TAX COURT OPINION

Case: George K. & Tamara L. Quansah
Docket Number: 16875-11S
Judge: Whalen
Opinion Type: bench
Filed: 02/21/2013
Pages: 14

UNITED STATES TAX COURT WASHINGTON, DC 20217 GEORGE K. & TAMARA L. QUANSAH, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) ) ) ) ORDE R Docket No. 16875-11S Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is 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 proceedings in the above case before the undersigned at Denver, Colorado, containing the oral findings of fact and opinion rendered on January 31, 2013. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Laurence J. Whalen Judge Dated: Washington, D.C. February 21, 2013 SERVED FEB 2 2 2013 Capital Reporting Company 3 Bench Opinion by Judge Laurence J. Whalen January 31, 2013 George K. & Tamara L. Quansah v. Commissioner Docket No. 16875-11S I. THE COURT: 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. II. This proceeding was brought as a Small Tax Case pursuant to the provisions of section 7463 of the Internal Revenue Code, as amended, and Rules 170 through 175 of the Tax Court Rules of Practice and Procedure. In this bench opinion, all section references are to the Internal Revenue Code, as amended and in effect for 2008 and 2009, the taxable years in issue, and all rule references are to the Tax Court Rules of Practice and Procedure. Pursuant to section 7463(b), the decision to be entered in this case cannot be reviewed in any other court, and this bench opinion shall not be treated as precedent for any other case. III. This bench opinion is made pursuant to the 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 4 authority granted by section 7459(b) and Rule 152. IV. Mr. George K. Quansah and Mrs. Tamara L. Quansah appeared in these proceedings on their own behalf. Randall L. Preheim, Esquire, appeared on behalf of respondent. V. Respondent determined a tax deficiency of $23,433 in petitioners' Federal income tax for taxable year 2008, and a tax deficiency of $16,646 in petitioners' Federal income tax for the taxable year 2009. These tax deficiencies are based on the disallowance, for lack of substantiation, of deductions for car and truck expenses and other expenses that petitioners claimed on their Schedules C, Profit or Loss from Business, for 2008 and 2009, and the disallowance, for lack of substantiation, of deductions for cash contributions to a purported church that petitioners claimed on the Schedules A, Itemized Deductions, filed for the years in issue. VI. The issues for decision are: (1) Whether petitioners are allowed deductions, on Ms. Quansah's Schedules C for 2008 and 2009, for car and truck expenses of $7,166 and 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 5 $6,600, respectively; (2) Whether petitioners are allowed deductions, on Mr. Quansah's Schedules C for 2008 and 2009, for car and truck expenses of $8,973 and $6,600, respectively; (3) Whether petitioners are allowed a deduction, on Ms. Quansah's Schedule C for 2008, for other expenses, labeled "ministry expenses", of $10,000; (4) Whether petitioners are allowed deductions, on Mr. Quansah's Schedules C for 2008 and 2009, for other expenses, primarily "housing allowances", of $27,700 and $26,000, respectively: (5) Whether petitioners are allowed itemized deductions, on their Schedules A for 2008 and 2009, for cash contributions to their purported church in the aggregate amounts of $30,000 and $20,000, respectively; (6) Whether petitioners are liable for additional self-employment taxes, as determined by respondent. VII. Some of the facts have been stipulated and the Stipulation of Facts submitted by the parties, together with the attached exhibits, are hereby taken 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 6 1 into evidence. Petitioners resided in the State of 2 Colorado at the time they filed their petition in 3 4 5 6 7 8 9 10 11 12 this case. During the years in issue, Mr. Quansah taught economics as an adjunct professor at Metro State College and the University of Colorado at Denver. He also taught in the Denver Public Schools. .He reported wages from his teaching activities $43,053 for 2008, and $64,164 for 2009. In addition to teaching, petitioners' returns describe Mr. Quansah as "Senior Pastor" of the purported church that he founded with his wife. 13 Petitioners' returns each include a Schedule C, 14 Profit or Loss from Business, with respect to his 15 activities as senior pastor. The Schedules C report 16 17 18 19 20 21 22 23 24 25 gross receipts or sales from Mr. Quansah's activity as senior pastor of $58,000 for 2008, and $32,500 for 2009. The pay stubs issued to Mr. Quansah by the church for 2008 show that he received 25 payments of $2,500 and one payment of $3,500 for total salary of $66,000, that is, $8,000 more than the gross receipts reported on his Schedule C for 2008. The pay stubs for 2008 also show that "tithes" of 20% were withheld from his salary for a total amount withheld of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 $13,200. Mr. Quansah's pay stubs for 2009 show that he received 19 payments of $2,500 for total salary of $47,500 through the end of November, that is, $15,000 4 more than the gross receipts reported on his Schedule 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 C for 2009. The pay stubs for 2009 also show that "tithes" of 20% were withheld from his salary for a total amount withheld of $9,500. Petitioners' returns describe Ms. Quansah as "Admin Pastor" of the church. The returns also include Schedules C with respect to her activities as admin pastor. The Schedules C report gross receipts or sales from Ms. Quansah's activities as admin pastor of $58,000 for 2008, and $32,500 for 2009. The pay stubs issued to Ms. Quansah by the church for 2008 show that she was paid a salary of $66,000, that is, $8,000 more than the gross receipts reported on her Schedule C for 2008. The pay stubs for 2008 also show that "tithes" of 20% were withheld from her salary for a total amount withheld of $13,200. Ms. Quansah's pay stubs for 2009 show that she was paid $52,500 through the end of November, that is, $20,000 more than the gross receipts reported on her Schedule C for 2009. The pay stubs for 2009 also show that tithes totaling $10,500 were 25 withheld from her salary. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 VIII. We begin with several fundamental principles of tax litigation. First as a general rule, the Commissioner's determinations are presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous. Rule 142(a). This principle was firmly established by the I 1 2 3 4 5 6 7 8 United States Supreme Court as early as 1933, and it 9 has been reaffirmed by the Supreme Court more 10 11 12 13 14 15 recently. See INDOPCO Inc. v. Commissioner 503 U.S. 79, 9Ci2. . Although section 7491(a) may serve to shift the burden of proof to the Commissioner in certain circumstances, it does not do so here for at least three reasons: Petitioner failed to raise the 16 matter; petitioner failed to comply with 17 18 19 20 21 22 23 24 25 substantiation requirements, see sec. 7491 (a) (2) (A) and (B); and petitioner failed to introduce credible evidence, see sec. 7491(a) (1). Accordingly, in this case, petitioner bears the burden of proof. Second, deductions are a matter of legislative grace, and the taxpayer bears the burden of proving that he or she is entitled to any deduction claimed. Rule 142(a); Deputy v. DuPont, 308 U.S. 488; New Colonial Ice Co. v. Helvering, 292 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 4 5 6 7 8 U.S. 435. A This includes the burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87,90 (R15'), aff'd per urtom 54o F.2.d t)_t (5 Ch. Third, the Court is not bound to accept the unverified and undocumented testimony of a taxpayer. Hradesky v. Commissioner, supra: Tokarski v. Commissioner, 87 T.C. 74. See also Lovell & Hart Inc. v. Commissioner, 456 F.2d 145; MacGuire v. Commissioner, 450 F.2d 1239 Nie ringhaus v 114 4 ¼ cir. tT7 i), aff ' t c.Memo Memo. 1410- (cid:16)254¶ 9 1970-(cid:16)254¶ 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Commissioner, 99 T.C. 202) 2.G(199 , Fourth, a party's failure to introduce A documentary evidence which is within his possession or control, and which, if true, would be favorable to him, gives rise to the presumption that, if produced, such evidence would be unfavorable. Recklitis v. ,990 Met) Commissioner, 91 T.C. ·874; Pollack v. Commissioner, 47 T.C. 92; Wichita Termina Elevator Co. v. , t og (846'), aff'd^3(cid:16)0402.F.1d 4o9 (5m Ch. 1968) Commissioner, 6 T.C. 1158. ^ IX. , 1165 (i4 46'), a f f 'd 161 F. 1d s i3 (tow Cir. 1947 Substantiation of Schedule C Deductions: Section 162(a) allows as a deduction all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. In contrast, personal, living, and family expenses are generally not allowable as deductions. Sec. 866.488.DEPO www.CapitalReportingCompany.com 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 Capital Reporting Company 10 262 (a) . The taxpayer is required to maintain records sufficient to establish the amount of his income and deductions. Sec. 6001; sec. 1.6001-1(a) and (e), Income Tax Regs. However, if a taxpayer establishes that he has incurred a deductible expense, but he is unable to substantiate the exact amount of that expense, we are permitted, under the so-called Cohan rule, to estimate the deductible amount. See Cohan v. Commissioner, 39 F.2d 540. ,5+3-544 (2d Cir. 30 Before we may do so, the taxpayer must first provide evidence sufficient to establish a rational basis upon which an estimate can be made. E.g., Vanicek v. Commis sioner, 85 T . C. 731. s'43 (t 9 (cid:16)2545) Section 274 (d) supersedes the Cohan rule and prohibits the Court from estimating a taxpayer's expenses with respect to certain items. See Sanford v. Commissioner, 50 T.C. 823, 827; sec. 1.274-5T(a), Ô%2'), aFF(cid:16)042dper cur:am 412. F.2_d 2.o1 (2.d Cir. l%¶) Temporary Income Tax Regs. Thus, section 274 (d) (4) imposes strict substantiation requirements with respect to any listed property as defined in section 280F (d) (4) . "Listed property" specifically includes any passenger automobile, any other property used as a means of transportation, such as trucks and other vehicles used for transporting persons or goods, and 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 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 any cellular telephone (or other similar telecommunications equipment). See sec. 280F(d) (4) (A); sec. 1.280F-6T(b) (2), Temporary Income Tax Regs. In order to obtain a deduction for a 1.isted property, a taxpayer must substantiate by adequate records or sufficient evidence, to corroborate the taxpayer's own testimony, the amount of the expense, the time and place of the use, and the business purpose of the use. Sec. 274 (d); sec. 1.274-5T(c), Temporary Income Tax Regs. Although a contemporaneous log is highly desirable, it is not an absolute requirement. Sec. 1.274-5T(c) (1) and (c) (3), Temporary Income Tax Regs. We are not in a position to evaluate petitioners' testimony about the good works performed by their various ministries. We are, however, able to judge their claim to be eligible for Schedule C deductions purportedly relating to those ministries. Based upon our review of the record, we conclude that petitioners have not substantiated any of the deductions claimed on the Schedules C filed with their returns for 2008 and 2009. For example, petitioners testified at trial that the mileage computations that they had given to respondent's 866.488.DEPO www.CapitalReportingCompany.com 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 Capital Reporting Company 12 counsel were merely "estimations". They also acknowledged that they have no better substantiation of the mileage reported on their Schedules C. As discussed above, section 274 requires a taxpayer to do much more than provide after-the-fact estimations of car and truck expenses. Accordingly, we find that petitioners have failed to substantiate the car and truck expenses deducted on their returns, as required by section 274. We also conclude that petitioners are not allowed a deduction for a "housing allowance" of $25,000 per year, as claimed on Mr. Quansah's Schedules C for both years1. (Whereupon, the Judge referred to Footnote 1.) The housing allowance claimed on petitioners' returns is a "personal, living, or family expense" that is not deductible. See section 262(a). Petitioners have given us no reason to conclude otherwise. Finally, petitioners have not provided any 1 In passing, we note that petitioners are not claiming that the amount of the housing allowance is excludible from gross income. See sec. 107. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company substantiation for the other expenses claimed on the Schedules C filed with their returns, such as "ministry expenses", CPE Conference, and research books. . 13 Cash Contribution: Section 170 (a) generally allows a deduction for any charitable contribution, as defined in section 170 (c), that is made by the taxpayer during the taxable year. Section 170 (c) defines the term "charitable contribution" as "a contribution or gift to or for the use of" certain specified organizations. In this case, respondent has not raised an issue about 1 2 3 4 5 6 7 8 9 10 11 12 13 whether, during 2008 and 2009, petitioners' church, 14 15 16 17 18 19 20 21 22 23 Love Christian Fellowship, was a qualified recipient pursuant to section 170 (c). If the taxpayer makes a charitable contribution of money, the taxpayer must maintain for each contribution either a canceled check, a receipt, a letter, or other communication from the donee charitable organization, 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. The taxpayer 24 must establish the reliability of the written 25 records. Sec. 1.170A-13(a) (2) (i), Income Tax Regs. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 A taxpayer may not deduct any charitable contribution of $250 or more unless the taxpayer substantiates the contribution with a contemporaneous 4 written acknowledgement from the charitable 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 organization. Sec. 170 (f) (8) (A). The written acknowledgement must include: (1) The amount of cash paid and a description (but not value) of any property other than cash contributed; (2) whether the donee organization provided any goods or serv1ces ln consideration in whole or in part for the contribution; and (3) the estimated value of any goods or services provided by the organization, or if such goods and services consist solely of intangible religious benefits, a statement to that effect. Sec. 170 (f) (8) (B). In this case petitioners failed to substantiate their charitable contributions in accordance with section 170 and the above-cited regulations. See sec. 6001; Gomez v. Commissioner, T.C. Memo. 1999-94; Brown v. Commissioner, T.C. Memo. 1996-43. Consequently, we sustain respondent's determination with respect to petitioner's claimed 2008 and 2009 charitable contribution deductions. X. In order to give effect to the foregoing, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company decision will be entered for respondent. XI. This concludes the Court's oral findings of fact and opinion in this case. 15 (Whereupon, at 9:35 a.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