TAX COURT OPINION

Case: Keith Fitzgerald Bullock
Docket Number: 25641-11
Judge: Gustafson
Opinion Type: bench
Filed: 11/21/2012
Pages: 15

UNITED STATES TAX COURT WASHINGTON, DC 20217 DRB KEITH FITZGERALD BULLOCK, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 25641-11. ) ) ) ) ) ) ) ) ) O R D E R Pursuant to the opinion of the Court as set forth in the pages of the transcript of the proceedings before Judge David Gustafson at Washington, D.C., on October 26, 2012, containing his oral findings of fact and opinion, it is 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 in the above case before Judge Gustafson at Washington, D.C., containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) David Gustafson Judge Dated. Washington, D.C. November 21, 2012 SERVED Nov 23 2012 Capital Reporting Company Keith Fitzgerald Bullock 10-26-2012 3 1 Bench Opinion by Judge David Gustafson 2 Keith Fitzgerald Bullock Docket No. 25641-11 3 October 26, 2012 4 _ , THE COURT: The Court has decided to render 5 oral Findings of Fact and Opinioh in this case. The 6 7 following represents the Court's oral Findings of Fact and Opinion, which shall not be relied on as 8 precedent in any other case. 9 This bench opinion is made pursuant to the 10 authority granted by section 7459 (b) of the Internal 11 Revenue Code, and Rule 152 of th Tax Court Rules of 12 Practice and Procedure. 13 14 By notice of def1clency dated August 11, 2011, the Internal Revenue Service (IRS) determined a 15 deficiency in the Federal income tax of petitioner 16 Keith Fitzgerald Bullock for the years 2008 and 2009, 17 18 and accuracy-related penalties under section 6662 (a) in both years. The deficiencies arose from several 19 adjustments that the IRS made, some of which are no 20 longer in dispute. The issues for decision are 21 whether, in each of the years at issue, Mr. Bullock 22 23 24 is entitled to deductions for charitable contributions and for unreimbursed employee expenses consisting of automobile mileage, and whether he is 25 entitled to the first-time home buyer credit in 2009. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Conipany Keith Fitzgerald Bullock 10-26-2012 1 2 3 4 5 6 7 8 9 10 11 For the reasons explained hereaf er, we sustain the IRS's disallowance of the deductions, but we hold that Mr . Bullock is entitled to he credit . Trial of this case was conducted on October 26, 2012, in Washington, D.C. Mr. Bullock represented himself, and Rachel L. Paul represented respondent. The parties' Stipulation of Facts was admitted into evidence, along with its Exhibits 1-J through 6-P, and Mr. Bullock testified. We find the following facts: FINDINGS 12 Automobile use 13 In 2008 and 2009 Mr . Bulloc was an employee of 14 Verizon. Part of his work responsibilities included 15 driving to sales calls. He used his own car for 16 those trips, but he did not keep a contemporaneous 17 18 log of the miles driven, and wher the IRS later challenged the deduction he was unable to get 19 specific information about his säles calls and 20 therefore could not reconstruct his mileage incurred. 21 We therefore do not know how many miles he drove for 22 his work. 23 Marshall Heights Bisons 24 In 2008 and 2009 Mr. Bullock volunteered with a 25 charitable organization called Marshall Heights (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Keith Fitzgerald Bullock 10-26-2012 1 Bisons. In addition to his volunteer work, he made 2 3 5 6 7 8 some contributions to the organization and he made some expenditures on behalf of the organization. However, he did not keep any record of these contributions and expenditures, and he did not receive any written acknowledgement from the organization either at the time of the donations nor thereafter. We therefore are unable to determine how 9 much he donated to the organization. 10 11 12 13 14 15 16 17 18 19 20 Home purchase On September 30, 2009, Mr. Bullock signed a "Contract of Sale" for the purchase of a home. (See Ex. 5-P (opening paragraph).) On that date he made a $500 payment of earnest money. (Ex. 4-P, line 201.) The purchase price was $258,500. (Ex. 4-P, line 401.) The contract was contingent on his obtaining financing for the purchase but otherwise binding. He eventually obtained the financing, and the closing for the purchase was concluded on June 25, 2010. (Stip. 5. ) 21 Tax returns 22 After the close of each of the years 2008 and 23 2009, Mr. Bullock went to a tax return preparer for 24 assistance in preparing his returns. Because Mr. 25 Bullock did not purchase the house until two months (866) 448 - DEPO www.CapitalReportin Company.com 2012 Capital Reporting Con pany Keith Fitzgerald Bullock 10-26-2012 6 1 after he filed his 2009 return, he did not claim the 2 first-time home buyer credit on his 2009 return. 3 When the subject of charitable contributions came up, 4 5 the preparer told Mr . Bullock that he would need a receipt from the charitable organization or other 6 documentation to substantiate hi contributions; and 7 when the subject of employee business expenses came 8 9 10 11 12 up, the preparer told Mr. Bullock he would need a log to substantiate his mileage. Lacking that documentation, Mr. Bullock and the preparer made what he called a "guesstimate" of the money contributed (i.e., $16,963 in 2008 and $1,500 in 2009) and of the 13 miles driven (yielding deductions of $8,204 in 2008 14 and $3, 623 in 2009), and the ret rn prepared for each 15 year claimed deductions based not on documentation 16 but on those estimates. Mr. Bullock timely filed his 17 18 tax return in each of the years 2008 and 2009. (Stip. 3-4) . 19 Examination and litigation 20 21 The IRS examined Mr. Bullöck's returns for 2008 and 2009. The IRS made adjustments no longer in 22 dispute here and disallowed the disputed deductions 23 for mileage and contributions. he IRS issued a 24 notice of deficiency on August 11, 2011, which 25 determined the tax resulting from those adjustments (866) 448 - DEPO www.CapitalReportingCompany.com 2012 CapitalReporungCogipany Keith Fitzgerald Bullock 10-26-2012 1 2 and also determined an accuracy related penalty under section 6662 (a). Mr. Bullock timely filed his 3 petition in this Court. At the ime he filed his 4 petition he resided in Washington, D.C. (Stip. 1.) 5 During the course of this lawsui , Mr. Bullock raised 6 7 8 the issue of the first-time home buyer credit; and the IRS consented to its inclusion in this suit, and cooperated in including Mr. Bullpck's related 9 exhibits in the parties' stipulation of facts. 10 11 12 13 I. Evidentiary principles OPINION The IRS's determination is presumed correct, and. the taxpayer generally bears the burden to prove his 14 entitlement to any deductions he claims. Rule 15 142(a). Deductions are a matter of legislative 16 grace, and taxpayers must satisfy the specific 17 18 requirements for any deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). 19 Furthermore, taxpayers are required to maintain 20 records sufficient to substantia e their claimed 21 deductions. See sec. 6001; 26 C.F.R. sec. 1.6001- 22 1(a). 23 24 II. Deduction for mileage Certain business expenses described in section 25 274 (d) are subject to especially strict (866) 448 - DEPO www.CapitalReportingCompany.com 2012 CapitalReporungConpany Keith Fitzgerald Bullock 10-26-2012 8 1 substantiation rules. Those expenses include the use 2 of "listed property", defined in section 280F(d) (4) 3 4 5 6 7 to include passenger automobiles. To deduct automobile expenses, the taxpayek must substantiate by adequate records or sufficient evidence to corroborate the taxpayer's own testimony: (i) the amount of the expenditure; (ii) the mileage for each 8 business use of the automobile and the total mileage 9 for all uses of the automobile during the taxable 10 period;(iii) the date of the business use; and (iv) 11 12 the business purpose of the use of the automobile. See sec. 1.274-5T(b) (6),-5T(c) (1). Mr. Bullock did 13 not maintain sufficient records to enable him to 14 present such proof. As a result, we will sustain the 15 IRS's disallowance of Mr. Bullock's deductions for 16 mileage in 2008 and 2009. 17 18 III. Charitable contributions Section 170 (a) allows as a deduction any 19 charitable contribution made wit in the taxable year. 20 Deductions for charitable contributions are allowable 21 only if verified under the regul a tions prescribed by 22 23 the Secretary. Sec. 170 (a) (1). To verify a charitable contribution of 24 money (such as Mr. Bullock's allèged direct 25 contributions to Marshall Heights Bisons), the (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Con pany Keith Fitzgerald Bullock 10-26-2012 9 1 2 3 4 5 regulations require the taxpayer to maintain one of the following for each contribut on: (1) A canceled check; (2) a receipt from the donee; or (3) in the absence of a check or receipt, o her reliable written records. A receipt or record used for this purpose 6 must show the name of the donee, the date of the 7 contribution, and the amount of the contribution. 26 8 C. F. R. sec. 1. 170A-13 (a) (1) . The reliability of 9 written records is determined on the basis of all the 10 11 facts and circumstances. 26 C.F.R. sec. 1.170A- 13(a) (2) (i). However, the taxpayer has the burden to 12 establish reliability. Id. 13 14 To verify a charitable contribution of property 15 other than money (such as Mr. Bullock's alleged 16 purchases on behalf of Marshall Heights Bisons), the 17 18 19 regulations require the taxpayer to maintain a receipt, from the donee for each contribution showing: (1) the name of the donee; (2) the date and location 20 of the contribution; and (3) a d scription of the 21 property. A letter or other written communication 22 from the donee acknowledging receipt of the 23 contribution, showing the date thereof, and 24 containing the required descript1on of the property 25 contributed constitutes a receip . Where it is (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Con7pany Keith Fitzgerald Bullock 10-26-2012 10 1 impractical to obtain a receipt, the taxpayer must 2 maintain other reliable written records of the 3 4 noncash contributions. 26 C.F.R. sec. 1.170A- 13 (b) (1) . The reliability of the other reliable 5 written records is determined on the basis of all of 6 7 8 9 the facts and circumstances. 26 C.F.R. sec. 1.170A- 13 (a) (2). Those are the general rules. Additional rules require even more substantiation for contributions of 10 cash or property of $250 or more. (Mr. Bullock did 11 not state the amount of his indi ridual contributions, 12 but his claimed totals well exceed that threshold.) 13 14 15 These larger contributions must be substantiated by a contemporaneous written acknowle gement from the donee. See sec. 170(f) (8); 26 C.F.R. sec. 1.170A- 16 13(f) (1). A written acknowledgement is 17 contemporaneous if it is obtained by the taxpayer on 18 or before the earlier of the date the taxpayer files 19 the original return for the taxable year of the 20 contribution or the due date (including extensions) 21 22 23 24 for filing the original return for the year . Sec. 170 (f) (8) (C); 26 C.F.R. sec. 1.ly0A-13(f) (3). That acknowledgement, which must be furnished by the donee, must (1) state the amount of cash and describe 25 other property contributed, (2) ïndicate whether the (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Con}pany Keith Fitzgerald Bullock 10-26-2012 11 1 2 donee organization provided any goods or services in consideration for the contributi n, and (3) provide a 3 description and good faith estimate of the value of 4 5 6 7 8 any goods or services provided by the donee. Sec. 170 (f) (8) (B); 26 C. F.R. sec. 1.170A-13(f) (2) . Mr. Bullock did not offer proof of charitable contributions sufficient to meet these standards. As a result, we will sustain respondent's 9 disallowance of Mr. Bullock's deductions for 10 charitable contributions in 2008 and 2009. 11 IV. First-time home buyer credit 12 Section 36(a) provides, for a fikst-time home buyer, 13 14 a credit equal to 10 percent of he purchase price (sec. 36(a)), but the credit canhat exceed $8,000 15 section 36(b) (1) (a). Since Mr. B llock's purchase 16 price was $258, 500, he would be ligible for the 17 maximum credit of $8,000. Section 36(h)(2) allows 18 19 the credit for a purchase before October 1, 2010 (such as Mr. Bullock's purchase in June 2010), if 20 there was "a written binding contract before May 1, 2010". 21 22 Respondent's only contention against Mr. 23 Bullock's eligibility for the credit was his supposed 24 lack of a binding contract befor that date. It is 25 true that Mr. Bullock was unable to produce a copy of (866) 448 - DEPO www.CapitalReportin Company.com 2012 CapitalReporungCo pany Keith Fitzgerald Bullock 10-26-2012 . 12 1 2 3 4 the contract; but the fact of hils closing in June 2010, his HUD-1 statement (Ex. 4 P), and his financing document (Ex. 5-P)--in combination with his credible testimony--convince us hat he did have a 5 binding contract in September 20 9. Under section 6 36(g), he was entitled to elect o treat the purchase 7 8 9 as made in the year before his 2 10 closing--i.e., in 2009--and to obtain the credit f r that year. We therefore hold in his favor on the first-time home 10 buyer credit for 2009. 11 V. . Accuracy-related penalty 12 Section 6662 1mposes an "accuracy-related penalty" of 13 14 20 percent of the portion of the underpayment of tax that is attributable to the taxpayer's negligence or 15 disregard of rules or regulatlons or that is 16 attributable to any substantial understatement of 17 18 income tax. Mr. Bullock's prevailing on the first- time home buyer credit for 2009 will result in an 19 overpayment for that year, not an understatement, so 20 21 there will be no penalty for 2009. The precise amount of the 2008 22 underestimate that will result from the adjustments 23 that we have sustained is yet to be determined 24 pursuant to Rule 155, but in light of the IRS 25 concessions it appears that it may not be (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Keith Fitzgerald Bullock 10-26-2012 13 1 2 3 "substantial" under section 6662 (a). We therefore consider whether the understatement was attributable to negligence, and we find that it was, and that the 4 penalty applies. 5 6 A. Negligence The Commissioner bears the burden of 7 production under section 7491(c), and he must produce 8 sufficient evidence that the imposition of the penalty 9 is appropriate in a given case. Once the Commissioner 10 meets this burden, the taxpayer must come forward 11 with persuasive evidence that thle Commissioner's 12 determination is incorrect. Rule 142(a). 13 14 For purposes of section 6662, the term "negligence or disregard" includes a failure to 15 exercise ordinary and reasonable care in the 16 preparation of a tax return. 26 C.F.R. sec. 1.6662- 17 18 3(b) (1). Negligence is defined as a lack of due care or failure to do what a reasonable and 19 ordinarily prudent person would do under the 20 21 circumstances. Neely v. Commissioner, 85 T.C. 934 (1985). The term "disregard" inicludes any careless, 22 reckless, or intentional disregard of the rules or 23 24 regulations. Sec. 6662 (c). It !also "includes any failure by the taxpayer to keep adequate books and 25 records to substantiate items properly." 26 C.F.R. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Conkpany Keith Fitzgerald Bullock 10-26-2012 14 1 2 sec. 1. 6662-3 (b) (1) (cid:16)042 By this standard, we find that Mr. 3 Bullock' s 2008 underpayment was the result of 4 negligence. It was derived from the disallowance of 5 unsubstantiated expenses . Mr . Bull ock failed 6 altogether to keep records that would substantiate 7 his deductions, and this was negkigent on his part . 8 9 B. Defenses A taxpayer who is otherwise liable for the 10 accuracy-related penalty may avo d the liability ·if 11 he successfully invokes one of three other 12 provisions: 13 14 15 16 First, section 6662 (d) (2) (B) provides that an understatement may be reduced where the taxpayer had substantial authority for its treatment of any item giving rise to the understahement. There is no 17 authority that would warrant Mr . Bullock' s position 18 19 on any of the disallowed deducti6ns. Second, section 6662 (dl) (2) (B) provides that 20 an understatement may be reduced where the relevant 21 facts affecting the item's treatment were adequately 22 disclosed on his tax return and the taxpayer had a 23 reasonable basis for its treatment of that item. 24 Neither of these criteria is met here. 25 Third, section 6664 (c) (1) provides that, if (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Con(cid:16)040pany Keith Fitzgerald Bullock 10-26-2012 15 1 2 3 the taxpayer shows, first, that there was reasonable cause for a portion of an underp yment and, second, that he acted in good faith with| respect to such 4 portion, then no accuracy-related penalty shall be 5 6 7 8 imposed with respect to that por ion. Whether the taxpayer acted with reasonable cause and in good faith depends on the pertinent facts and circumstances, including his efforts to assess his 9 proper tax liability, his knowledge and experience, 10 11 and the extent to which he relied on the advice of a tax professional. 26 C.F.R. sec. 1.6664-4 (b) (1), 12. Income Tax Regs. As a witness, r. Bullock seemed 13 candid and forthright, and we assume that he filed 14 his return "in good faith"; but he made no showing of 15 "reasonable cause" for the erroneous deductions that 16 he claimed. Mr. Bullock had the assistance of a 17 return preparer in preparing his tax return, and she 18 did accept his "guesstimates" for purposes of filling 19 out the return; but by Mr. Bullock's own account the 20 preparer warned him that he woul need receipts to 21 22 23 24 25 substantiate his contribution deductions and a log to substantiate his mileage deductions, yet he did not heed that warning. Consequently, he remains liable for the penalty for 2008. So that the liability can be recalculated, (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Keith Fitzgerald Bullock 1Ò-26-2012 1 decision will be entered pursuant to Rule 155. 2 This concludes the Court's oral Findings of 16 3 Fact and Opinion in this case. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2 0 21 22 2 3 2 4 25 (Whereupon, at 4:44 p.m., I the bench opinion in the above-entitled matter was concluded.) (866) 448 - DEPO www.CapitalReportingCompany.com 2012