DocketNumber: No. 3170-99S
Citation Numbers: 2001 T.C. Summary Opinion 51, 2001 Tax Ct. Summary LEXIS 155
Judges: \"Dinan, Daniel J.\"
Filed Date: 4/5/2001
Status: Non-Precedential
Modified Date: 4/17/2021
2001 Tax Ct. Summary LEXIS 155">*155 PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b), THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.
DINAN, SPECIAL TRIAL JUDGE: This case was heard pursuant to the provisions of
Respondent determined deficiencies in petitioners' Federal income taxes of $ 12,278, $ 6,142, and $ 7,074 and accuracy-related penalties of $ 2,456, $ 1,228, and $ 1,415 for the taxable years 1993, 1994, and 1995.
After concessions, the issues for decision are: (1) Whether petitioners are entitled to charitable contribution deductions in excess of the amounts allowed and conceded by respondent for 1993 and 1994; (2) whether petitioners2001 Tax Ct. Summary LEXIS 155">*156 recognized unreported gain on the sale of certain property in 1993; (3) whether petitioners made deductible interest payments in 1994 and 1995 that were not claimed as deductions on their returns; and (4) whether petitioners are liable for the accuracy-related penalties under
Some of the facts have been stipulated and are so found. The stipulations of fact and the attached exhibits are incorporated herein by this reference. Petitioners resided in Ashland, Missouri, on the date the petition was filed in this case.
The first issue for decision is whether petitioners are entitled to charitable2001 Tax Ct. Summary LEXIS 155">*157 contribution deductions in excess of the amounts allowed by respondent for 1993 and 1994.
A taxpayer is required to maintain records sufficient to establish the amount of his deductions. See
Section2001 Tax Ct. Summary LEXIS 155">*158 170(a) allows a deduction for charitable contributions made during the taxable year to certain listed types of organizations, if the deductions are verified under regulations prescribed by the Secretary. See sec. 170(a)(1);
In 1993, petitioners claimed a deduction of $ 9,329 for charitable contributions. Respondent allowed $ 4,557 of this amount in the notice of deficiency and has since conceded an additional $ 1,840. In 1994, petitioners claimed a deduction of $ 7,000 for charitable contributions. Respondent allowed $ 1,665 of this amount.
Petitioner husband (petitioner) 2001 Tax Ct. Summary LEXIS 155">*159 testified that the amounts disallowed and not conceded by respondent for 1993 were contributions made by him in cash, primarily when attending church. Petitioner has no written records evidencing such contributions. Without written records, a deduction for charitable contributions generally is not allowed. See
The amounts disallowed in 1994 all relate to contributions made to Eugene Brown. Mr. Brown served as president of the Full Gospel Business Men's Fellowship International (FGBMFI). The disallowed contributions consist of an automobile which they valued at $ 5,000 and cash of $ 335 in the form of checks made payable to the order of Gene Brown. Petitioners testified that the car was given to FGBMFI. However, the car was titled solely in Mr. Brown's name. In addition, Mr. Brown provided a handwritten statement that the car was given to him as a gift by petitioner. Despite petitioners' testimony, it is clear that the car was transferred from petitioners to Mr. Brown individually and not to the charitable organization. Thus, the disallowed contributions in 1994 were not made "to" a qualified organization, and they were not made "for the use of" such an organization within the meaning of the statute because there was no trust-like arrangement creating legally enforceable rights for the organization. See
The second issue for decision is whether petitioners must include in income gain on the sale of certain property in 1993.
Under
Respondent determined that petitioner recognized gain of $ 28,462 on the sale of a 1989 Kenworth tractor and 1991 Transcraft flatbed trailer. According to respondent's trial memorandum, the gain was determined as follows (petitioner disputes this calculation):
Tractor Trailer
_______ _______
Sales price $ 28,843 $ 9,157
Cost $ 60,000 $ 19,050
Depreciation (57,777) (11,735)
______ ________
Adjusted basis (2,223) 2001 Tax Ct. Summary LEXIS 155">*162 (7,315)
________ _______
Recognized gain 26,620 1,842
Thus, respondent determined the total sales price for tractor and trailer to be $ 38,000. Respondent has conceded that the total gain be reduced by $ 5,084 to reflect the cost of an engine overhaul for the tractor.
Respondent offers the following three checks as the basis of his determination of the purchase price. Each check is a cashier's check, drawn on London Bank & Trust of London, Kentucky, with Gary and Fairy Smith (the purchasers of the tractor and trailer) as remitters.
Payment
Number Check Date Amount Date Payee Indorser
______ __________ ______ _______ _____ ________
091724 9/14/93 $ 500 9/15/93 Gary or Fairy Smith Gary Smith n.1
091725 9/14/93 24,000 9/17/93 Petitioner Petitioner n.2
091726 9/14/93 13,500 9/20/93 Petitioner Petitioner n.3
FOOTNOTES TO TABLE
n. 2001 Tax Ct. Summary LEXIS 155">*163 1 Blank indorsement
n.2 Blank indorsement
n.3 Indorsed for petitioner by petitioner wife, for deposit only
END OF FOOTNOTES TO TABLE
At trial, petitioners disputed receiving two of these checks -- numbers 091724 and 091726. Evidence received into the record, however, shows that check number 091726 was received by petitioners because it was indorsed "for deposit only," "Will Barck by Janie Barck." The purpose of the other disputed check, number 091724, is unclear; why the purchasers would obtain a cashier's check payable to themselves is unknown. Respondent argues that this check was used by the purchaser as a retainer in a "good-faith effort in the sale." Although there is no evidence that petitioners received the cashier's check itself, the proximity of the check number, check date, and payment date of the disputed check to those of the other checks indicates that this amount was most likely given to petitioners in cash for a down payment or for a similar purpose, as respondent argues. We therefore uphold respondent's determination of the amount of gain recognized on this transaction, as modified by the concession.
The2001 Tax Ct. Summary LEXIS 155">*164 third issue for decision is whether petitioners made deductible interest payments in 1994 and 1995 that were not claimed as deductions on their returns.
Interest is allowed as a deduction to non-corporate taxpayers under
Petitioners argue that petitioner borrowed $ 60,000 from his sister for use in starting a "rental real estate" business. 22001 Tax Ct. Summary LEXIS 155">*166 Petitioner testified that he paid $ 6,000 in interest per year in 1994 and 1995, in monthly payments of $ 500 each. However, he only established that he made the monthly payments in February, March, May, and July through December 1994, and January through October 1995. Petitioner repaid the2001 Tax Ct. Summary LEXIS 155">*165 principal in two payments of $ 30,000 each, one in December 1996 and the other in October 1997.3 Petitioners filed Schedules C, Profit or Loss From Business, for an unnamed business in 1994 and 1995. In the notice of deficiency, respondent determined that petitioners improperly reported income and claimed expenses on these Schedules C, and instead should have used Schedules E, Supplemental Income and Loss, because the income and expenses were related to rental activities. 4 Although significant deductions were allowed by respondent in connection with this activity for mortgage interest in each year, no deductions were allowed for "other interest." The Schedule E rental income and expense deductions set forth in the notice of deficiency were as follows:
1994 1995
____ ____
Income $ 32,019 $ 81,603
Expenses
Advertising 2001 Tax Ct. Summary LEXIS 155">*167 $ 300 $ 117
Car & truck 2,085 5,204
Cleaning & maintenance 26 -0-
Legal & professional 159 -0-
Mortgage interest 8,087 13,885
Repairs & maintenance 10,729 10,066
Supplies 592 -0-
Taxes & licenses 582 1,885
Utilities 1,404 4,139
Lot rent 5,770 15,715
Wages -0- 2,583
Insurance 1,179 3,721
Depreciation 1,323 6,701
Other 214 -0-
______ ______
Total 2001 Tax Ct. Summary LEXIS 155">*168 32,450 64,016
_______ ______
Sch. E rental income (loss) (431) 17,587
We accept petitioner's testimony concerning the existence and nature of the $ 60,000 loan, corroborated by the above detailed payments and respondent's determination that petitioners were conducting a rental activity in 1994 and 1995. We hold that petitioners are entitled to rental expense deductions for interest payments of $ 4,500 in 1994 and $ 5,000 in 1995.
We briefly note that respondent has not argued that petitioner's rental activity was either passive or related to property held for investment. See
The final issue for decision is whether petitioners are liable for the accuracy-related penalties under
"Negligence" includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code, see
A "substantial understatement" exists where the amount of the understatement exceeds the greater of 10 percent of the tax required to be shown on the return or $ 5,000. See
Petitioners dispute the assertion of the accuracy-related penalties, but have not presented any evidence or arguments specifically addressing this issue. We find that the record in its entirety supports respondent's assertion of the penalties in this case, and we therefore uphold respondent's determination in this regard, as modified by respondent's concessions and our holding on the other issues in this case.
Reviewed and adopted as the report of the2001 Tax Ct. Summary LEXIS 155">*171 Small Tax Case Division.
To reflect the foregoing,
Decision will be entered under Rule 155.
1. With respect to issues one and two, respondent concedes petitioners are entitled to an additional deduction for charitable contributions in 1993 and a reduction in the amount of the gain recognized, as discussed below. We treat determinations made in the notice of deficiency but not addressed here as having been conceded by petitioners because they were not disputed either in the petition or at trial.↩
2. Petitioners made this argument for the first time at trial, but respondent did not object either to petitioners' argument or to their presentation of supporting evidence. We therefore treat this issue as having been properly pled. See
3. Nearly all the payments were in the form of checks drawn on accounts in the name of Will or Janie Barck. However, the payment made in May 1994 was drawn on an account in the name of Barck, Inc. Whether such a corporation actually existed is unclear from the record. If it did not, this account was most likely used by petitioner informally for individual business purposes. In any event, we accept petitioner's testimony that he intermingled funds between his accounts and that he used individual funds deposited into the Barck, Inc. account to make the interest payment.↩
4. Petitioners also filed a Schedule C in 1993 for a business involved in "mobile home rent." It is unclear if this is the same rental activity as that in which petitioners were engaged in 1994 and 1995.↩