TAX COURT OPINION

Case: DeWayne A. & Kelli A. Goodman
Docket Number: 20851-07S
Judge: Colvin
Opinion Type: bench
Filed: 10/08/2008
Pages: 9

UNITED STATES TAX COURT WASHINGTON, D .C . 2021 7 4 S a l , fK W 1RECC. " S RV : ~. ; CAL . STAT . JUDG E r-M4 4217 FT E DEWAYNE A . & KELLI A . GOODMAN , Petitioners, v . COMMISSIONER OF INTERNAL REVENUE, Respondent . Docket No . 20851-07 S 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 petitioners and to respondent a copy of the pages of the transcript of the trial of the above case before Judge Diane L . Kroupa at Boise, Idaho on September 10, 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, decision will be entered under Rule 155 . (Signed) Diane L. Kroupa Judge Dated : Washington, D .C . October 8, 2008 SERVED OCT - 8 2008 2 1 Bench Opinion by Judge Diane Kroupa September 10, 200 8 2 Goodman v . Commissioner Docket No . 20851-07 S 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 . These oral findings of fact an d 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 2004 14 and 2005, the years at issue, and all rule references 15 are to the Tax Court Rules of Practice and Procedure . 16 Trapper Stewart and Chelsea Kidne y 17 (specially recognized) with the University of Idaho 18 College of Law Tax Clinic appeared on behalf o f 19 petitioners, and John Davis appeared on behalf of 20 respondent . 21 FINDINGS OF FACT 22 Certain facts have been stipulated . The 23 stipulation of facts the parties filed, with the 24 accompanying exhibits, is incorporated by thi s 25 reference . The facts are so found . Heritage Reporting Corporation (202) 628-4888 3 1 Petitioners resided in Idaho at the time 2 they filed the petition . 3 Petitioners timely filed a joint return for 4 each of the years at issue . For the tax year 2004 , 5 petitioners reported $72,961 .66 of adjusted gros s 6 income (AGI) and claimed charitable contributions of 7 $27,784 .72 (or approximately 38 percent o f 8 petitioners' AGI for the year) . For the tax year 9 2005, petitioners reported $54,917 .78 of AGI and 10 claimed charitable contributions of $21,883 .60 (or 11 almost 40 percent of petitioners' AGI for the year) . 12 Respondent examined petitioners ' returns and 13 allowed charitable petitioners paid t o Ce,v)+r Lk~-i o 14 their church by check, which amounts were further 15 substantiated by the church's records . Petitione r 16 husband referred to these amounts as tithes generally, 17 but they also included amounts to the church's flower 18 fund and the church's building fund . Again, all of 19 these amounts were paid by check and were furthe r 20 substantiated by the church's records and were 21 included in Envelope 90 . Respondent disallowe d 22 $10,000 of cash contributions petitioners claimed to 23 have made to their church for 2004 that were not 24 included in Envelope 90 and $10,300 of cash 25 contributions for 2005 . Heritage Reporting Corporation (202) 628-4888 4 1 Respondent also disallowed $6,077 of non- 2 cash contributions to Centennial Elementary School in 3 2004 . 4 Respondent issued a statutory notice of 5 deficiency to petitioners determining a $2,759 .7 5 6 deficiency against petitioners for 2004 and a $1,751 7 deficiency against petitioners for 2005 . Afte r 8 issuing the deficiency notice, petitioners provided to 9 respondent substantiation regarding non-cas h 10 charitable contributions petitioners made . Respondent 11 now concedes the $6,077 of non-cash contribution s 12 petitioners made to the Centennial Elementary School 13 in 2004 . 14 Petitioners timely filed a petitio n 15 contesting the determination in the deficiency notice . 16 OPINION 17 This is primarily a substantiation cas e 18 involving, after concessions, whether petitioners kept 19 accurate records to deduct the cash charitabl e 20 contributions of $10,000 for 2004 and $10,300 for 21 2005 . All other issues have been resolved . 22 We begin with two fundamental principles of 23 tax litigation . First, the Commissioner' s 24 determinations are generally presumed correct, and the 25 taxpayer bears the burden of proving that those Heritage Reporting Corporation (202) 628-4888 5 1 determinations are erroneous . Rule 142(a) . Thi s 2 principle is not affected by section 7491(a), because 3 petitioners failed to maintain adequate records . See 4 sec . 7491(a)(2)(A) and (B) ; see also Higbee v . 5 Commissioner , 116 T .C . 438 (2001) . 6 Second, deductions are a matter o f 7 legislative grace, and the taxpayer must show that he 8 or she is entitled to any deduction claimed . Rul e 9 142(a) ; Deputy v . dePont , 308 U .S . 488, 493 (1940) ; 10 New Colonial Inc . Co . v . Helvering , 292 U .S . 435, 440 11 (1934) ; Welch v . Helvering , 290 U .S . 111 (1933) . This 12 includes the burden of substantiation . Hradesky v . 13 Commissioner , 65 T .C . 87, 90 (1975), affd . per curiam 14 540 F .2d 821 (5th Cir . 1976) . Substantiation means 15 that a taxpayer shall keep such permanent records or 16 books of account as are sufficient to establish the 17 amount of deductions claimed on the return . Sec . 18 6001 ; sec . 1 .6001-1(a), (e), Income Tax Regs . The 19 Court need not accept a taxpayer's self-servin g 20 testimony when the taxpayer fails to present other 21 probative evidence . Beam v . Commissioner , T .C . Memo . 22 1990-304 (citing Tokarski v . Commissioner , 87 T .C . 74, 23 77 (1986)) . 24 We now consider petitioner's charitable cash Cor+rt bu+~ ons 25 of $10, 000 for 2004 and $10,300 fo r A-)- Heritage Reporting Corporation (202) 628-4888 6 1 2005 . Charitable contributions a taxpayer makes are 2 generally deductible under section 170(a) . No 3 deduction is allowed, however, for any contribution of 4 $250 or more unless the taxpayer substantiates th e 5 contribution by a contemporaneous writte n 6 acknowledgment of the contribution by a qualifie d 7 donee organization . Sec . 170(f)(8)(A) . We note that 8 there are now more stringent requirements fo r 9 contributions of money for taxable years beginning 10 after the years at issue . Sec . 170(f)(17), Pension 11 Protection Act of 2006, Pub . L . 109-280, sec . 1217, 12 120 Stat . 1080 . 13 A taxpayer claiming a charitabl e 14 contribution is generally required to maintain fo r 15 each contribution a canceled check, a receipt from the 16 donee charitable organization showing the name of the 17 organization and the date and amount of th e 18 contribution, or other reliable written record s 19 showing the name of the donee and the date and amount 20 of the contribution . Sec . 1 .170A-13(a)(1), Income Tax 21 Regs . We focus on the meaning of "other reliabl e 22 written records" in the regulations . 23 Petitioners claimed they donated $10,000 of 24 cash to their church in 2004 and $10,300 of cash to 25 -1-he" r t-he church in 2005, which is in addition to the $9,00 5 Heritage Reporting Corporation (202) 628-4888 7 1 of checks petitioners made payable to their church in 2 2004 and the approximately $5,000 of check s 3 petitioners made payable to the church in 2005, which 4 subsequent amounts were all included in Envelope 90 at 5 the church . The total of petitioners' charitabl e 6 contributions claimed in 2004 and 2005 consisted of 7 approximately 40 percent of their AGI, a percentage 8 the Court finds exorbitant especially given that 10 9 percent is the generally understood tithe amount fo r 10 most taxpayers and given that the percentage would be 11 far greater if it were a percentage of petitioners ' 12 disposable income rather than AGI . 13 Petitioner wife prepared an undated Exce l 14 sheet that included the date, the type of contribution 15 to the church (such as tithe, offering, flower fund or 16 building fund), the amount of the donation, but it did 17 not indicate whether the donation was represented by a 18 check, if so, the check number, or cash . In addition, 19 it was only through testimony from petitioner husband 20 in explaining the Excel spreadsheet (Exhibits 4-J and 21 6-J) is the Court to understand that petitioners made 22 a separate cash contribution of exactly $200 on 10 1 23 different days during the years at issue . In sum , 24 petitioners claimed they attended church every Sunday 25 in 2005 and all but nine Sundays in 2004 and each time Heritage Reporting Corporatio n (202) 628-4888 8 1 they attended church, they always contributed exactly 2 $200 of cash but would not always use their envelope 3 or write check amounts for differing amounts (all of 4 which could be substantiated unlike the cash amounts 5 at issue) . 6 We also find incredible that a taxpayer who 7 claims to be frugal is nevertheless unable to tell the 8 Court how much money he or she took home every othe r 9 week . We also find it incredible that a fruga l 10 household would have over $10,000 in cash each year to 11 contribute to the church, rather than having the money 12 invested in an account . While we do not questio n 13 petitioner husband's religious convictions, we are 14 suspect, however, with the apparent convenience of 15 always having exactly $200 in cash to contribute 16 anonymously every time he went to church but no t 17 always using the envelope 90 or paying by check each 18 time he went to church . We also find suspect that 19 petitioners were unable to provide any ban k 20 transactions showing cash amounts or any explanation 21 how the cash was handled . 22 We may estimate cash charitabl e 23 contributions under the Cohan rule for contributions 24 made before August 17, 2006 . See Fontanilla v . 25 Commissioner , T .C . Memo . 1999-156 . For the Court to Heritage Reporting Corporatio n (202) 628-4888 9 1 estimate the amount of an expense, however, we must 2 have some basis upon which an estimate may be made . 3 Vanicek v . Commissioner , 85 T .C . 731, 743 (1985) . 4 Without such a basis, any allowance would amount to 5 unguided largesse . Williams v . United States , 24 5 6 F .2d 559, 560 (5th Cir . 1957) . We conclude that th e 7 $200 amount petitioners claimed is excessive given the 8 amount of other substantiated contributions to th e 9 church, as well as no substantiated weekly amount 10 contributed to the church exceeded $150 . The weekly 11 amounts were generally $75 by check . Instead, we find 12 $20 is a more reasonable amount, and we find that the 13 number of times that petitioners made a cas h 14 contribution to the church is no more than 36 times a 15 year (i .e ., no more than three times a month) for a 16 total of $720 for 2004 and $720 for 2005 . 17 To reflect the foregoing and respondent's 18 concessions, decision will be entered under Rule 155 . 19 This concludes the Court's oral findings of 20 fact and opinion in this case . 21 (Whereupon, at 9 :25 a .m ., the bench opinion 22 in the above-entitled matter was concluded . ) 23 2 4 25 Heritage Reporting Corporation (202) 628-4888