TAX COURT OPINION

Case: John F. Calla
Docket Number: 16350-10S
Judge: Whalen
Opinion Type: bench
Filed: 03/05/2012
Pages: 18

UNITED STATES TAX COURT WASHINGTON, DC 20217 JOHN F. CALLA Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) Docket No. 16350-10S ) ) ) ) ) ORDE R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of thè 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 Miami, Florida, containing the oral findings of fact and opinion rendered on February 17, 2012. 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. March 5, 2012 SggvEo NAR 7 2012 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 Bench Opinion By Senior Judge Laurence J. Whalen John F. Calla v. Commissioner Docket No.: 16350-10S 3 February 17, 2012 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 2007, the taxable year in issue, unless stated otherwise, 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 is not reviewable by 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 authority granted by section 7459 (b) and Rule 152. Heritage Reporting Corporation (202) 628-4888 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 IV. 4 Mr. John F. Calla appeared on his own behalf in these proceedings. Ms. Kimberly Higgins, attorney at law, appeared on behalf of respondent. V. Respondent determined a tax deficiency of $4,482 in petitioner s Federal income tax for the taxable year 2007. The tax deficiency is attributable to two adjustments to petitioner's return for 2007. First, respondent disallowed, for lack of substantiation, $22,950 of the total charitable contributions in the amount of $25,000 that petitioner claimed on Schedule A, Itemized Deductions. Second, respondent allowed a deduction for home mortgage interest of $15,184.34, which amount is $1,258.34 more than the home mortgage interest that petitioner claimed on Schedule A of his return, $13,926. Petitioner does not contest the second adjustment. Therefore, the sole issue for decision is whether petitioner is entitled to deduct for taxable year 2007 "charitable contributions" in an amount greater than $2,050, the amount allowed by respondent. VI. The parties stipulated some of the facts in the case. Accordingly, the facts recited in the Heritage Reporting Corporation (202) 628-4888 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 5 Stipulation of Facts are so found, and the exhibits attached thereto are taken into evidence. Petitioner resided in Plantation, Florida, at the time he filed his petition in this case. Petitioner reported total income for taxable year 2007.of $67,265, consisting of wages of $67,253 from the "United States Postal Unit" and taxable interest of $12. Onk Schedule A, Itemized Deductions, petitioner claimed gifts to charity "other than by cash or check" of $25,000. Petitioner attached to his return.for 2007 a Fofm 8283, Noncash Charitable Contributions, on which he claimed a donation of "Clothing, Toys, Lamps, Pillows, Furniture" with a fair market value of $10,000 to Goodwill Industries of South Florida, Inc. (hereinafter Goodwill) on December 30, 2007, and a donation of "Furniture, Matresses [sic], Mirrors" with a fair market value.of $15,000 to The Salvation Army on January 1, 2007. In due course, after petitioner's 2007 return had been the subject of an audit examination, respondent issued a notice of deficiency to petitioner in which respondent allowed a deduction for $2,050 of the contributions claimed on Schedule A, and disallowed the remainder of the contributions claimed, $22,950. Heritage Reporting Corporation (202) 628-4888 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 VII. For purposes of substantiating his claim to have donated $15,000 of property to the Salvation Army on January 1, 2007, þetitioner introduced into the record a "receipt" from the Salvation Army that shows a pickup from petitioner's home address on January 16, 2007. The items enumerated on that receipt are: . "2 headboards and frames, 2 matresses [sic] and box springs, 4 night stand [sic], 2 dresser [sic], 2 mirrors." At trial, petitioner testified, contrary to the receipt from the Salvation Army, that the items of property donated to the Salvation Army on January 16, 2007, are set out on a 2-page handwritten list entitled "The Salvation Army" . That list consists of 50 items or groups of items, mostly household furniture, such as bédroom sets, dressers, a dining room set, kitchen appliances, china, computer systems, bookcases, stereo, pictures and paintings, tools and equipment, and a variety of other .items. A dollar amount is shown on the list for each item or group of items. The aggregate dollar amount of all of the items on the list is $15,925. For purposes of substantiating his claim to have donated $10,000 of property to Goodwill on Heritage Reporting Corporation (202) 628-4888 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 7 December 30, 2007, petitioner introduced into the record a "receipt" f¼om Goodwill that shows non-cash donations received from petitioner on or about December 30, 2007. The receipt provides a space ln which to itemize the donations. The following items are entered in handwriting in that space: "clothes, toys, lamps, pillows". At trial, þetitioner testified, contrary to the receipt from Goodwill, that the items of property donated to Goodwill on December 30, 2007, are set out on a 4-page handwritten list entitled "Goodwill". That list consists of 114 items or groups of items, mostly clothes, sheeÔs and towels, bed linens, dishes, pots and pans, household equipment, and a variety of other things. A dollar amount is shown on the list for each item or group of items.. The aggregate dollar amount of all of the items on the list is $10,089. Petitioner!also introduced into the record of this case 19 personal checks, aggregating $3,639.35, which he claims are checks that he had issued to acquire some of the items donated to the Salvation Army or to]Goodwill. He also introduced 6 invoices from Brandsmart, an invoice from Rooms to Go, and an invoice from Dell Computer, aggregating $2,043.30. Petitioner claims that these items were Heritage Reporting Corporation (202) 628-4888 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 later donated to the Salvation Army or to Goodwill. He argues that the invoices and checks show that his valuation of the donated property was less than the acquisition cost and should be respected for tax purposes. VIII. 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, there is no dispute about whether The Salvation Army and Goodwill were qualified recipients, pursuant to section 170 (c) . . If a charièable contribution is made in property other than money (i.e., a noncash contribution), the amount of the taxpayer's contribution is generally the fair market value of the property at the timejof the contribution. Sec. 1.170A-1(c) (1), Income Tax Regs. However, a charitable contribution. is deductible only if verified under regulations prescribed by the Secretary, sec. 170 (a) (1) , includingi certain substantiation requirements set forth in the regulations promulgated Heritage Reporting Corporation (202) 628-4888 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 9 under section 170 . See section 1. 170A-13 (b) , (c) , and (f ) , Income Tax Regs . If a taxpayer makes a noncash contribution, the taxpayer generally must retain a receipt from the donee . Sec . 1 . 170A-13 (b) (1) , Income Tax Regs . The receipt must contain the name of the donee, the date and location of the contribution, and "a description of the property in detail reasonably sufficient under the circumstances . " Id. A letter or other written communication from the donee acknowledging receipt of the contribution constitutes such receipt . Id. A receipt is not required if it is impractical to obtain, for example, when the taxpayer deposits property at a charity's unattended drop site. Id. In such a case the taxpayer must maintdin reliable written records with respect to each item of donated property. Id. . If the taxpayer claims a deduction in excess of $500 for a noncash contribution, the taxpayer must maintain written records that also indicate how the property was acquired, and the cost or adjusted basis of the property. Sec. 1.170A-13 (b) (3), Income Tax Regs . The taxpayer must establish the reliability of the written records. Sec. 1.170A-13 (a) (2) (I), (b) (2) (I ) , Income Tax Regs . Heritage Reporting Corporation (202) 628-4888 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 10 If the taxpayer claims a deduction in excess of $5, 000 for .noncash contributions (other than certain publicly traded securities) , he must : (1) Obtain a qualified appraisal for such property; (2) attach a fully completed appraisal summary to the tax return on which the deduction is first claimed; and (3) maintain records containing the information required in section 1.170A-13 (b) (2) (ii) , Income Tax Regs . See sec . 1..17ÖA-13 (c) (2 ) , Income Tax Regs . Generally, the amount reported as a deduction for contributions of property is an aggregate amount for all similar items of property. See sec. 1.170A- 13 (c) (1) (I) , Income Tax Regs . A qualified appraisal must include, among other things, a detailed description of the property, its physical condition, the valuation method used to determine the fair market value, and the specific basis for the valuation. See sec. 1.170A- 13 (c) (3) (ii) , Income i Tax Regs . A qualif ied appraisal must be performed by!a qualified appraiser no earlier than 60 days before the date of the contribution and no later than the due date of the return. Sec. 1.170A-13 (c) (3) (i) (A) and (B), Income Tax Reg¼. VIII. We begin with several fundamental principles Heritage Reporting Corporation (202) 628-4888 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 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 United States Supreme Court as early as 1933 and has been reaffirmed by the Supreme Court more recently. See INDOPCO Inc. v. Commissioner, 503 U.S. 79, 84 (1992) . . We note that in certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, then section 7491 places the burden of proof with respect to that issue on the Commissioner. (cid:16)042 Sec. '7491(a) . In this case, petitioner has not sought: to shift the burden of.proof to respondent nor; has he introduced any evidence to est.ablish any of the:preconditions for the application of section 7491. Two of those preconditions are that the taxpayer has complied with the . requirements to substantiate the items at issue, and that the taxpayer has maintained all records required by the Internal Revenue Code. Sec. 7491(a) (2) . Petitioner has not satisfied those preconditions. Accordingly, section 7491(a) does not apply and the burden of proof remains on petitioner. Heritage Reporting Corporation (202) 628-4888 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 12 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, 493 (1940) ; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934) . This includes the burden of substantiation. Hradesky v. Commissioner, 65 T. C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). Third, the Court is not bound to accept the unverified and undocumented testimony of a taxpayer. Hradesky v. Commissiòner, supra; Tokarski v. Comulissioner, 87 T . C;. 74, 77 (1986) . See also Lovell & Hart, Inc. v. Commissioner; 456 F.2d 145, 148 (6th Cir!. 1972), affg. T.C. Memo. 1970-335; MacGuire v. Commissioner, 450 F.2d 1239, 1244 (5th Cir. 1971), affg. T.C. Memo. 1970-89; Niedringhaus v. Commissioner, 99 T.C. 202, 212 (1992) . X. We agree with respondent that petitioner has not shown, for taxable year 2007, that he is entitled to a deduction for charitable contributions in excess of the amount allowed by respondent , $2, 050 . First , as discussed above, petitioner introduced into the record two "receipts", one from each of the Heritage !Reporting Corporation (202) 628-4888 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 13 organizations, to prove that he contributed property to The Salvation .Army, and to Goodwill. It appears that petitioner intended those receipts to satisfy the requirement that he supply a contemporaneous written acknowledgment from each of the donee organizations. See sec. 170 (f) (8) (A) ; sec. 1.170A-13 (f) , Income Tax Regs . The descriptions of the donated items of property set out on the receipts suggest that petitioner contributèd no more than several items of property to The Salvation Army, worth approximately $1,950, and, similarly, that he contributed no more than several items of property to Goodwill, worth approximately $100 . Respondent allowed a deduction for those amounts . At trial, petitioner testified that the items of property contributed to each organization were the items of property shown on two lists, one entitled "The Salvation Army" and another one entitled "Goodwill". As discussed above, there are 50 items or groups of items enum¼rated on the Salvation Army list, and 114 items or groups of items enumerated on the Goodwill list. These lists go far beyond the hand- full of items described on the receipts, and the lists cannot be reconciled with the receipts. There is no evidence, other than Heritage Reporting Corporation (202) 628-4888 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 14 petitioner's testimony, to show that.either organization received the property shown on the two lists. For example, the lists.were not attached to the receipts, nor do;the receipts refer to the lists. As to petitioner's testimony, we found it to be vague, evasive, and self-serving, and we do not credit petitioner's testimony. Accordingly, we find that petitioner has failed to substantiate a contribution of more than $2,050 with a contemporaneous written acknowledgment from the donee organization. Sec. 170(f) (8) (A); sec. 1 170A-13(f), Income Tax Regs. We believe that the lists of property, entitled "The Salvation Army" and "Goodwill", on which petitioner relies, were created by petitioner in a cynical attempt to substantiate the amounts claimed on his return. There is no evidence that those lists were in existence during the year 2007 when the property was allegedly donated or that they were used by petitioner in the preparation of his 2007 return. Significantly, on close questioning by the Court, petitioner would not state that he had used those lists to prepare his return for 2007. Indeed, the aggregate value of the items of property,allegedly contributed to The Salvation Army, according to petitioner's list of that property, was $15,925, and Heritage Reporting Corporation (202) 628-4888 15 does not match the deduction claimed by petitioner, $15,000. Similarly, aggregate value of the items of property allegedly contributed to Goodwill, according to petitioner's list of that property, was $10,089, and does not match the deduction claimed by petitioner, $10,000. Even if we were to find that petitioner had contributed the items of property set out on each of the two lists, petitioner has not established the fair market value of any þroperty contributed in excess of $2,050. According to petitioner, the value of the property contributed to The Salvation Army was $15, 000, as shown by the aggregate value of the property on the list entitled The Salvation Army, $15, 925, and that the value of the property contributed to Goodwill was $10,000, as shown by the aggregate value of the property on the list entitled Goodwill, $10,089. However, there is nothing in the record to establish that the amounts shown on those lists are, in fact, the fair market values of the items of property on the dates the property was allegedly contributed. Petitïoner described how those amounts were derived. He testified, "I roughly claimed what I felt the fair marker value was . " This · testimony is woefully inadequate to establish the fair 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 Heritage Reporting Corporation (202) 628-4888 16 market value of the items of property that petitioner . claims to have contributed. Furthermore, we are unable to determine or estimate with any deëree of certainty the correct value of the property. The descriptions of the property on the lists are vague. The lists contain no information regarding how petitioner acquired each item of property or the date of acquisition, and, as noted by respondent, there are no photographs of the items to show the condition of each item of the property. As mentionèd above, petitioner introduced into the record 19 personal checks in the aggregate amount of $3, 639 . 35, i and eight purchase receipts aggregating $2,043.30 (6 receipts from Brandsmart, one receipt from Rooms to Go, and one receipt from Dell 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 · Computer) . Petitioner claims that the items reflected 18 19 20 21 22 23 24 25 in the checks and receipts were later .donated to the Salvation Army or to Goodwill. Petitioner argues that the invoices and checks show that his valuation of the donated property was less than the acquisition cost, and that his valuatiòn should be respected for tax purposes. We find no evidence that any of the items described by the checks and purchase receipts are Heritage Reporting Corporation (202) 628-4888 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 17 items that are included.on either of the two lists described above. For example, two of the checks were drawn to the order of "Oakland Optical" and include a reference to "2 PairrGlasses" and "2 Glasses". We find no such items of property on either of the lists. Similarly, petitioner testified that the "sleeper sofa", included among the items on The Salvation Army list, that he valued for $300, is the same item as the "Sofa Seashell" that was purchased from Rooms to Go on April 25, 1998, for $699.99 plus tax. There is nothing to establish!that the two are the same other than petitioner's testimony, which we do not credit. .In passing, we note Èhat if we were to accept petitioner's testimony that the two items are the same, it would show that, after 9 years of use, petitioner valued a used sofa as worth approximately 40% of the original purchase price. This strikes us as unreasonable. Similarly, petitioner testified incredibly that a "sprinkler & weedeater" purchased by check for $92.77 on April 4, 2Ó06, is the same item as a "tree trimmer" valued at $50 and included on the Goodwill list. Even if we were to accept.that as true, it would show that petidioner valued a used tree trimmer, after approximately 2 years of use, as worth Heritage Reporting Corporation (202) 628-4888 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 18 approximately 53% of its original purchase price . Again, this strikes us as unreasonable. Finally, we agree with the points noted in respondent's closing! that petitioner failed to satisfy the substantiation requirements of section 170 for contributions of property other than money. For example, respondent noted that petitioner's alleged contributions of furniture exceeded $8, 000, in the aggregate, and cannot be deducted because petitioner failed to attach a qualified appraisal of the property to his return, as required by section 170 (f) (11) (C) . Similarly, respondent noted that petitioner's contribution of clothing fails to meet the documentatión rules prescribed under section 170 (f) (11) (B) . See Income Tax Regs . § 1.170A- 13(b) (3) (I). Based upon the above, we sustain respondent ' s disallowance of the deduction of alleged charitable contributions in excess of the. amount allowed by respondent, $2,050, that was claimed on petitioner's 2007 return. XI. In order tá give effect to our disposition of the disputed issue, decision will be entered for respondent . Heritage R.eporting Corporation (202) 628-4888 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 XII. 19 THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE . (Whereupon; at 9:46 a.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888