t c memo united_states tax_court rp golf llc sb golf llc tax_matters_partner petitioner v commissioner of internal revenue respondent docket no filed date lisa j hansen and michael j abrams for petitioner shaina e boatright and david l zoss for respondent memorandum findings_of_fact and opinion paris judge this case involves a noncash charitable_contribution_deduction in a notice of final_partnership_administrative_adjustment fpaa for respondent disallowed a dollar_figure charitable_contribution_deduction on the partnership return of rp golf llc rp golf the deduction was claimed for the donation of a conservation_easement on real_property currently operating as a golf course and conveyed by the national golf club of kansas city llc national golf a single-member limited_liability_company llc whose sole member was rp golf the issues for decision are as follows whether the requirements of sec_170 for a qualified_conservation_easement are met whether rp golf is entitled to a charitable_contribution_deduction with respect to a donation of a conservation_easement to a charitable_organization by its single-member llc and if the court determines that rp golf is entitled to a charitable_contribution_deduction then what is the value of the conservation_easement findings_of_fact some of the facts are stipulated and are so found the stipulation of facts the amended first supplemental stipulation of facts and the exhibits attached thereto are incorporated herein by this reference at the time the petition was filed rp golf’s principal_place_of_business was in missouri rp golf is a although national golf is identified as a missouri corporation in the conservation_easement agreement national golf is actually a single-member llc organized in missouri and disregarded for federal_income_tax purposes the easement filed of record was not corrected before trial to reflect national golf’s correct entity identification unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure missouri llc and was formerly referred to as river park golf llc sb3 golf llc is rp golf’s tax_matters_partner and petitioner in this case see sec_6226 i property ownership history in date rp golf acquired a substantial portion of the land that makes up the current golf course development on which the conservation_easement at issue is located the golf course property formerly known as windbrook properties windbrook properties was conveyed to rp golf by a trustee’s deed that included disclosures from a bankruptcy_estate the trustee’s deed conveyed multiple tracts of land in platte county missouri to rp golf in date rp golf conveyed certain property including a portion but not all of the windbrook properties without disclosures by special warranty deed to its wholly owned subsidiary national golf the special warranty deed was recorded in the platte county recorder’s office on date rp golf developed two private golf courses on the windbrook properties known as the national and the deuce at the national deuce respectively the river park golf llc was the entity’s prior legal name but for consistency all references will be to the entity’s current name rp golf rp golf’s tax_return and the attached appraisal described the national as continued national was completed and placed into service in the first nine holes of the deuce were completed and placed into service in the remaining nine holes of the deuce were completed and placed into service in each golf course organized private clubs and during national golf operated both of the for-profit private golf clubs one club was associated with the national course and the other club was associated with the deuce course ii development financing agreements hillcrest bank financed rp golf’s original purchase of the windbrook properties then in date hillcrest bank made a development loan of dollar_figure to rp golf hillcrest loan rp golf national golf and another related_entity granted a security_interest in all of the windbrook properties among others and as security to the indebtedness executed a deed_of_trust dated date which was recorded in the platte county recorder’s office on date deed_of_trust the deed_of_trust contains standard provisions prohibiting any transfer of any interest in the property without the consent of the continued the national i and the deuce as the national ii the court will refer to the first golf course as the national i and the second golf course as the national ii throughout for consistency when discussing legal descriptions or appraisals hillcrest bank and states that a violation of the transfer prohibition would result in an event of default the hillcrest loan amount was subsequently modified and the principal was reduced to dollar_figure the deed_of_trust was amended accordingly in an agreement dated date the hillcrest loan was further modified to extend the maturity_date to date and the deed_of_trust was further amended by a modification agreement dated date and recorded on date the hillcrest loan was modified again to increase the principal to dollar_figure and to extend the maturity_date to date the deed_of_trust was further amended to reflect the changes by a modification agreement dated date and recorded on date hillcrest modification each of the above-described modifications contained the following disclosure statutory notice oral agreements or commitments to loan money extend credit or to forbear from enforcing repayment of a debt including promises to extend or renew such debt are not enforceable to protect you borrower s and us creditor from misunderstanding or disappointment any agreements we reach covering such matters are contained in this writing which is the complete and exclusive statement of the agreement between us except as we may later agree in writing to modify it both rp golf and national golf the grantor of the easement executed the original hillcrest loan and the hillcrest modification earlier development financing was also obtained from great southern bank which made four loans to national golf and or rp golf great southern bank held the following deeds of trust on the windbrook properties rp golf in the principal_amount of dollar_figure secured_by a deed_of_trust dated date national golf in the principal_amount of dollar_figure million secured_by a deed_of_trust dated date rp golf in the principal_amount of dollar_figure secured_by a deed_of_trust dated date and national golf in the principal_amount of dollar_figure million secured_by a deed_of_trust dated date the promissory notes securing the deeds of trust contained a limitation on oral agreements that was substantially_similar to the limitation contained in the hillcrest documents both hillcrest bank and great southern bank had extensive financing agreements and senior deeds of trust recorded in the platte county recorder’s office before national golf’s grant of easement described infra the date modification agreement was executed by rp golf but was not executed by national golf iii the conservation_easement on date national golf as grantor executed an agreement entitled grant of permanent conservation_easement purporting to grant a conservation_easement to the platte county land trust plt a missouri not-for- profit corporation plt agreement national golf expressly reserved the right for itself and its successors or assigns to use the property as a golf course and it continues to operate two private golf clubs on the property the plt agreement includes inter alia the following statement about the transfer of the conservation_easement whereas the grantor is the owner in fee of certain real_property located in platte county missouri which has aesthetic open space scenic recreational and natural resource values in its present state the property underlying the plt agreement is in the city of parkville platte county missouri the legal description attached to the plt agreement conveyed portions of multiple sections of land including a part of the northwest quarter of sec_26 national golf has never been the owner in fee of the northwest plt is a missouri not-for-profit corporation qualified under sec_501 to receive charitable_contributions described in sec_170 quarter of sec_26 the plt agreement also included the following - - declarations whereas the grantor desires to protect and preserve the natural values of the property by making permanent arrangements for the conservation of the open space scenic natural_resources natural habitat and aesthetic qualities of the property and to limit the future use thereof to such purposes now therefore for and in consideration of the covenants and representations contained herein and for other good and valuable the extensive legal description attached to the conservation_easement referred to as schedule a is a 10-page metes and bounds survey with an additional pages of survey describing exceptions to the conservation_easement the survey describes the property in a series of golf tracts with subtracts described to identify the exclusions from the plt agreement the series of golf tracts is the national i golf tracts a through d and the national ii golf tracts e through i golf tracts g and h appear to include some portion of sec_26 in the legal description the original trustee’s deed conveying windbrook properties to rp golf included the following disclosure that national golf did not include in the plt agreement grantee further acknowledges and understands that there may be harmful hazardous or toxic substances or solid wastes on or released from the premises and except for the limited statement of grantor’s knowledge herein set forth grantor makes no representations whatsoever concerning the extent location or nature of the same grantee expressly waives any right or claim against grantor the waiver shall be deemed to be covenants running with the land and binding upon successors and assigns of grantee and all operators of the premises consideration the receipt and legal sufficiency of which are hereby acknowledged grantor national golf on behalf of itself and its heirs successors and assigns in consideration of the premises contained herein and other valuable consideration paid to its full satisfaction does freely give grant sell transfer convey and confirm forever unto plt a perpetual conservation_easement as more particularly set forth below in that certain tract of land containing approximately three hundred acres more or less particularly described in schedule a attached hereto and incorporated herein being more this instrument sets forth the entire agreement of the parties with respect to the easement and supersedes all prior discussions negotiations understandings or agreements relating to the easement all of which are merged herein the easement’s purpose according to the plt agreement is primarily to further the policies of the state of missouri designed to foster the preservation of open space or open areas conservation of the state’s forest soil water plant and wildlife habitats and other natural and scenic resources and to implement the objectives set forth in to r s m o the objectives outlined in the missouri statutes aim to preserve and maintain open areas and spaces in the light the appraisal dated date supporting rp golf’s charitable_contribution valuation reflected a donation of dollar_figure acres the appraisal included a description of property located in sec_26 even though national golf was not the owner of that property see supra p of encroaching urban and metropolitan development mo ann stat sec_67 west missouri law governs the interpretation and performance of the easement which per the plt agreement shall be liberally construed to implement missouri’s open areas policy to ensure national golf’s compliance with the statutory objectives and the plt agreement terms plt agreed to inspect and if necessary enforce the easement for an annual fee of approximately dollar_figure additionally the grantor national golf agreed to incorporate the terms of the easement by reference in any deed or other legal instrument by which it divests itself of any interest in all or a portion of the property plt’s vice president executed a separate agreement entitled acceptance accepting the easement and agreeing to its covenants and restrictions the plt agreement and the acceptance were recorded in the platte county recorder’s office on date iv consents to subordinate when national golf executed the plt agreement on date the property was subject_to senior deeds of trust held by hillcrest bank and great southern bank that predated the plt agreement consents subordinating the interests of the two banks were executed by bank officers on date approximately days after the plt agreement and recorded in the platte county recorder’s office on date each consent states that the subordination was made effective as of date even though national golf executed the plt agreement on date and recorded it on date hillcrest bank’s consent to subordinate recites the following hillcrest hereby consents to the conservation_easement sic and subordinates its rights in the property to the right of the land trust to enforce the conservation purposes set forth in the conservation_easement in perpetuity hillcrest bank’s consent to subordinate did not recite the exchange of any consideration nor did it identify the debt it intended to subordinate or any of its recorded deeds of trust great southern bank’s consent to subordinate also did not recite the exchange of any consideration but it specifically identified the following loans rp golf in the principal_amount of dollar_figure secured_by a deed_of_trust dated date national golf in the amount of dollar_figure million secured_by a deed_of_trust dated date rp golf in the principal_amount of dollar_figure secured_by a deed_of_trust dated date and national golf in the principal_amount of dollar_figure million secured_by a deed_of_trust dated date v the appraisal a complete appraisal in a summary report was dated date the appraisal was addressed to the chief executive office of national golf in regard to a conservation_easement on the national i and the national ii with an effective date of date the appraisal commitment letter stated that the sole intended users of the appraisal were the principals of national golf and the internal_revenue_service in regard to a permanent conservation_easement the property description was for dollar_figure acres and the appraisal reflected ownership by national golf and the national ii llc the appraisal of the national i and the national ii reflected a before valuation of dollar_figure an after valuation of dollar_figure million and an easement valuation of dollar_figure the appraisal included several assumptions and limitations one was that the title to the property interest appraised as good and marketable another was that the property was free and clear of any liens or encumbrances unless stated otherwise although a copy of the plt agreement reflecting national golf as the grantor was included in the appraisal there was no discussion or documentation see supra note sec_4 and there is no evidence in the record that the national ii llc ever owned any of the dollar_figure acres reflected in the appraisal nor did national golf own any of sec_26 reflected in the appraisal on the apparent deviation of the assumption of ownership additionally the appraisal does not reflect any disclosure of the deeds of trust liens or the consents to subordinate described supra sections ii and iv vi tax_return on its federal_income_tax return for form_1065 u s return of partnership income timely filed on date rp golf claimed a charitable_contribution_deduction of dollar_figure and attached to the return a form_8283 noncash charitable_contributions rp golf reported on form_8283 the easement’s value and a basis of dollar_figure in the donated property and also included an appraiser’s declaration that described the donated property as a conservation_easement on two golf courses that were identified as the national golf club of kansas city and the national ii the declaration stated the easement’s appraised fair_market_value as dollar_figure rp golf did not identify the transaction as a bargain sale and reported that no amount was received plt’s vice president signed the form under donee acknowledgment attesting to plt’s status as a qualified_organization under sec_170 and its receipt of the easement on date see supra note even though rp golf claimed a conservation_easement contribution deduction on its tax_return it did not reduce the basis of the depreciable assets on the property included in the plt agreement rp golf reduced only the basis of its real_property subject_to the provisions of the easement in and the parties executed forms 872-p consent to extend the time to assess tax attributable to partnership items extending the assessment_period of rp golf’s federal tax_return to date on date respondent issued a fpaa to the tax_matters_partner of rp golf respondent disallowed the entire charitable_contribution_deduction for the conservation_easement on the ground that it failed to satisfy the requirements of sec_170 or alternatively it failed to establish that the easement’s value was dollar_figure and it failed to reduce the depreciable basis of the asset appropriately petitioner timely filed a petition with the court vii motion for summary_judgment respondent filed a motion for summary_judgment asking the court to sustain respondent’s determination disallowing petitioner’s charitable_contribution_deduction for the conservation_easement at issue was whether rp golf had satisfied the substantiation requirements of sec_170 with respect to the conservation_easement contribution respondent also claimed that the conservation_easement did not protect a relatively natural habitat of fish wildlife or plants or a similar ecosystem under sec_170 or preserve open space pursuant to a clearly delineated federal state or local governmental conservation policy under sec_170 the plt agreement relied upon the missouri statutory conservation policy limited to open spaces and areas within counties having a population of more than big_number residents or in any county adjoining or city not within but adjoining such county mo ann stat sec_67 there was no evidence on the date of the grant that platte county had a population that exceeded big_number residents nor was there evidence that the county adjacent to platte county had a population that exceeded big_number residents in its response in opposition to respondent’s motion for summary_judgment petitioner conceded that the easement was not made pursuant to a clearly delineated governmental conservation policy within the meaning of sec_170 therefore the easement’s conservation_purpose as defined in sec_170 must hinge on a purpose other than a clearly delineated government conservation policy in rp golf llc v commissioner tcmemo_2012_282 the court held that the charitable_contribution did not have a charitable purpose within the meaning of sec_170 requiring a clearly delineated federal state or local governmental conservation policy and that genuine issues of material fact remained concerning whether the requirements for a charitable_contribution_deduction under sec_170 had been met for the parties proceeded to trial on the remaining issues opinion i burden_of_proof generally the commissioner’s determination_of_a_deficiency is presumed correct and the taxpayer bears the burden of proving it incorrect see rule a 290_us_111 moreover deductions are a matter of legislative grace and the taxpayer bears the burden of proving his entitlement to any deductions claimed 503_us_79 292_us_435 under sec_7491 the burden_of_proof may shift to the commissioner if the taxpayer produces credible_evidence with respect to any relevant factual issue and meets other requirements petitioner has not argued that sec_7491 applies and has not shown that it meets the requirements to shift the burden_of_proof therefore the burden_of_proof remains on petitioner ii national golf’s property ownership national golf as grantor executed a conservation_easement agreement that encumbered approximately acres purportedly in perpetuity to plt a not-for- profit corporation qualified to receive contributions under sec_501 whether the contribution to plt constituted a transfer for the purposes of sec_170 is ultimately a question of federal_law see 535_us_274 the answer to this federal question however depends in part upon state law which creates and governs the nature of interests in property see id 472_us_713 see also 403_us_190 387_us_456 a common idiom describes property as a ‘bundle of sticks’--a collection of individual rights which in certain combinations constitute property craft u s pincite likewise ownership of property is not a single indivisible concept but rather an aggregate or bundle of rights pertaining to the property involved 61_tc_382 aff’d 509_f2d_616 7th cir once property rights are determined under state law as announced by the highest court of the state the federal tax consequences are decided under federal_law nat’l bank of commerce u s pincite mitchell u s pincite 363_us_509 309_us_78 in the plt agreement national golf purported to convey an interest in sec_26 of the former windbrook properties which was property that had never been conveyed to national golf missouri common_law corresponds with missouri’s statute_of_frauds and requires a written contract on any transfer of real_property see mcdaniel v park place care ctr inc s w 2d mo ct app a transfer of an interest_in_real_property must be memorialized in writing see also gegg v kiefer s w 2d mo ct app citing jones v linder s w 2d mo an oral contract to convey land falls within the literal ambit of the statute_of_frauds and so will not be enforced at law missouri law also requires that deeds transferring property be written and subscribed ie signed by the grantor which in this case is rp golf mo ann stat sec_442 west gregg v georgacopoulos s w 2d mo ct app additionally the validity of the easement must be judged at the time of the grant see 142_tc_140 a conservation_easement fails to be ‘in perpetuity’ if on the date of the donation the possibility that the charity may be divested of its interest in the easement is not so remote as to be neglible alteration in original emphasis added quoting 140_tc_377 graev v commissioner t c pincite w hether a charitable_contribution was effectively ‘made’ whether it consisted of an ‘entire interest’ and whether it was a ‘qualified conservation contribution’--essentially turns on the same question at the time of contributions was the possibility that the easement would be defeated ‘so remote as to be negligible’ emphasis added see also carpenter v commissioner tcmemo_2012_1 slip op pincite to determine whether the conservation_easement deeds comply with requirements for the conservation_easement deduction under federal tax law we must look to state law to determine the effect of the deeds specifically we must look to state law to determine how conservation easements may be extinguished rp golf claimed a deduction for the value of dollar_figure acres rp golf may have intended for the entire property described in the plt agreement executed by national golf to be a valid charitable_contribution but neither rp golf nor any other entity ever conveyed ownership of sec_26 to national golf national golf thus had no legal_title to convey tracts of land in sec_26 by easement or otherwise indeed plt as the donee never acquired a legal_interest in an easement on any of the golf tracts in sec_26 pursuant to the plt agreement granted by national golf thus the grantee plt had no power or authority to enforce the conservation purposes of the easement granted by national golf for golf tracts in section dollar_figure therefore the property described in the plt agreement and located in sec_26 was not a charitable_contribution to plt the acres in sec_26 are not a valid qualified_conservation_contribution and the value of those acres shall be removed from any potential charitable donation value whether the balance of the legal description conveyed by the plt agreement is a qualified_conservation_contribution under sec_170 is considered below the property described on the survey as the national ii golf tracts g and h appears to include sec_26 in the easement see supra note sec_4 and see supra note petitioner has argued that where the grantor did not yet own the land described in a deed he may rely on chapter of the missouri title examination standards mtes to cure the defect but not so in this case the title exam standard described cannot be relied upon to make a current donation of an easement in property the donor does not yet own mo prac methods of prac transact guide sec dollar_figure 4th ed first the cure period provided in chapter of the mtes is years from recording a cure after donation is inconsistent with the requirements in sec_170 that both the easement grant and the conservation_purpose protection be perpetual from the time the easement is granted not at a time years after the grant second reliance on chapter of the mtes requires that the court inquire into actual events after the grant of the easement even if chapter of the mtes can be relied upon to cure a defect in title under state law chapter of the mtes cure period cannot be used to cure a defective charitable_contribution for purposes of federal_income_tax law iii noncash charitable_contributions and the balance of the easement a taxpayer is generally allowed a deduction for any charitable_contribution made during the taxable_year sec_170 a charitable_contribution includes a gift of property to a charitable_organization made with charitable intent and without receiving or expecting to receive adequate_consideration see 490_us_680 477_us_105 see also sec_1_170a-1 and income_tax regs the term charitable_contribution as used in sec_170 has been generally held synonymous with the term gift 74_tc_955 57_tc_239 36_tc_896 aff’d 309_f2d_373 9th cir a gift is generally defined as a voluntary transfer of property by the owner to another without consideration therefor considine v commissioner t c pincite emphasis added quoting dejong v commissioner t c pincite while a taxpayer is generally not allowed a charitable_contribution_deduction for a gift of property consisting of less than an entire_interest in that property an exception is made for a qualified_conservation_contribution see sec_170 b iii under sec_170 a qualified_conservation_contribution is a contribution of a qualified_real_property_interest to a qualified_organization which is made exclusively for conservation purposes see also sec_1_170a-14 income_tax regs the court will focus on the third requirement ie whether national golf’s contribution of the donated property was exclusively for conservation purposes a contribution is made exclusively for conservation purposes only if it meets the requirements of sec_170 and 124_tc_258 aff’d 471_f3d_698 6th cir the court will begin the analysis with the requirements of sec_170 sec_170 provides that a contribution shall not be treated as exclusively for conservation purposes unless the conservation_purpose is protected in perpetuity the parties disagree on whether the conservation_purpose of the donated property is protected in perpetuity respondent argues that the donated property is not protected in perpetuity by virtue of great southern bank’s and hillcrest bank’s recorded deeds of trust on the subject property petitioner argues that the conservation_purpose of the donated property is protected in perpetuity because great southern bank and hillcrest bank had orally agreed to the conveyance at the time of the easement the banks then subordinated their interests in the subject property to plt’s right to enforce the terms of the easement in documents executed and recorded after the grant of the easement and recordation of the plt agreement the perpetuity requirement of sec_170 has its origins in the tax reduction and simplification act of trsa pub_l_no sec a stat pincite in trsa sec congress temporarily allowed a charitable_contribution_deduction for an easement with respect to real_property granted in perpetuity to a governmental_unit or qualifying charitable_organization exclusively for conservation purposes the house conference_report on trsa explained while it is intended that the term conservation purposes be liberally construed with regard to the types of property with respect to which deductible conservation easements may be granted it is also intended that contributions of perpetual easements qualify for the deduction only in situations where the conservation purposes of protecting or preserving the property will in practice be carried out thus it is intended that a contribution of a conservation_easement the tax reform act of pub_l_no sec e stat pincite authorized a deduction for the donation of an easement with respect to real_property exclusively for conservation purposes see 124_tc_258 examining the legislative_history of the requirement that a qualified_contribution of a conservation_easement be exclusively for conservation purposes aff’d 471_f3d_698 6th cir congress amended sec_170 to require that the easement be granted in perpetuity in the tax reduction and simplification act of trsa pub_l_no sec a stat pincite qualify for a deduction only if the holding of the easement is related to the purpose or function constituting the donee’s purpose for exemption organizations such as nature conservancies environmental and historic trusts state and local governments etc and the donee is able to enforce its rights as holder of the easement and protect the conservation purposes which the contribution is intended to advance the requirement that the contribution be exclusively for conservation purposes is also intended to limit deductible contributions to those transfers which require that the donee hold the easement exclusively for conservation purposes ie that they not be transferable by the donee in exchange for money other_property or services h_r conf rept no pincite 1977_1_cb_519 congress again drew attention to the protection of a contributed conservation_easement in the act of date act pub_l_no sec b stat pincite which extended permanently the deduction for a charitable_contribution of a qualified_conservation_easement the senate report accompanying the enactment stated the bill retains the present law requirement that contributions be made exclusively for conservation purposes moreover the bill explicitly provides that this requirement is not satisfied unless the conservation_purpose is protected in perpetuity the contribution must involve legally enforceable restrictions on the interest in the property retained by the donor that would prevent uses of the retained_interest inconsistent with the conservation purposes in the act of date sec c stat pincite congress effectively made permanent the deduction for such a partial interest contribution of a qualified_conservation_easement - - by requiring that the conservation_purpose be protected in perpetuity the committee intends that the perpetual restrictions must be enforceable by the donee organization and successors in interest against all other parties_in_interest including successors in interest s rept no pincite 1980_2_cb_599 the secretary published final regulations interpreting sec_170 on date see t d 1986_1_cb_89 these regulations in relevant part interpret sec_170 as follows sec_1_170a-14 qualified conservation contributions -- g enforceable in perpetuity -- in general --in the case of any donation under this section any interest in the property retained by the donor and the donor’s successors in interest must be subject_to legally enforceable restrictions for example by recordation in the land records of the jurisdiction in which the property is located that will prevent uses of the retained_interest inconsistent with the conservation purposes of the donation protection of a conservation_purpose in case of donation of property subject_to a mortgage --in the case of conservation contributions made after date no deduction will be permitted under this section for an interest in property which is subject_to a mortgage unless the mortgagee subordinates its rights in the property to the right of the qualified_organization to enforce the conservation purposes of the gift in perpetuity with the origins of sec_170 and its relevant legislative_history and regulatory interpretation in mind the court now returns to the question of whether the donated property was protected in perpetuity on date when national golf executed the plt agreement purporting to grant the conservation_easement to plt the property was subject_to senior deeds of trust held by great southern bank and hillcrest bank and neither bank joined or acknowledged the plt agreement consents to subordinate the interests of the two banks were not executed by bank officers until date over days after the plt agreement and on the same date as rp golf’s tax_return reported the contribution the consents to subordinate were recorded in the platte county recorder’s office on date although the plt agreement was executed by national golf on date and recorded on date each consent states that the subordination was made effective as of date the hillcrest loan of dollar_figure was made to rp golf in date the deed_of_trust granted by rp golf national golf and the related_entity included the property described in the plt agreement as security for the hillcrest loan sec_15 of the deed_of_trust contains standard provisions that any transfer of any interest in the property was prohibited without the consent of hillcrest bank and that a violation of the transfer prohibition would result in an event of default the deed_of_trust also requires any amendment to be in writing through a series of modifications the hillcrest loan was modified to extend the maturity_date to date and the deed_of_trust was amended by a modification agreement dated date and recorded on date additionally the hillcrest modification increased the hillcrest loan principal to dollar_figure and extended the maturity_date to date and the deed_of_trust modification was dated date and recorded on date rp golf and the grantor of the easement national golf executed the modification to extend the maturity_date from date to date none of the modifications disclosed the conveyance of the easement to plt on date when national golf conveyed the easement to plt the hillcrest loan and deed_of_trust had been previously recorded and the maturity_date of the debt was date on date hillcrest bank executed a consent to subordinate that recited the following hillcrest hereby consents to the conservation_easement and subordinates its rights in the property to the right of the land trust to enforce the conservation_purpose set forth in the conservation_easement in perpetuity the document did not include descriptions of any loan debt or deed_of_trust information that it might be subordinating great southern bank made four loans to national golf and or rp golf great southern bank’s consent to subordinate specifically recited the following loans rp golf in the principal_amount of dollar_figure secured_by a deed_of_trust dated date national golf in the amount of dollar_figure million secured_by a deed_of_trust dated date rp golf in the principal_amount of dollar_figure secured_by a deed_of_trust dated date and national golf in the principal_amount of dollar_figure million secured_by a deed_of_trust dated date all of these deeds of trust predated the plt agreement under missouri law a deed_of_trust is a form of mortgage consisting of an instrument that uses an interest_in_real_property as security for performance of an obligation bob degeorge associates inc v hawthorn bank s w 3d mo a deed_of_trust is subject_to the recording statutes and may be foreclosed id such foreclosure conveys title as it existed on the date the foreclosed deed_of_trust was recorded golden delta enters l l c v us bank s w 3d mo ct app foreclosure extinguishes any junior encumbrance including an easement see 4_f3d_605 8th cir referencing a junior mortgage s s kresge co v shankman s w 2d mo ct app referencing a junior easement in missouri every written instrument that conveys or affects real_estate must be recorded in the office of the recorder of the county in which such real_estate is situated mo ann stat sec_442 further no such written instrument is valid except between the parties thereto and those who have actual notice thereof until the instrument is deposited with the recorder for record id generally the first recorded instrument has seniority and priority over later recorded property instruments golden delta enters s w 3d pincite the final regulations interpreting sec_170 in regard to the protection of a conservation_purpose of a donated property subject_to a mortgage was not the topic of a court decision before the date plt agreement the issue was first considered in 138_tc_324 supplemented by tcmemo_2013_204 775_f3d_1243 10th cir where a conveyance failed as a qualified_conservation_easement when a subordination agreement was not signed until almost two years after the grant of the conservation_easement the court held that t hough the subordination regulation is silent as to when a taxpayer must subordinate a preexisting mortgage on donated property we find that the regulation requires that a subordination agreement must be in place at the time of the gift mitchell i t c pincite see also minnick v commissioner tcmemo_2012_345 at aff’d 796_f3d_1156 9th cir the court also held that the mortgage was not subordianted to the conservation_easement when it was granted in and no deduction was permitted in mitchell ii the court denied the taxpayer’s motion to reconsider its opinion in mitchell i in mitchell ii the court relying on carpenter v commissioner tcmemo_2013_172 at stated that the specific provisions of sec_1_170a-14 income_tax regs are mandatory and may not be ignored mitchell ii at the court upheld the requirement that the subordination agreement be in place at the time of the gift id like the facts in mitchell i the facts in this case focus on the requirements of sec_170 and the underlying regulations including the requirement that the deed_of_trust be subordinate to the conservation_easement agreement see sec_1_170a-14 income_tax regs the consents to subordinate from hillcrest bank and great southern bank were not recorded on the date national golf granted the easement in order for rp golf to be eligible for a charitable_contribution_deduction for it had to meet all the requirements of sec_170 petitioner argues that the facts of this case are distinguishable from the facts in mitchell i specifically petitioner argues that in mitchell i the taxpayer obtained the required subordinations two years after the grant of easement and that the taxpayer had no prior oral consent from the lender however the court’s opinion in mitchell i considered the taxpayer’s position that an oral agreement with the lender not to develop the property was in place that would satisfy the perpetuity requirement of sec_170 see mitchell i t c pincite petitioner is now making the argument that the prior oral agreement to subordinate the deed_of_trust satisfied the pertinent perpetuity requirements the court in mitchell i held that the oral agreement not to develop the property had no effect on the mortgagee’s ability to foreclose on the property and extinguish the conservation_easement had the taxpayer defaulted on her promissory note id pincite the court ultimately concluded that an oral agreement failed to meet the perpetuity requirements of sec_1_170a-14 income_tax regs see also minnick v commissioner at finding that when subordinating a mortgage intention and willingness are not what matters at the time of granting a conservation_easement in addition rp golf argues that it entered into enforceable oral agreements with great southern bank and hillcrest bank to subordinate the lenders’ interests and that these agreements were confirmed in writing after the plt agreement was recorded rp golf claims that the oral agreements to subordinate were enforceable against the lenders under missouri law and thereby satisfied the requirements of sec_1_170a-14 income_tax regs petitioner cites loewen v forsee s w mo holding oral agreement regarding priority of liens was not subject_to statute_of_frauds and comty title co v crow s w 2d mo ct app holding mortgagee was estopped from asserting priority of his deed_of_trust as precedent to support rp golf’s claim that its alleged oral agreements with great southern bank and hillcrest bank were enforceable however loewen does not apply to a contract concerning an interest in land which is addressed in and subject_to the missouri statute_of_frauds in addition in comty title co the mortgagee had actually executed the contract of sale agreeing to subordinate his purchase_money_mortgage to the construction lender even though the mortgagee claimed he just signed for his corporation comty title co s w 2d pincite the court rejected the mortgagee’s argument and estopped his priority assertion id pincite the parties disagree over the enforceability of oral agreements regarding real_estate under missouri law and its statute_of_frauds the missouri statute_of_frauds provides in pertinent part no action shall be brought upon any contract made for the sale of lands tenements hereditaments or an interest in or concerning them unless the agreement upon which the action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person by him thereto lawfully authorized mo ann stat sec_432 west missouri common_law corresponds with missouri’s statute_of_frauds and requires a written contract on any transfer of real_property see gegg v kiefer s w 2d pincite citing jones s w 2d an oral contract to convey land falls within the literal ambit of the statute_of_frauds and so will not be enforced at law see also mcdaniel s w 2d pincite a transfer of an interest_in_real_property must be memorialized in writing further no such written instrument is valid except between the parties thereto and those who have actual notice thereof until the instrument is deposited with the recorder for record mo ann stat sec_442 generally the first recorded instrument has seniority and priority over later recorded property instruments golden delta enters s w 3d pincite however a bona_fide purchaser takes free of adverse claims to title of unrecorded interests city of branson v branson hills master ass’n inc s w 3d mo ct app citing in re idella m fee revocable_trust s w 3d mo ct app golden delta enters s w 3d pincite a bona_fide purchaser is someone who pays valuable consideration has no notice of encumbrances and acts in good_faith mcaboy v parker mo a person who obtains title by gift cannot be a bona_fide purchaser because he does not give valuable consideration see greer v orchard s w mo ct app but the evidence does not establish the oral consent agreements that rp golf claims to have reached with great southern bank and hillcrest bank regarding subordination of their interests in the easement property the record contains no testimony or documentation from either of the banks that is dated on or before the date national golf executed the plt agreement to convey the easement to plt and that corroborates rp golf’s claim of an oral agreement to subordinate neither of the consents to subordinate signed by great southern bank and hillcrest bank recites the exchange of any consideration for the respective consents to subordinate even though rp golf’s representative testified that he was sure he talked with great southern bank and hillcrest bank about subordinating their interests to the easement before date he did not remember who he talked to at the banks in addition the hillcrest loan and during the audit and before the notice_of_deficiency was issued hillcrest bank provided a letter stating that hillcrest bank had a security_interest in the golf courses although the golf courses were not the primary collateral an oral agreement to subordinate was not addressed in the correspondence modification agreements specifically included an oral agreement statutory notice prohibition as follows statutory notice oral agreements or commitments to loan money extend credit or to forbear from enforcing repayment of a debt including promises to extend or renew such debt are not enforceable to protect you borrower s and us creditor from misunderstanding or disappointment any agreements we reach covering such matters are contained in this writing which is the complete and exclusive statement of the agreement between us except as we may later agree in writing to modify it the great southern bank promissory notes contained a substantially_similar prohibition on oral agreements rp golf’s representative signed each of the modification agreements and promissory notes neither of the consents to subordinate signed by great southern bank and hillcrest bank was signed before date or recorded before date the evidence establishes that both great southern bank and hillcrest bank eventually consented to and did subordinate their respective interests in the easement property however the evidence fails to establish that rp golf and great southern bank and hillcrest bank entered into any agreements oral or written binding under missouri law regarding subordination to the easement on or before date the date of the plt agreementdollar_figure both banks’ financing documents prohibited any transfer of interest in the continued the property described in the plt agreement purporting to grant a conservation_easement was subject_to preexisting unsubordinated mortgages on the date of the grant because the easement granted by national golf could have been extinguished by foreclosure between date and date it was not protected in perpetuity and therefore was not a qualified_conservation_contribution the potential for foreclosure of the easement was not illusory at the time of the grant hillcrest bank held a senior deed_of_trust of dollar_figure that matured and was due and payable on date the senior deed_of_trust had priority over any enforceable right of plt under the plt agreement in addition when the party principals executed documents to increase the principal_amount of the indebtedness to dollar_figure and extend the maturity_date from date to date those documents failed to disclose plt’s interest in the underlying property national golf had pledged in the grant of the easement to disclose the easement by reference in any legal instrument that divests itself of any interest in all or a portion of the land the parties did not secure a consent to subordinate from hillcrest before the loan and deed_of_trust maturity_date of date rp golf through its single continued property without consent of the bank and failure to obtain consent would result in a default member llc had potentially reduced the value of acres of the underlying_security interest held by the banks from dollar_figure to dollar_figure million see appraisal discussion supra p and had failed to disclose or protect plt which held the purported conservation_easement before increasing the liability as a result the easement could have been extinguished by foreclosure and therefore petitioner did not satisfy the requirements of sec_170 and sec_1_170a-14 income_tax regs because it has not been established that all of the requirements of sec_170 have been satisfied for the noncash charitable_contribution of a qualified_conservation_contribution the balance of those requirements the conservation purposes and the purported value of the charitable_contribution will not be discussed accordingly the charitable_contribution_deduction is decreased by dollar_figure for the tax_year ended date the court has considered all arguments the parties have made and to the extent not discussed herein finds that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


t c summary opinion united_states tax_court robert j and doris l peat petitioners v commissioner of internal revenue respondent docket no filed date robert j and doris l peat pro_se bradford a johnson for respondent powell special_trial_judge this case was heard pursuant to the provisions of sec_7463' of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority ' unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and rule references are to the tax_court rules_of_practice and procedure - - respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax after concessions ’ the sole issue is whether petitioners must include in their gross_income social_security payments of dollar_figure petitioners resided in waterford new york at the time the petition was filed the relevant facts may be summarized as follows during petitioners were married and lived together petitioners filed a joint_return for the taxable_year petitioners received social_security_benefits of dollar_figure they however did not include in income any portion of the benefits received on their federal_income_tax return for the taxable_year petitioners’ modified_adjusted_gross_income was dollar_figure respondent determined that dollar_figure of petitioners’ social_security_benefits are includable in gross_income sec_86 governs the taxability of social_security_benefits that section provides in relevant part sec_86 in general --- in general -- gross_income for the taxable_year of any taxpayer described in subsection b includes social_security_benefits in an amount equal to the lesser of-- a one-half of the social_security_benefits received during the taxable_year or b one-half of the excess described in subsection b respondent concedes his original assertion that petitioners understated their interest_income by dollar_figure b taxpayers to whom subsection a applies --- in general --a taxpayer is described in this subsection if-- a the sum of-- the modified_adjusted_gross_income of the taxpayer for the taxable_year plus one-half of the social_security_benefits received during the taxable_year exceeds b the base_amount modified_adjusted_gross_income --for purposes of this subsection the term modified_adjusted_gross_income means adjusted gross income-- a determined without regard to this section and sec_135 sec_137 sec_221 sec_911 sec_931 and sec_933 and b increased by the amount of interest received or accrued by the taxpayer during the taxable_year which is exempt from tax c base_amount and adjusted_base_amount ----for purposes of this section-- base_amount --the term base_amount means--- a except as otherwise provided in this paragraph dollar_figure b dollar_figure in the case of a joint_return and c zero in the case of a taxpayer who-- is married as of the close of the taxable_year but does not file a joint_return for such year and - - does not live apart from his spouse at all times during the taxable_year petitioners do not contend that under the literal language of sec_86 respondent’s determination is incorrect instead petitioners argue that sec_86 is inequitable in that it treats persons not married and living together or persons married and living apart with preference to those individuals who are married and living together petitioners argue that they should be entitled to double the sec_86 base_amount of dollar_figure for single individuals as opposed to the dollar_figure base_amount for married couples filing jointly as we noted in everage v commissioner tcmemo_1997_373 petitioner’s chagrin and frustration may be understandable nonetheless we must apply the statutes as congress wrote them and we do not have the power to rewrite sec_86 to avoid this anomaly see 83_tc_742 the taxpayers in roberts v commissioner tcmemo_1998_172 also questioned the fairness of sec_86 in roberts we noted that this is not the proper forum to question the policy considerations that impelled the enactment of this legislation the legislative_history of sec_86 as enacted in demonstrates that congress had a valid and rational basis for the distinctions made in the statute we recognize that ‘ no scheme of taxation whether the tax is imposed on property income or purchases of goods and services has yet been devised which is free of all discriminatory impact ’ 77_tc_867 quoting 411_us_1 affd in part on this issue and revd in part on another issue 697_f2d_46 2d cir in light of the foregoing we sustain respondent’s determination reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


t c memo united_states tax_court dudley joseph and myrna dupuy callahan petitioners v commissioner of internal revenue respondent docket no filed date myrna dupuy callahan pro_se linda k west for respondent memorandum findings_of_fact and opinion wolfe special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 in a notice_of_deficiency respondent determined all section references are to the internal_revenue_code in effect for the years at issue unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure deficiencies in petitioners' federal_income_tax for the years and in the respective amounts of dollar_figure dollar_figure and dollar_figure and accuracy-related_penalties under sec_6662 in the respective amounts of dollar_figure dollar_figure and dollar_figure the issues for decision are whether petitioners are entitled to deduct expenses_incurred in connection with myrna dupuy callahan's writing activity as expenses of an activity engaged in for profit for taxable years and whether petitioners have substantiated and are entitled to deduct casualty losses in the amounts of dollar_figure and dollar_figure for taxable years and respectively whether petitioners have substantiated and are entitled to deduct certain schedule a expenses for taxable_year whether petitioners' medical expense deductions for taxable years and must be recalculated in accordance with any adjustments to petitioners' adjusted_gross_income whether petitioners are entitled to deduct state sales_taxes in the amount of dollar_figure for taxable_year whether petitioners have substantiated and are entitled to deduct charitable_contributions in excess of dollar_figure for taxable_year and whether petitioners are liable for penalties for negligence or disregard of rules or regulations under sec_6662 findings_of_fact some of the facts have been stipulated and are so found the stipulated facts and attached exhibits are incorporated by this reference petitioners resided in plaquemine louisiana when their petition was filed myrna dupuy callahan petitioner graduated from high school with honors and attended our lady of lake college in baton rouge louisiana where she took classes in general nursing psychology and chemistry she eventually became a registered cosmetologist after an illness prevented her from completing her training in nursing she operated vogue beauty box for years and for year during that period--when her daughter was old enough for kindergarten--she also opened and operated a neighborhood kindergarten subsequent to running vogue beauty box petitioner became a salesperson for home decorators inc and two insurance_companies lincoln national and prudential petitioner has engaged in two hobbies since the late 1970's entering sweepstakes and refunding and rebating with coupons over time petitioner developed a filing and recordkeeping system plus various techniques or strategies designed to maximize the savings available from product coupons and rebate offers she also developed a methodology intended to improve her chances of winning sweepstakes contests after a friend suggested she document her refunding and rebating methodology in petitioner wrote two manuals mrs m 's quick easy refund rebate system and mrs m 's winning sweepstakes system sometime thereafter she placed a dollar_figure advertisement in a coupon booklet for persons interested in testing her systems and also made inquiries with several publishers although no one was interested in publishing her manuals some people did respond to her advertisement petitioner copyrighted mrs m 's quick easy refund rebate system in and self-published both manuals in under a name and logo of her own design dollar_figure's info books it is unclear from the record if and when mrs m 's winning sweepstakes system was copyrighted each manual is printed on inch by inch paper one-sided and spiral bound on the left side the refund and rebate guide i sec_15 pages in length including an inside cover page table of contents pages of comments from test marketers and pages of order forms the sweepstakes manual is nine total pages including an inside cover page two pages of order forms and two pages of comments from test marketers in and petitioner generated publicity for her manuals in the local print and broadcast media and attended a number of autograph parties at local bookstores libraries and clubs during those same years she wrote to published authors for advice applied to newspapers and publishers for writing assignments and sought financial assistance for her writing endeavors in she acquired a local occupational license to pursue and follow the occupation of wholesale retail petitioner self-publishes her manuals on a prepaid basis only for dollar_figure each plus dollar_figure for postage and handling her manuals have been listed on two databases compiled by r r bowker company bowker literary market place a directory of american book publishers and books in print the gross_receipts gross_income expenses and losses attributed to dollar_figure's info books and as reported by petitioners on their form sec_1040 schedules c for taxable years through are summarized as follows year total gross_receipts dollar_figure -0- -0- -0- gross_income dollar_figure big_number expenses dollar_figure big_number big_number big_number big_number big_number losses dollar_figure big_number big_number big_number big_number big_number big_number big_number the principal source of petitioners' receipts reported on schedules c for was prizes and sweepstakes winnings among the sources of petitioners' reported schedule c losses were deductions for depreciation of an electric screwdriver and a weedwacker their schedules c losses contributed to petitioners' receiving full tax refunds for and in june of petitioners' house sustained damages from termite infestation as well as a tornado and flood caused by tropical storm allison tropical storm allison was declared a major disaster that year and petitioners were awarded a grant in the amount of dollar_figure from the federal emergency management agency fema and the louisiana state individual and family grant ifg program termite damage required repairs in as well opinion respondent determined deficiencies in petitioners' and federal income taxes in the amounts of dollar_figure dollar_figure and dollar_figure respectively and penalties pursuant to sec_6662 for negligence in the amounts of dollar_figure dollar_figure and dollar_figure respectively respondent's determinations are presumed correct and petitioners have the burden of proving otherwise rule a 290_us_111 publishing activity sec_183 provides that if an activity engaged in by an individual is not engaged in for profit no deduction attributable to such activity shall be allowed except as provided in sec_183 an activity not engaged in for in the case of an activity_not_engaged_in_for_profit sec_2 b allows a deduction for expenses that are otherwise deductible without regard to whether the activity is engaged in for profit sec_183 allows a deduction for expenses that would be deductible only if the activity were engaged in for profit but only to the extent the total gross_income derived from the activity exceeds the deductions allowed by sec_183 profit is any activity for which deductions would not be allowed under sec_162 or under paragraph or of sec_212 sec_183 sec_162 allows a deduction for all the ordinary and necessary expenses paid_or_incurred in carrying on a business sec_212 allows a deduction for all the ordinary and necessary expenses paid_or_incurred for the production_or_collection_of_income or for the management_conservation_or_maintenance_of_property_held_for_the_production_of_income the profit standards applicable to sec_212 are the same as those used in sec_162 see 893_f2d_656 4th cir affg 91_tc_686 for a taxpayer to deduct expenses of an activity pursuant to sec_162 he must show that he engaged in the activity with an actual and honest objective of making a profit sec_183 90_tc_74 83_tc_79 78_tc_642 affd without opinion 702_f2d_1205 d c cir sec_1_183-2 income_tax regs although a reasonable expectation of profit is not required the taxpayer's profit objective must be bona_fide 91_tc_371 85_tc_557 profit in this context means economic profit independent of tax savings 86_tc_1326 whether a taxpayer had an actual and honest profit objective is a question of fact to be resolved from all relevant facts and circumstances hulter v commissioner supra pincite 72_tc_411 affd in an unpublished opinion 647_f2d_170 9th cir the burden of proving such objective is on petitioner rule a 290_us_111 greater weight is given to objective facts than to a taxpayer's statement of intent beck v commissioner supra pincite 84_tc_1244 affd 792_f2d_1256 4th cir sec_1_183-2 income_tax regs sec_1_183-2 income_tax regs provides a non- exclusive list of factors which should be considered in determining whether an activity is engaged in with the requisite profit objective the nine factors are the manner in which the taxpayer carries on the activity the expertise of the taxpayer or his advisors the time and effort expended by the taxpayer in carrying on the activity the expectation that the assets used by the taxpayer may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer's history of income or losses with respect to the activity the amount of occasional profits if any which are earned the financial status of the taxpayer and whether elements of personal pleasure or recreation are involved no single factor nor the existence of even a majority of the factors is controlling but rather it is an evaluation of all the facts and circumstances in the case taken as a whole which is determinative petitioner did not carry on her writing activity in a businesslike manner her resume lists bookkeeping and accounting among her business experiences and skills yet petitioner did not maintain any type of records books or accounting_method relating to her writing activity at trial she submitted copies of hundreds of checks written in and over checks for alone the various payees included wal-mart k- mart shell exxon southern bell j c penney citibank and various individuals a majority of the checks fail to indicate what was purchased or for what purpose the particular expenditure was made we find petitioner's shoebox method of recordkeeping inconsistent with a business or an activity for profit particularly in light of her claim to past bookkeeping and accounting experience petitioner has little expertise or experience as a professional writer she testified that she ghostwrote for a political_candidate and has had many of her works from about her junior year of high school published in local and other newspapers unedited however petitioner did not state whether she was remunerated for any of her written work or campaign ghostwriting and she did not submit into evidence any of her purportedly published material except for the items directly in issue in this case we are not required to accept petitioner's self-serving and uncorroborated testimony particularly where other and better evidence to prove the point in question is available 338_f2d_602 9th cir affg 41_tc_593 the record does not disclose the time and effort expended by petitioner on her writing activity for taxable years and however the bulk of her efforts detailed in the record were expended before and after the taxable years in issue each of the manuals that petitioner has introduced as her major income-producing works was written in petitioner made inquiries with publishers and placed her only advertisement for test marketers during the 1980's the manuals were self- published in publicity for the manuals and petitioner's autograph parties occurred no earlier than and she did not write to published authors or seek financial assistance until after the record raises a strong inference that petitioner did little or nothing with respect to her writing activity during the taxable years at issue on their federal_income_tax returns for through the only returns submitted into evidence petitioners never reported a net profit from petitioner's writing activity during that time her writing activity generated losses in excess of dollar_figure which were used to offset petitioners' other taxable_income including petitioner dudley j callahan's salary for each year which far exceeded the amounts involved in petitioner's schedules c activity petitioners received full refunds of all taxes withheld for the years in issue a record of substantial losses over many years and the absence of any likelihood of achieving a profitable operation are important factors bearing on the taxpayer's true intention 32_f3d_94 4th cir affg tcmemo_1993_396 golanty v commissioner t c pincite 45_tc_261 affd 379_f2d_252 2d cir the remaining factors suggested by the income_tax regulations warrant only a brief note nothing in the record shows and petitioners did not argue that petitioner used any assets in her writing activity that would appreciate in value petitioners' federal_income_tax returns reflect a history of losses from her writing activity which is also reflective of the extent of petitioner's success or lack thereof in carrying on her writing activity petitioners' financial status is such that it does not influence the analysis in either direction finally the record indicates that petitioner enjoys her status as a self- published writer petitioner has failed to prove that she had an actual and honest profit objective for the taxable years at issue see dreicer v commissioner t c pincite see also lesher v commissioner tcmemo_1991_161 klapper v commissioner tcmemo_1990_372 affd without published opinion 935_f2d_1278 2d cir sherman v commissioner tcmemo_1989_269 each holding that the writing and supposedly related activities in such case were not conducted for profit petitioner did not carry on her activity in a businesslike manner refunding and rebating and entering sweepstakes have long been hobbies that petitioner enjoys she recorded her methodologies in at the suggestion of a friend and with the intention of helping her friends save money on groceries neither manual was published for years until petitioner self-published them at an area copy shop it was not until then after the taxable years in issue that petitioner pursued financial assistance wrote a few published authors and sought publicity for herself the record does not disclose how much time if any petitioner spent on her writing activity during the taxable years at issue and on their and schedules c petitioners reported gross_receipts of zero for they reported dollar_figure in gross_receipts all of which was from prizes_and_awards moreover there was no showing that petitioners ever made a net profit from petitioner's writing activity respondent is sustained on this issue casualty losses petitioners claimed casualty losses on their and returns in the respective amounts of dollar_figure and dollar_figure they attributed these losses to damages sustained from tropical storm allison and termite infestation petitioners were unable to apportion the total damages between tropical storm allison and the termite infestation respondent disallowed petitioners' claimed casualty losses on the grounds that the cost of repairing termite damage is not a casualty_loss and for lack of substantiation sec_165 allows a deduction for losses sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise in the case of individuals deductible losses are limited to losses_incurred in a trade_or_business or a transaction entered into for profit and losses resulting from fire storm shipwreck or other_casualty or from theft sec_165 an other_casualty has been defined by the courts to mean a loss proximately caused by a sudden unexpected_or_unusual_event excluding progressive deterioration 680_f2d_91 11th cir affg 76_tc_593 120_f2d_253 2d cir affg 42_bta_206 48_tc_430 casualty losses for individuals are deductible only to the extent that the loss exceeds dollar_figure per casualty and percent of adjusted_gross_income agi sec_165 an individual's casualty_loss is treated as sustained during the taxable_year in which the loss occurs as evidenced by closed and completed transactions and as fixed by identifiable events occurring in such taxable_year sec_1_165-1 income_tax regs the amount of a casualty_loss is generally computed as the fair_market_value of the property immediately before the casualty minus the fair_market_value of the property immediately after the casualty not to exceed however the property's adjusted_basis 305_us_468 46_tc_751 affd 387_f2d_420 8th cir sec_1_165-7 income_tax regs the determination of these respective values shall generally be ascertained by competent appraisal and any such deduction shall be limited to the actual loss resulting from damage to the property sec_1_165-7 income_tax regs the cost of repairs to the property damaged is also acceptable as evidence of the loss of value under certain circumstances sec_1 a ii income_tax regs termite damage generally does not give rise to a deductible casualty_loss because it does not occur suddenly unexpectedly or from an unusual cause 120_f2d_244 9th cir 25_tc_1022 only in exceptional situations where damages from termite infestation occurred in a relatively short_period of time ranging for example from to months has a casualty_loss been sustained 198_f2d_46 8th cir revg 16_tc_1360 32_tc_1304 164_fsupp_218 e d s c 119_fsupp_705 e d mo see dodge v commissioner supra for a detailed analysis of the cases in the present case nothing in the record shows that petitioners' termite infestation occurred over a short_period of time petitioner testified that when petitioners were deciding whether to paint their house or put up vinyl siding painters advised them that the wood was in good condition however petitioner failed to indicate in what year she received this suggestion and there is no evidence or indication that the painter was specifically looking for termite infestation or was qualified to do so moreover since his painting contract turned on his analysis of the wood the painter's opinion could hardly be considered unbiased we hold that petitioners are not entitled to claim as casualty losses their costs of repairing any termite damage incurred in and petitioners' casualty losses purportedly incurred as a result of tropical storm allison present an issue of substantiation generally taxpayers are required to substantiate claimed deductions and credits by maintaining the records needed to establish the amount of such items sec_6001 sec_1_6001-1 income_tax regs even though a taxpayer fails to maintain adequate_records under some circumstances we may estimate the amount a taxpayer is entitled to deduct if he provides a means of making a reasonable estimate of the expense 39_f2d_540 2d cir however in order for us to make an estimate there must be sufficient evidence to show that at least the estimated amount actually was spent or incurred for the stated purpose 245_f2d_559 5th cir 85_tc_731 furthermore in making an estimate we must bear heavily on petitioner whose inexactitude is of his own making cohan v commissioner supra pincite petitioners did not submit any evidence or testify to the effect that their house was appraised by a competent professional either before or after the damages were sustained in addition petitioners were unable to separate the structural damages caused by tropical storm allison from the structural damages caused by the termite infestation to substantiate the casualty losses claimed on their returns petitioners submitted a letter from fema which references their grant of dollar_figure photocopies of checks and receipts handwritten lists of expenditures and a written_statement from one james robinson dated date stating that he performed repairs to their house sustained from tropical storm allison we consider the letter from fema sufficient to substantiate that petitioners sustained damages from tropical storm allison but only for taxable_year and only in the amount of the grant dollar_figure cohan v commissioner supra sec_1 a ii income_tax regs the checks and receipts submitted by petitioners however are insufficient to substantiate the casualty_loss in excess of dollar_figure many of the checks do not indicate what was purchased or for what purpose the particular expenditure was made and some of the photocopied receipts and handwritten lists were insufficient on their face with respect to taxable_year we find that the events fixing the loss inflicted by tropical storm allison all occurred in the storm hit in the middle of and petitioners were awarded their fema grant that same year an outright disbursement or grant made by a public agency designated to help relieve any financial losses caused by a natural disaster is in the nature of insurance or otherwise 76_tc_464 63_tc_21 consistent with this rule on their form_4684 casualties and thefts petitioners reported their fema grant on the line provided for insurance or other reimbursement the record shows that petitioners failed to substantiate any casualty losses in excess of the amount compensated for by insurance or otherwise and that the events fixing the damages caused by tropical storm allison all occurred in accordingly we hold that petitioners are not entitled to claim a casualty_loss for either of the taxable years and schedule a miscellaneous deductions on their schedule a form_1040 petitioners claimed miscellaneous deductions in the amount of dollar_figure petitioners indicated on their return that this amount consisted of the following dollar_figure paid to acquire stock dollar_figure for term_insurance dollar_figure for insurance on investments and dollar_figure for repairs and depreciation written at the top of schedule a was andrew in reference to hurricane andrew respondent disallowed petitioners' claimed miscellaneous deductions for for lack of substantiation as noted taxpayers are generally required to substantiate claimed deductions and credits by maintaining the records needed to establish the amount of such items sec_6001 sec_1 a income_tax regs petitioners did not elaborate upon which of the reported schedule a expense deductions related to hurricane andrew although petitioner did testify that labor expenses reported on line of schedule c for that year were for repairs caused by hurricane andrew petitioners submitted photocopies of hundreds of checks whose payees included southern bell reader's digest american family publishers j c penney insurance allstate insurance shell exxon texaco and cash among others most of the checks do not indicate what was purchased or the purpose of the expenditure when asked to clarify the stock and insurance expenses petitioner testified only that the stock was purchased to create a perpetual fund for the maintenance of their parents' graves we find both the photocopies of the checks and petitioner's testimony insufficient to substantiate the schedule a miscellaneous deductions claimed for respondent is sustained on this issue medical_expenses in the notice_of_deficiency respondent adjusted petitioners' gross medical_expenses as reported on schedules a line sec_1a and sec_1 of their and returns decreasing the amounts reported for and and increasing the amount reported for at trial respondent stated that the gross amounts reported were not in dispute we consider respondent to have conceded the gross amounts of medical_expenses reported on the returns respondent argues only that the amount of medical_expenses petitioners may deduct must be recalculated in light of any adjustments to their adjusted_gross_income by reason of this opinion sec_213 allows a deduction for expenses paid for medical_care of the taxpayer his spouse or a dependent which is not_compensated_for_by_insurance_or_otherwise to the extent that such expenses exceed percent of adjusted_gross_income the amount of the deduction for medical_expenses obviously depends upon the taxpayer's adjusted_gross_income accordingly we hold that petitioners' allowable medical expense deductions for the taxable years at issue must be recalculated to reflect any adjustments to their adjusted_gross_income by reason of this opinion state sales_taxes on their schedule a form_1040 petitioners claimed a deduction for other taxes in the amount of dollar_figure respondent determined that this amount was paid for state sales_taxes and disallowed the deduction in full on the grounds that state sales_taxes are not deductible prior to sec_164 allowed a deduction for state_and_local_general_sales_taxes paid_or_accrued within the taxable_year sec_164 was repealed by sec_134 of the tax_reform_act_of_1986 publaw_99_514 100_stat_2116 petitioners offered no evidence that the dollar_figure they deducted for other taxes represented anything other than state sales_taxes in fact petitioners state in their posttrial memorandum that the other taxes were state sales_taxes on personal_property respondent is sustained on this issue charitable_contributions on their schedule a form_1040 petitioners claimed charitable_contributions in the amount of dollar_figure respondent disallowed dollar_figure of this amount for lack of substantiation sec_170 allows a deduction for charitable_contributions subject_to certain limitations if a taxpayer makes a cash contribution the taxpayer in the absence of a canceled check or receipt from the donee must maintain other reliable written records showing the name of each charity and the date and the amount of each contribution sec_1_170a-13 income_tax regs petitioners offered no evidence to substantiate their charitable_contributions apart from the photocopies of hundreds of checks written in it is unclear which of these if any purportedly substantiate the dollar_figure disallowed by respondent petitioners have not satisfied their burden_of_proof respondent is sustained on this issue negligence for taxable years and respondent determined that petitioners are liable for the accuracy-related_penalty under sec_6662 for negligence in the respective amounts of dollar_figure dollar_figure and dollar_figure sec_6662 and b imposes an accuracy-related_penalty on any portion of an underpayment which is attributable to negligence or disregard of rules or regulations negligence is the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances 85_tc_934 the term disregard includes any careless reckless or intentional disregard sec_6662 petitioners have the burden_of_proof to show that the penalty should not be sustained by the court rule a 92_tc_501 petitioners submitted one piece of evidence with respect to the negligence_penalty a one-paragraph statement clipped from a text magazine or pamphlet offering tax tips this particular clipping states that business_expenses of writers are deductible in the year incurred and need not be expensed over time petitioners' reliance on this comment regardless of its accuracy does not excuse their negligence none of the adjustments to petitioners' taxes at issue herein or the deficiencies resulting therefrom derive from expenses deducted in the wrong year after reviewing the entire record including petitioners' persistent claims to substantial deductions for items that plainly represent their nondeductible living_expenses and also petitioners' failure to substantiate claims we are convinced that petitioners' deficiencies for and are the result of negligence respondent is sustained on this issue petitioners raised several other questions in their post- trial briefs which we address summarily first the notice_of_deficiency was timely with respect to all years second the deficiency_notice was not arbitrary and excessive 990_f2d_893 6th cir affg donahoe v commissioner tcmemo_1991_181 90_tc_110 third petitioners failed to provide any evidence that they were subjected to unnecessary examination or investigations or that if they were subjected to multiple examinations for the same taxable_year that they objected thereto fourth petitioners are not entitled to a refund for petitioners formally extended the time to assess their federal_income_tax for taxable_year to anytime on or before date the notice_of_deficiency was issued prior to date and within the 3-year limitations_period with respect to taxable years sec_6501 sec_6503 any of the years at issue because they did not pay any taxes in or amounts withheld during those years were fully refunded to petitioners finally there are no grounds to award petitioners litigation costs under sec_7430 since petitioners are not the prevailing_party to reflect the foregoing decision will be entered under rule


t c memo united_states tax_court john f dalton petitioner v commissioner of internal revenue respondent docket no 16780-03l filed date john f dalton pro_se a gary begun for respondent memorandum opinion kroupa judge this matter is before the court on respondent’s motion for summary_judgment filed pursuant to rule a respondent contends that there is no dispute as to any 1all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure as amended unless otherwise indicated material fact with respect to this collection review matter and that respondent’s notice_of_determination concerning collection actions upon which this case is based should be sustained as a matter of law summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 summary_judgment may be granted with respect to all or any part of the legal issues in controversy if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule a and b 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 85_tc_527 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read in a manner most favorable to the party opposing summary_judgment 85_tc_812 79_tc_340 as explained in detail below there is no genuine issue as to any material fact in this case and a decision may be rendered as a matter of law accordingly we shall grant respondent’s motion for summary_judgment background petitioner submitted to respondent federal_income_tax returns for and in which he entered zeros on all lines requesting information regarding his income petitioner attached to his tax_return for a form_w-2 wage and tax statement in which smith security corp reported that it paid petitioner wages of dollar_figure during petitioner also attached to his tax_return for a two-page statement raising frivolous and groundless challenges to the federal_income_tax respondent issued separate notices of deficiency to petitioner for the taxable years and on date deficiency notices in the notice for respondent determined a deficiency in income_tax of dollar_figure and an addition_to_tax of dollar_figure under sec_6651 for failure_to_file timely the deficiency for was based on respondent’s determination that petitioner failed to report dollar_figure of wages received from smith security corp dollar_figure of a taxable_distribution received from textron inc and dollar_figure of interest received from nbd bank in the notice for respondent determined a deficiency in income_tax of dollar_figure and an addition_to_tax of dollar_figure under sec_6651 the deficiency for was based on respondent's determination that petitioner failed to report dollar_figure of wages received from american protective dollar_figure of wages received from smith security corp dollar_figure of a taxable_distribution from john hancock dollar_figure of a taxable_distribution received from bt svcs tenn dollar_figure of interest received from nbd bank and dollar_figure of social_security payments by separate letters to respondent dated date petitioner acknowledged receiving the deficiency notices and questioned respondent’s authority to issue these notices petitioner did not file a petition for redetermination with the court contesting the deficiency notices however respondent mailed to petitioner a final notice - notice_of_intent_to_levy and notice of your right to a hearing under sec_6330 final notice on date with regard to petitioner’s unpaid federal income taxes for and a schedule attached to the final notice stated that petitioner owed an assessed balance of dollar_figure plus statutory additions of dollar_figure for and an assessed balance of dollar_figure for petitioner timely filed with respondent a request for a collection_due_process_hearing which included frivolous allegations that the proposed levy should be barred for several reasons first petitioner alleged that respondent purportedly failed to issue to petitioner valid notices of deficiency because the internal_revenue_service irs does not have the authority to assess tax petitioner also alleged that respondent purportedly failed to enter valid assessments or produce a summary record of assessment in addition petitioner alleged that respondent failed to issue to petitioner a statutory notice_and_demand for payment of the taxes in question petitioner attended an administrative hearing conducted by appeals officer kathleen clark officer clark on date during the hearing officer clark provided petitioner with copies of forms certificate of assessment payments and other specified matters regarding petitioner’s accounts for and the forms showed that respondent had timely assessed the taxes and additions to tax determined in the deficiency notices for and and statutory interest and penalties for failure to pay the taxes due in addition the forms established that respondent had issued to petitioner a notice_and_demand for payment of the assessed amounts for and both of the forms included orthographic or numerical errors however that had the effect of multiplying by one hundredfold the total_amounts due from petitioner for and specifically although the line item entries in forms included assessments that matched the total_amounts listed as due in the schedule attached to the final notice the forms erroneously stated that petitioner owed dollar_figure and dollar_figure for and respectively respondent mailed to petitioner a notice_of_determination concerning collection action s under sec_6320 and or determination notice dated date the determination notice recited that petitioner did not raise any issue of merit during the administrative_proceeding and the appeals_office determined that it was appropriate to proceed with the proposed levy for and petitioner timely filed with the court a petition for lien or levy action in addition to challenging the determination notice pertaining to the proposed levy for and the petition included a challenge to the notice pertaining to the collection of civil penalties imposed under sec_6703 frivolous_return penalties for and upon respondent’s notifying the court that the forms upon which the determination notice was issued contained errors we granted respondent’s motion to remand the case to respondent’s appeals_office for further consideration in particular respondent suggested that a remand would allow the appeals_office 2the petition was timely mailed to the court on date at the time that the petition was filed petitioner resided in taylor michigan 3petitioner attempted to invoke the court’s jurisdiction with regard to a notice_of_determination pertaining to frivolous_return penalties even though the notice expressly stated that any challenge to such notice should be filed in federal district_court by order dated date the court granted respondent’s motion to dismiss for lack of jurisdiction and to strike as to the frivolous_return penalties for and to evaluate and correct the errors in the forms that were provided to petitioner during the administrative hearing and provide petitioner a further opportunity to offer collection alternatives during the remand petitioner’s case was reassigned at petitioner’s request from officer clark to appeals officer linda kramer officer kramer on date officer kramer met with petitioner for the purpose of conducting an administrative hearing the hearing was terminated however when petitioner informed officer kramer that he desired to obtain legal counsel in a letter to officer kramer dated date petitioner stated that he was relying on sec_7521 and 121_tc_8 to argue that the appeals_office was obliged to terminate his administrative hearing when petitioner stated that he wished to consult with an attorney the appeals_office issued to petitioner a supplemental determination notice on date in the supplemental notice the appeals_office concluded that it was appropriate to proceed with the proposed levy for and respondent filed with the court a status report on date describing the various actions that were taken while the matter was on remand respondent filed a motion for summary_judgment on date respondent’s motion included as exhibits forms for and dated date the forms show that respondent assessed and petitioner failed to pay taxes additions to tax penalties and statutory interest for and in amounts that match those set forth in the deficiency notices and in the final notice the court directed petitioner to file an objection to respondent’s motion for summary_judgment by order dated date the court also directed petitioner by order dated date to file a report with the court describing his efforts to retain counsel in this case petitioner failed to respond to either of these orders discussion sec_6331 provides that if any person liable to pay any_tax neglects or refuses to pay such tax within days after notice_and_demand for payment the secretary is authorized to collect such tax by levy on the person's property sec_6331 provides that at least days before enforcing collection by levy on the person's property the secretary is obliged to provide the person with a final notice_of_intent_to_levy including notice of the administrative appeals available to the person sec_6330 generally provides that the commissioner cannot proceed with collection by levy until the person has been given notice and the opportunity for an administrative review of the matter in the form of an administrative hearing with the office of appeals and if dissatisfied with judicial review of the administrative determination see 115_tc_35 114_tc_176 sec_6330 imposes an obligation on the appeals_office to obtain verification that the requirements of any applicable law or administrative procedure have been met in each case sec_6330 prescribes the matters that a person may raise during the administrative process in sum sec_6330 provides that a person may raise collection issues such as spousal defenses the appropriateness of the commissioner's intended collection action and possible alternative means of collection sec_6330 provides that the existence and amount of the underlying tax_liability can be contested only if the person did not receive a notice_of_deficiency for the taxes in question or did not otherwise have an earlier opportunity to dispute the tax_liability see 114_tc_604 goza v commissioner supra the record reflects that petitioner received the deficiency notices for and yet petitioner consciously decided not to file a petition for redetermination with the court consistent with sec_6330 petitioner is barred from challenging the existence or amount of his underlying tax_liabilities for and in this collection review proceeding see goza v commissioner supra in conjunction with this point we note that petitioner’s assertion that he did not receive valid notices of deficiency is frivolous and groundless see eg 118_tc_162 as the appeals court for the fifth circuit has remarked we perceive no need to refute these arguments with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit 737_f2d_1417 5th cir the record demonstrates that the appeals_office properly verified that all applicable laws and administrative procedures were followed in this matter it is well settled that sec_6330 does not require the appeals_office to rely on a particular form to satisfy the verification requirement nor does it require the appeals_office to provide a taxpayer with a copy of such verification 118_tc_365 ndollar_figure affd 329_f3d_1224 11th cir nestor v commissioner supra pincite we have found that the appeals_office may verify an assessment by means of a transcript of account such as the forms attached to respondent’s motion davis v commissioner supra form is presumptive evidence that an assessment was made against the taxpayer the forms attached to respondent’s motion for summary_judgment contain all the information necessary to record an assessment including identification of the taxpayer the character of the liability assessed the taxable_period and the amount of the assessment see sec_301_6203-1 proced admin regs thus the appeals_office properly verified for purposes of sec_6330 that all applicable laws and administrative procedures have been met in this matter as noted earlier petitioner failed to respond to the court’s orders that directed him to file an objection to respondent’s motion and a report describing his efforts to retain counsel in this case considering all the circumstances including the zero returns that petitioner submitted to respondent for the years in issue the protest statement that petitioner attached to his return for and the frivolous and groundless arguments that petitioner raised in his request for an administrative hearing we are persuaded that petitioner’s sudden desire to retain counsel while this matter was on remand amounted to nothing more than a ploy to further delay collection of his tax_liabilities for and in any event based on 4we conclude that any confusion arising from the typographical errors in the forms that were provided to petitioner during his initial administrative hearing was obviated by the corrected forms attached to respondent’s motion for summary_judgment petitioner’s failure to respond to the court’s orders we conclude that petitioner has abandoned the issue petitioner failed to raise a spousal defense make a valid challenge to the appropriateness of respondent's intended collection action or offer alternative means of collection these issues are now deemed conceded rule b from the entire record in this case we conclude that the appeals_office did not abuse its discretion in determining that it was appropriate to proceed with collection of petitioner's tax_liabilities for and as a final matter we mention sec_6673 which authorizes the tax_court to require a taxpayer to pay to the united_states a penalty not in excess of dollar_figure whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer's position in such proceeding is frivolous or groundless the court has indicated its willingness to impose such penalties in collection review cases 115_tc_576 although we do not impose a penalty on petitioner pursuant to sec_6673 at this time we admonish petitioner that the court will consider imposing such a penalty should he return to the court in the future and advance arguments similar to those that we have identified as frivolous to reflect the foregoing an appropriate order and decision will be entered for respondent