TAX COURT OPINION

Case: Tom Domingo & Donna J. Domingo
Docket Number: 11310-14S
Judge: Morrison
Opinion Type: bench
Filed: 05/24/2017
Pages: 11

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 TOM DOMINGO & DONNA J. DOMINGO, Petitioners v. ) ) ) ) Docket No. 11310-14S. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ORDER OF SERVICE OF TRANSCRIPT Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, there is transmitted herewith to petitioners and to respondent a copy of the pages of the transcript of the trial of the above case before Judge Richard T. Morrison, at Charleston, West Virginia, on May 8, 2017, containing his 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 under Rule 155. (Signed) Richard T. Morrison Judge Dated: Washington, D.C. May 24, 2017 SERVED May 25 2017 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Bench Opinion by Judge Richard T. Morrison May 8, 2017 Tom Domingo & Donna J. Domingo v. Commissioner Docket Number 11310-14S THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE, AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED ON AS PRECEDENT IN ANY OTHER CASE. This proceeding was heard as a Small Tax Case pursuant to the provisions of section 7463 of the Internal Revenue Code of 1986, as amended, and Rules 170 through 174 of the Tax Court Rules of 15 Practice and Procedure. 16 17 18 19 20 21 22 23 24 25 This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court Rules of Practice and Procedure. In this bench opinion, all section numbers refer to the Internal Revenue Code of 1986, as amended, and in effect for 2010, the taxable year in issue, and all Rule numbers refer to the Tax Court Rules of Practice and Procedure. Michael Barill appeared on behalf of the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 petitioners, Tom Domingo and Donna Domingo. Susan Bollman appeared on behalf of the respondent. The respondent is referred to in this bench ópinion as the IRS. For taxable year 2010, the IRS determined a deficiency in the Domingos' federal income tax of $7,540, as well as a penalty under sectión 6651(a)(1) for late filing in the amount of $452.60. Some of the facts are stipulated and they are so found. The Domingos resided in the state of West 12 Virginia when they filed their petition.' 13 14 15 16 17 1. Deficiency In general, the taxpayer bears the burden of proving the IRS's determinations are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111h 115 (1933). The Domingos do not contend that section 7491(a), 18 which shifts the burden of proof to the IRS if its 19 20 21 22 23 24 25 requirements are met, applies. They have not produced evidence to show they meet the requirements of section 7491(a). The burden of proof, with respect to the deficiency in tax, therefore, remains on the Domingos. a. Medical and dental expenses On their return, the Domingos claimed 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 deductions for medical and dental expenses of $14,980. The notice of deficiency disallowed the deductions. The Domingos do not argue they are entitled to any such deductions, nor did they present evidence that they are. We hold that no medical and dental expenses are allowed as deductions. b. Charitable contributions On their return, the Domingos claimed charitable-contribution deductions of $13,326. Taxpayers may generally deduct a charitable contribution only if they substantiate the deduction in a manner verifiable according to "regulations prescribed by the Secretary." Sec. 170(a)(1). For each charitable contribution of money less than $250, the pertinent regulation requires that the taxpayer substantiate the contribution with a canceled check, a receipt, or other reliable written records showing the name of the donee, the date of the contribution, and the amount of the contribution. Sec. 1.170A- 13(a) (1), Income Tax Regs. Contributions of cash or property of over $250 require the donor to obtain the donee's contemporaneous written acknowledgment of the donation. Sec. 170(f)(8). Under the Cohan rule, if the taxpayer establishes that an expense is deductible but is unable to substantiate the precise 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com I Capital Reporting Company 6 1 2 3 4 5 6 7 8 amount, the court may estimate the amount, bearing heavily against the taxpayer whose inexactitude is of his or her own making. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). The Cohan rule cannot be used to estimate charitable contributions of more than $250 for which there is no contemporaneous written acknowledgment. Van Dusen v. Commissioner, 136 T.C. 515, 537n.39 (2011). The R7 9 Court has not decided definitively whether Cohan is 10 11 12 13 14 15 16 17 available to estimate charitable contributions generally, for example for contributions of $250 or less. See Kendrix v. Commissioner, T.C. Memo. 2006-9 (finding that the Court has not yet squarely addressed the inherent conflict between section 170(a)(1) and the application of Cohan to unverified or inadequately substantiated charitable contributions). However, the Court, in opinions 18 without binding precedential value, has made a Cohan 19 20 21 22 23 24 25 estimate for charitable contributions, especially where we find the taxpayer was candid, forthright, and credible. Stockwell v. Commissioner, T.C. Memo. 2007-149 (stating unconditionally that "[w]e may estimate cash charitable contributions under the Cohan rule"); Hooks v. Commissioner, T.C. Memo. 1993- 437; Wren v. Commissioner, T.C. Memo. 1984-456. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 The notice of deficiency disallowed all he 9M14 charitable-contribution deductions claimed on the return. The Domingos argue that they should be entitled to deductions for their contributions to their church. However, they kept no records of the amount of their contributions. Mr. Domingo testified that they attended church every week they were not sick, that they made donations by placing cash in the collection basket each time they attended church, that the donations were between $150 d $250 per week. He testified that one of his donations was $800, an assertion corroborated by an affidavit from another church member. Another church member gave an 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 affidavit that Mr. Domingo contributed $100 one 16 17 18 19 20 21 22 23 Sunday. We are convinced that the Domingos donated substantial sums of money to the church. There wére no contemporaneous written acknowledgments. Therefore, in estimating the deductible amount for the year, we must exclude any donation of more than $250. If Mr. Domi'ngo's statement that he gave $150 to $250 per week were 24 mathematically exact, this statement, if true, would 25 mean that none of the contributions were above $250. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 However, we believe the $150-to-$250 per week statement was a more loose formulation, as is suggested by Mr. Domingo's testimony that he made a $800 donation on one occasion and the suggestion of another congregant that he donated $100 another occasion. We are reasonably confident that some of the contributions were more than $250. We don't know how many of the contributions were $250 or less, and therefore fail the contemporaneous-written- acknowledgment requirement. However, we are reasonably confident that 50% of the donations were $250 or less. We also believe that $150 is a conservative estimate of the average amount of the donations that were less than $250. We are reasonably confident that the Domingos attended 75% of the weekly church services and therefore that they made a donation for 75% of the weeks of the year 2010. Therefore, we are reasonably confident that the Domingos are entitled to a charitable- contribution deduction of ($150)(52 weeks)(75%)(50%). This is $2,925. Accordingly, the Domingos are entitled to an itemized deduction of $2,925 for charitable contributions in 2010. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 c. Miscellaneous expenses and unreimbursed employee business expenses On their return the Domingos claimed deductions for unreimbursed employee business expenses of $14,758. They also claimed a deduction for $275 for other expenses, in particular for tax- preparation fees. The notice of deficiency disallowed these deductions in full, but.at trial the IRS conceded that the Domingos are entitled to the $275 deduction. At trial, the Domingos claimed,they were entitled to business-expense deductions for the expenses of Mr. Domingo's search for a job, and for some of Ms. Domingo's expenses of her job as a nurse supervisor. Mr. Domingo testified that he traveled during 2010 as part of his job search. However, travel expenses are subject to strict substantiation requirements. Sec. 274 (d) (1) . He provided no 20 written records or evidence other than his testimony. 21 22 23 24 25 Therefore, he cannot deduct these expenses. Mr. Domingo testified that Ms..Domingo made payments in the course of her employmentifor gifts to other nurses, such as flashlights, calculators, and candy; and also for professional and union dues, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 nursing magazines, nursing licensing fees, course fees, uniforms, protective clothing and the laundry. However, the Domingos introduced no documents regarding these payments. Ms. Domingo did not testify about these payments. We find there to be no reasonable basis for estimating the amount of most of these expenses. However, Mr. Wyland, the Domingos' tax return preparer, testified that Ms. Domingo's annual nurse licensing fees were in the hundreds of dollars. We can be reasonably confident that she paid at least $100 for nursing licensing fees during 2010. Therefore, the Domingos are entitled to an itemized deduction for unreimbursed employee business expenses of $100 for 2010 and an itemized deduction for other expenses, specifically $275 of tax preparation fees, for 2010. d. Other arguments Mr. Domingo stated in his testimony that one of his reasons for disputing the notice of deficiency is that the IRS had never challenged his returns before and that the IRS had never interviewed him. In closing argument, he did not raise these points. Therefore, we need not deal with them. However, under caselaw, the IRS's failure to challenge returns in prior years and its failure to 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 interview a taxpayer do not affect the Tax Court's decision about the amount of the deficiency. If Mr. Domingo wants, he can ask his counsel for the specific cases. 2. Late-filing penalty The IRS determined that the Domingos were liable for the section 6651(a)(1) late-filing penalty for the tax year 2010. Section 6651(a)(1) imposes a penalty for failing to file a return by the filing deadline (as extended), unless such failure is due to reasonable cause and not due to willful neglect. The burden of proof that this exception is applicable is on the taxpayer. Higbee v. Commissioner, 116 T.C. 438, 446 (2001). The return was concededly filed after the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 April 15 deadline applicable to taxpayers who have 17 18 19 20 not extended the deadline. Mr. Domingo credibly testified he thought Wyland filed an automatic extension form. Wyland also testified he filed the form. Under the circumstances, we need not determine 21 whether the extension form was filed. The Domingos 22 23 24 25 had reasonable cause for thinking it had been filed, and therefore had reasonable cause for filing their return after April 15. They are not liable for the section 6651(a)(1) penalty. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company A decision will be entered under Rule 155. THE COURT: This conclude the bench 12 opinion. The trial session is adjourned. THE CLERK: All rise. (Whereupon, at 4:14 p.m., the above- entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com