TAX COURT OPINION

Case: Dean Rodney Fulton
Docket Number: 6840-16
Judge: Gustafson
Opinion Type: bench
Filed: 04/13/2017
Pages: 13

UNITED STATES TAX COURT WASHINGTON, DC 20217 DEANRODNEYFULTON, Petitioner, v. ) ) ) ) Docket No. 6840-16. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, 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 proceedings in the above case before the undersigned judge at San Francisco, California, on March 28, 2017, 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. April 13, 2017 SERVED Apr 13 2017 Capital Reporting Company 3 1 Bench Opinion by Judge David Gustafson 2 March 28, 2017 3 4 5 6 Dean Rodney Fulton v. Commissioner Docket No. 6840-16 THE COURT: The Court has decided to render the following as its oral Findings of Fact and 7 Opinion in this case. This Bench Opinion is made 8 9 pursuant to the authority granted by section 7459(b) of the Internal Revenue Code (26 U.S.C.), and Tax 10 Court Rule 152; and it shall not be relied on as 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 precedent in any other case. By a Notice of Deficiency ("NOD") dated December 22, 2015 (Ex. 1-J), the Internal Revenue Service ("IRS") determined deficiencies in the Federal income tax of petitioner Dean Rodney Fulton for the years 2011 and 2012. After the parties' settlement of the other issues in the case, the remaining issues for us to decide are whether Mr. Fulton is entitled to charitable contribution deductions, and whether he is liable for additions to tax. Trial of this case was conducted on March 27, 2017, in San Francisco, California. Mr. Fulton represented himself; and respondent, the Commissioner S of the IRg, was represented by Sandeep Singh. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 FINDINGS OF FACT Cash contributions Employing the principals of section 170(f), discussed below, we are unable to find that Mr. Fulton made any cash contributions to charitable organizations in 2011 or 2012. Noncash contributions On at least four occasions in 2011 and eight occasions in 2012, Mr. Fulton made non-cash contributions to Goodwill of Silicon Valley. (Ex. 11-J.) Employing the principals of section 170(f), discussed below, we find that the value of each of those contributions was $500, and no more. In 2012 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Mr. Fulton contributed a car to American River Auto 15 16 17 18 19 20 21 22 23 24 25 for the supposed benefit of a charitable organization, Heritage for the Blind; but we are unable to determine the value of that contribution or to find that the car was actually given to the charitable organization. Tax returns Mr. Fulton did not file tax returns for 2011 or 2012. (Exs. 9-J, 10-J.) The only reason he proffered for that non-filing was the pendency of controversies with the IRS about his tax years 2009 and 2010. In both 2011 and 2012 tax was withheld 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 from his wages; but the tax withheld was not sufficient to pay his tax liability for those years-- i.e., neither the tax that the IRS later determined (see Ex. 1-J) nor the tax that Mr. Fulton himself later computed on the returns that he submitted in 2016 (Exs. 4-J, 5-J). For each of Mr. Fulton's 2011 and 2012 years, the IRS prepared a "substitute for return" ("SFR"). (See Exs. 2-J, 3-J.) The IRS then issued him on December 22, 2015, a notice of deficiency (Ex. 1-J). The NOD allowed Mr. Fulton only the standard deduction for each year and did not determine any amounts of itemized deductions (including charitable contributions). Tax Court Proceedings Mr. Fulton timely mailed his petition to this Court on March 18, 2015. At that time he resided in California. (Stip. 1.) After he filed his petition, he submitted to respondent's counsel a Form 1040 for each of the years 2011 and 2012. (Exs. 4-J and 5-J.) On Schedule A to each return he claimed charitable contribution deductions--i.e., cash contributions of $3,040 for each year, and non- cash contributions of $26,090 for 2011 and, for 2012, $44,982 (including $8,500 for the car). Mr. Fulton 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 2 3 4 5 6 7 8 9 asserted his entitlement to those deductions at trial, and respondent consented to the implicit amendment of his petition to plead that assertion. I. Legal Standards. OPINION As a general rule, the IRS's determinations are presumed correct, and the petitioners have the burden of establishing that the determinations in the notice of deficiency are erroneous. See Rule 142(a); 10 Welch v. Helvering, 290 U.S. 111, 115 (1933). Mr. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Fulton does not contend that the burden of proof has shifted, and the record in this case suggests no basis for such a contention. A taxpayer must satisfy the specific requirements for any deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Furthermore, taxpayers are required to maintain records sufficient to substantiate their claimed deductions. See sec. 6001; 26 C.F.R. sec. 1.6001- 1(a). II. Charitable contributions A. Substantiation requirements Section 170(a) allows as a deduction any charitable contribution made within the taxable year. Deductions for charitable contributions are allowable 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company I 7 1 2 3 4 only if verified under the regulations prescribed by the Secretary. Sec. 170(a) (1). 1. Basic requirement To verify a charitable contribution of 5 money, the regulations require the taxpayer to 6 maintain one of the following for each contribution: 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 (1) a canceled check; (2) a receipt from the donee; or (3) in the absence of a check or receipt, other reliable written records. A receipt or record used for this purpose must show the name of the donee, the date of the contribution, and the amount of contribution. 26 C.F.R. sec. 1.170A-13(a) (1). 2. Noncash contributions To verify a charitable contribution of property other than money, the regulations first 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 of the contribution; and (3) a description of the property. 26 C.F.R. sec. 1.170A-13(b)(1). Second, for a noncash contribution in excess of $500, the taxpayer 22 must maintain written records showing the manner of 23 24 25 acquisition of the item, the approximate date of acquisition, and the cost or adjusted basis of the property. 26 C.F.R. sec. 1.170A-13(b)(3). Third, if 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 the noncash contribution deduction exceeds $5,000, the taxpayer must: (1) obtain a qualified appraisal for the contributed property, (2) attach a fully completed appraisal summary (i.e., Form 8283, Noncash 5 Charitable Contributions) to the tax return on which 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 the deduction is claimed, and (3) maintain certain records pertaining to the claimed deduction. 26 C.F.R. sec. 1.170A-13(c)(2). The value for a non-cash contribution is the fair market value at the time of the contribution. 26 C.F.R. sec. 1.170A-1(c)(1). The fair market value of contributed property is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge or relevant facts. 26 C.F.R. sec. 1.170A-1(c)(2). 3. Donee's acknowledgement Contributions of cash or property of $250 or more must be substantiated by a contemporaneous 21 written acknowledgement from the donee. See sec. 22 23 24 25 170(f)(8); 26 C.F.R. sec. 1.170A-13(f)(1). A written acknowledgement is contemporaneous if it is obtained by the taxpayer on or before the earlier of the date the taxpayer files the original return for the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 taxable year of the contribution or the due date (including extensions) for filing the original return for the year. Sec. 170(f)(8)(C); 26 C.F.R. sec. 1.170A-13(f)(3). That acknowledgement, which must be furnished by the donee, must: (1) state the amount of cash and describe other property contributed, (2) indicate whether the donee organization provided any goods or services in consideration for the contribution, and (3) provide a description and good faith estimate of the value of any goods or services provided by the donee. Sec. 170(f)(8) (B); 26 C.F.R. sec. 170A-13(f)(2). These statutory requirements 13 must be applied strictly. See Durden v. 14 15 16 17 18 19 20 21 22 23 24 Commissioner, T.C. Memo 2012-140. B. Cash Contributions Mr. Fulton provided no documents of any kind to substantiate his alleged cash contributions. Therefore we are unable to hold him entitled to any deduction for cash contributions. C. Non-cash contributions 1. Car Mr. Fulton claims a deduction for 2012 of $8,500 for the car he allegedly donated. However, to substantiate this contribution he received from 25 Heritage for the Blind no receipt whatsoever, much 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 less a contemporaneous written acknowledgement that satisfies section 170(f)(8)(B) of the Code and 26 C.F.R. section 1.170A-13(f)(2). He did not document what he paid for the car. He is not entitled to any deduction related to this alleged donation. 2. Goodwill Donations Mr. Fulton's testimony in combination with his receipts from Goodwill of Silicon Valley cause use to find that he did make non-cash contributions of some amount on the dates of his receipts. However, he proved little more than that. His proof was problematic for many reasons, including: a. The amounts claimed on his last- submitted returns were greatly in excess of the amounts of the receipts that he proffered. b. The receipts and the tax returns give terse, summary phrases to identify the donated property, and he did not present at trial a more detailed listing of the donated items. Even the four photographs of donated items that he presented are 21 difficult to correlate to any receipt or any entry on 22 23 24 25 the returns. Mr. Eulton's testimony that he gave in order to further specify the items donated was not credible. The years at issue were but two of a series of years in which he claimed equivalent 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 amounts of such contributions, and we do not believe the could possibly have remembered items given in the suit years as opposed to the years before and after, yet he professed to recall individual items. We think it is more likely that he is not recalling but fabricating the detail. c. Mr. Fulton testified that he valued items by comparing them to comparable items he found by research on eBay and by frequent visits to consignment shops and thrift stores, but his testimony--without any corroboration--was not credible. The task he described would have been enormous, and we think it is more likely that he exaggerated or concocted his valuation efforts. d. Mr. Fulton's "basis" in the donated items--the amount he paid for them--is critical for contributions over $500, but proof of his basis is 18 wholly lacking. He had no documents whatsoever to 19 20 21 22 23 24 25 show what he paid for any of the items. The basis amounts listed on his returns were all very round numbers for conglomerations of items. He claimed he calculated his basis by finding the purchases of these items on bank statements and credit card statements for the years of purchase--a truly daunting task--but he presented none of those 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 statements, nor any of the "notes" that he supposedly kept to compute the totals. We think Mr. Fulton did make contributions of substantial items, but not in amounts over $500 in any instance. Thus, we hold he is entitled to deductions for non-cash contributions of $2,000 in 2011 (i.e., four contributions time $500) and of $4,000 in 2012 (i.e., eight contributions times $500.) III. Additions to tax A. Initial showing of liability Section 6651(a)(1) imposes an addition to tax for failure to file a timely return. Mr. Fulton filed no tax return for 2011 or 2012. The addition is therefore warranted. Section 6651(a)(2) imposes an addition to tax for failure "to pay the amount shown as tax on any return". His liabilities for 2011 and 2012 were "shown on a return"--i.e., the SFR prepared by the IRS. See sec. 6651(g)(2). He has not made payments sufficient to satisfy his 2011 and 2012 income tax liabilities, and he is therefore labile for the (a)(2) addition, albeit in an amount different from what the IRS determined in the NOD. Section 6654 imposes an addition to tax for 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 13 1 2 3 4 5 6 failure to make estimated tax payments. This addition to tax applies only if the taxpayer had a liability in the preceding year, sec. 6654(e) (2)(B). Thus, respondent's burden of production under section 7491(c) requires him to produce evidence that the taxpayer had a liability in the preceding year. See 7 Wheeler v. Commissioner, 127 T.C. 200, 210-12 (2006), 8 aff'd 521 F.3d 1289 (10th Cir. 2008). Respondent 9 made that showing with Mr. Fulton's transcript for 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2010 (Ex. 8-J), and we therefore hold that Mr. Fulton is liable for the addition to tax under section 6654 for failure to pay estimated tax in both 2011 and 2012. B. Reasonable cause and willful neglect Section 6651(a)(1) and (a)(2)(but not section 6654) include an exception--"unless it is shown that such failure is due to reasonable cause and not due to willful neglect". Mr. Fulton did not contend that he should not be held labile for any additions to tax because he had reasonable cause for his failure to file and pay, and we see no basis for such a contention. He did not show "reasonable cause" nor dispute "willful neglect". Rather, he said that he delayed filing his returns for 2011 and 2012 because he wanted first to see the outcome of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 his dispute with the IRS about his 2009 and 2010 years--a tactical misjudgment that, he admitted at trial, did not excuse his non-filing. Decision will be entered under Rule 155, to allow recomputation of Mr. Fulton's income tax liability for 2011 and 2012 in accordance with this opinion and with the parties' settlements of the other issues. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 4:00 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.CapitaIReportingCompany.com