(A) and ( B) ; see also Higbee v . 7 Commissioner , 116 T .C 438 (2001) . 8 Second, deductions are a matter o f 9 legislative grace, and the taxpayer must show that he 10 or she is entitled to any deduction claimed . Rul e 11 142 ( a) ; Deputy v . dePont, 308 U .S . 488, 493 ( 1940) ; 12 New Colonial Inc . Co . v Helvering, 292 U .S . 435, 440 13 (1934 ) ; Welch v . Helvering , 290 U .S . 111 (1933) . This 14 includes the burden of substantiation , Hradesky v . 15 Commissioner , 65 T .C . 87, 90 ( 1975), affirmed per 16 curiam 540 F .2d 821 (5th Circuit 1976) . 17 Substantiation means that a taxpayer shall keep such 18 permanent records or books of account as are 19 sufficient to establish the amount of deductions 20 claimed on the return . Sec . 6001, Sec . 21 1 .6001- 1(a),(e), Income Tax Regs . The Court need not 22 accept taxpayers self - serving testimony when the 23 taxpayer fails to present other probative evidence . 24 Beam v . Commissioner , T .C . Memo . 1990-304 (citing 25 Tokarski v . Commissioner , 87 T .C . . 74, 77 ( 1986) . Heritage Reporting Corporation (202) 628-4888 7 1 We now consider petitioner's charitable 2 contributions . Petitioner claimed he contribute d 3 $34,770 of cash and $23,593 of property to charities 4 in 2003 . Charitable contributions a taxpayer makes 5 are generally deductible under Section 170(a) . N o 6 deduction is allowed, however, for any contribution of 7 $250 or more unless the taxpayer substantiates th e 8 contribution by a contemporaneous writte n 9 acknowledgement of the contribution by qualified donee 10 organization . Sec . 170(f)(8)(A) . We note there are 11 new more stringent requirements for contributions of 12 money . Sec . 170(f)(17) . After August 17th, 2006, no 13 deduction for a contribution of money in any amount is 14 allowed unless the donor maintains a bank record o r 15 written communication from the donee showing the name 16 of the donee organization, the date of th e 17 contribution, and the amount of the contribution . 18 Pension Protection Act of 2006, Pub . Law 109-280, Sec . 19 1217, 120 Stat . 1080 . 20 The deduction for a contribution of property 21 equals the fair market value of the property on th e 22 date contributed . Sec . 1 .170A-1(c)(1), Income Tax 23 Regs . 24 A taxpayer claiming a charitabl e 25 contribution is generally required to maintain for Heritage Reporting Corporation (202) 628-4888 8 1 each contribution a canceled check, a receipt from the 2 donee charitable organization showing the name of the 3 organization and the date and amount of th e 4 contribution, or other reliable written record s 5 showing the name of the donee and the date and amount 6 of the contribution . Sec . 1 .170A-13(a)(1), Income Tax 7 Regs . 8 We first consider petitioner's cas h 9 contributions . Petitioner claimed he donated $34,770 10 of cash to unspecified charities during 2003 . 11 Petitioner provided no names or addresses of an y 12 qualified donee, nor did he provide any receipts o r 13 documentation to quantify the amounts contributed . We 14 find incredible that a taxpayer who claimed a $34,770 15 cash contribution in one year could not produce on e 16 record or canceled check for any cash contribution 17 during the year . We may estimate cash charitabl e 18 contributions under the Cohan rule for contributions 19 made before August 17th, 2006 . See Fontanilla v . 20 Commissioner, T .C . Memo . 1999-156 . In order for the 21 Court to estimate the amount of an expense , however, 22 we must have some basis upon which an estimate may be 23 made . Vanicek v . Commissioner, 85 T .C . 731, 74 3 24 (1985) . Without such a basis, any allowance would 25 amount to unguided largesse . Williams v . 245 F .2d Heritage Reporting Corporatio n (202) 628-4888 9 1 559, 560 (5th Ciruit 1957) . We conclude that the 2 petitioner is not entitled to deduct any cas h 3 charitable contributions . 4 We next turn to petitioner's contributions 5 of property . Petitioner claimed he contribute d 6 $24,593 of property to various charities during 2003 . 7 Because of the dollar amount involved, there ar e 8 additional rules for the deductibility of property to 9 charities . No deduction is allowed for a contribution 10 in excess of $5,000 unless the taxpayer meets certain 11 substantiation requirements . Sec . 1 .170A-13(c)(2) , 12 Income Tax Regs ; Sec 1 .170A-13(c)(1)(I), Income Ta x 13 Regs . A taxpayer must comply with the following three 14 requirements . First, the taxpayer must obtain a 15 qualified appraisal for such property . Second, the 16 taxpayer must attach a fully completed appraisa l 17 summary to the tax return on which the deduction for 18 the contribution is first claimed by the donor . 19 Third, the taxpayer must maintain reasonably detailed 20 records containing a description of the property, the 21 fair market value of the property at the time o f 22 donation, the method used in determining the fair 23 market value, and the cost or other basis of th e 24 property contributed . Sec 1 .170A-13(c)(2), Income Tax 25 Regs . Petitioner failed to comply with any of these Heritage Reporting Corporatio n (202) 628-4888 10 1 requirements . Petitioner failed to comply with any o f 2 these requirements . 3 The only evidence petitioner provide d 4 regarding property contributions were receipts fro m 5 Goodwill . Most of the receipts were undated and were 6 duplicate copies . Petitioner did not provide an y 7 itemization of the property he contributed in 2003, 8 nor did he provide any evidence that shows the price 9 he paid when he acquired the property, the date h e 10 acquired the property or how he determined the fair 11 market value of the property at the time o f 12 contribution, although he provided a spreadsheet he 13 prepared for insurance purposes regarding the flood . 14 We are left to speculate what property petitioner may 15 have contributed and to what additional charity o r 16 charities other than Goodwill petitioner may have 17 contributed property . 18 Petitioner's testimony is also inconsistent 19 with other evidence in the record . For example , 20 petitioner testified that the flood occurred late in 21 2002, yet the record reflects that the flood occurred 22 on June 15th, 2002 . This inconsistency may be minor, 23 but it goes to petitioner's overall credibility . 24 Lacking any receipts of some $34,000 of cas h 25 contributions and minimal receipts of some $24,000 of Heritage Reporting Corporation (202) 628-4888 1 1 1 property contribution seems implausible to the Court . 2 Accordingly, based on the record as a whole, we find 3 that petitioner is not entitled to deduct an y 4 charitable contributions in 2003, and we sustai n 5 respondent's disallowance of these expenses in the 6 deficiency notice . 7 We turn now to respondent's determination in 8 the deficiency notice that petitioner is liable fo r 9 the $3,091 .80 accuracy-related penalty under Section 10 6662 for 2003 . Respondent has the burden o f 11 production under Section 7491(c) and must come forward 12 with sufficient evidence that it is appropriate t o 13 impose the penalty . See Higbee v . Commissioner, 116 14 T .C . 438, 446-447 (2001) . 15 A taxpayer is liable for an accuracy-related 16 penalty in the amount of 20 percent of any part of an 17 underpayment attributable to, among other things, a 18 substantial understatement of income tax . There is a 19 substantial4of income tax under Section 6662(b)(2) i f 1 &* 20 the amount of the understatement exceeds the greater 21 of either 10 percent of the tax required to be shown 22 on the return, or $5,000 . Sec . 6662(a), (b)(1) and 23 (2), (d)(1)(A), Sec .1 .6662-4(a), Income Tax Regs . 24 Respondent has met his burden of production wit h 25 respect to petitioner's substantial understatement of Heritage Reporting Corporatio n (202) 628-4888 d9k 1 2 1 income tax for 2003 . Petitioner understated hi s 2 income tax for 2003 by an amount greater than $5,000 3 The accuracy-related penalty under Section 4 6662(a) does not apply to any portion of a n 5 underpayment, however, if it is shown that there was 6 reasonable cause for the taxpayer's position and that 7 the taxpayer acted in good faith with respect to that 8 portion . Sec . 6664(c)(1) ; Sec 1 .6664-4(b), Income Tax 9 Regs . The determination of whether a taxpayer acte d 10 with reasonable cause and good faith is made on a 11 case-by-case basis, taking into account all the 12 pertinent facts and circumstances, including the 13 taxpayer's efforts to assess his or her proper tax 14 liability and the knowledge and experience of the 15 taxpayer . Sec . 1-6664-4-(b)(1), Income Tax Regs . 16 While the Commissioner bears the burden of 17 production under Section 7481(c), the taxpayer bears 18 the burden of proof with respect to reasonable cause . 19 Higbee v . Commissioner, supra at 446 . 20 Petitioner failed to substantiate his claim 21 to charitable deductions . Petitioner is an architect 22 and educated, yet failed to heed the warnings of Turbo 23 Tax regarding charitable contributions and failed to 24 consult a tax preparer . Petitioner also failed t o 25 present any evidence showing that his substantial Heritage Reporting Corporation (202) 628-4888 s 1 3 1 understatement for 2003 was due to reasonable caus e 2 and that he acted in good faith . Indeed, the Court 3 understood petitioner may not be contesting th e 4 penalty at all . 5 In sum, we sustain respondent' s 6 determination that petitioner is liable for the 7 $3,091 .80 accuracy-related penalty under Section 8 6662(b)(2) for 2003 . 9 To reflect the foregoing, decision will be 10 entered for respondent . 11 This concludes the Court's oral findings of 12 fact and opinion in this case . 13 (Whereupon, at 9 :30 a .m ., the bench opinion 14 in the above-entitled matter was concluded . ) 15 16 17 18 19 20 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888