DocketNumber: Nos. 12085-07S, 16591-07S
Judges: "Dean, John F."
Filed Date: 1/29/2009
Status: Non-Precedential
Modified Date: 4/18/2021
PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b), THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.
DEAN,
For 2004 and 2005 respondent determined deficiencies in petitioner's Federal income taxes of $ 3,090 and $ 3,409 and accuracy-related penalties under section 6662(a) of $ 618 and $ 681.80, respectively. Respondent disallowed petitioner's claimed deductions for "Schedule A taxes" of $ 3,370 and her $ 19,441 charitable contribution deduction for 2004. *18 For 2005 respondent disallowed petitioner's claimed $ 5,993 theft loss deduction, her $ 11,396 mortgage interest deduction, and $ 10,561 of her claimed $ 11,061 charitable contribution deduction.
For 2004 and 2005 respondent concedes that petitioner is entitled to deductions for charitable contributions of $ 1,239.26 *19 and $ 3,014 Some of the facts have been stipulated and are so found. The stipulation of facts and the exhibits received into evidence are incorporated herein by reference. When the petitions were filed, petitioner resided in California. During the years at issue, petitioner was employed as a law enforcement technician with the Los Angeles County Sheriff's Department. She also served as the *20 pastor of Bethel, which is a member church of Mount Sinai Holy Church of America, Inc. Petitioner made expenditures on behalf of Bethel by cash or check For example, petitioner purchased a 15-passenger van for use by Bethel so that she could pick up church members for Sunday school and morning worship. The van bears Bethel's name and is parked on Bethel's premises, but it is titled in petitioner's name. In addition, petitioner purchased a "250 foot black rod [sic] iron fence" that runs the perimeter of Bethel's property. On petitioner's Schedules A, Itemized Deductions, attached to her Forms 1040, U.S. Individual Income Tax Return, petitioner claimed deductions for charitable contributions of $ 19,441 and $ 11,061 for 2004 and 2005, respectively. As reflected on petitioner's 2004 Schedule A, her charitable contribution deduction consisted of gifts by cash or check of $ 18,379, gifts other than by cash or check of $ 500, and a $ 562 carryover from 2003. As reflected on petitioner's 2005 Schedule A, her charitable contribution deduction consisted of gifts by cash or check of $ 10,561 and gifts other than by cash or check of $ 500. In the notices of deficiency for 2004 and 2005, respondent *21 disallowed "Cash Contributions" of $ 19,441 and $ 10,561, respectively. Respondent disallowed petitioner's claimed "Cash Contributions" because petitioner "did not verify that the amounts shown were contributions, and paid; [therefore,] the amounts are not deductible." On April 25, 2006, letters of administration were filed naming petitioner as the legal representative of her mother's estate. Petitioner's mother, Lula Mae Coleman, died intestate on August 15, 2005. In 2005 petitioner made some payments to the entities holding mortgages on her parent's home at "319 E Newfield St". Petitioner, however, has lived in her home at "E 90th" for over 11 years and resided at her "E. 90th" home during 2005. On petitioner's 2005 Schedule A, she claimed an $ 11,396 mortgage interest deduction for the interest paid with respect to the mortgages on her parent's home at "319 E Newfield St". Respondent disallowed petitioner's claimed mortgage interest deduction because she did not establish that the amount was her interest expense and that she paid it. On October 27, 2005, petitioner filed an incident report for a burglary at Bethel. On the incident report, *22 the police officer recorded petitioner's statement that two computers, including monitors and printers, worth $ 2,000 were stolen. Petitioner also submitted a "Supplementary Loss Report", on which she claimed a total additional loss of $ 10,740. Petitioner claimed that the additional loss items consisted of musical equipment, chaffing dishes, roasters, a "T.V.", computer equipment, food, clothes, toys, and cases of paper. On petitioner's 2005 Schedule A, petitioner described the event as a "HOME BURGLARY" in which various household items with a basis of $ 19,145 and a $ 10,148 fair market value were stolen. Petitioner claimed a $ 5,933 "TOTAL" theft loss that respondent disallowed because she did not establish that a theft occurred and that she sustained a loss. The Commissioner's determinations in a notice of deficiency are presumed correct, and the taxpayer bears the burden to prove that the determinations are in error. See Rule 142(a); Petitioner testified that Bethel was in need of repairs when she "received" it and that she "put a lot of money into the church because I think that that's my responsibility as the pastor of the church to make sure that the church is functioning and in decent order." According to petitioner, she had to rent equipment, charge things to her Home Depot account, and hire men to perform repairs. "[She] had to pay that on behalf of the church because the church did not have a fund in order to do that. That's where [her] contributions came from." Unreimbursed expenditures made incident to the rendition of services to a qualifying charitable organization may constitute a deductible contribution. In pertinent part, Petitioner has submitted into evidence a log of the 2004 and 2005 disputed monetary contributions of less than $ 250 and copies of the following canceled checks:Check Date No. Payee Amount Description 12/03 n.1 8632 Cash $ 20.00 Donation 1/04 8645 Sparkletts Water 15.25 Water 1/04 8650 Sam's Club 170.51 Supplies 2/04 8684 Mr. Barrueta 55.00 Repair-elec. 3/04 8705 OfficeMax 25.00 Supplies 4/04 8740 U.S. Postmaster 34.00 Postage 5/04 8749 Sparkletts Water 104.00 Water 4/04 8756 OfficeMax 66.00 Supplies 6/04 8764 OfficeMax 67.00 Supplies 6/04 8774 Gas Co. 30.00 Utilities 6/04 8781 Sparkletts Water 10.00 Water 6/04 8787 Sam's Club 100.03 Supplies 8/04 8833 Sparkletts Water 128.00 9/04 8850 Sam's Club 161.55 Supplies 11/04 8870 U.S. Postmaster 34.00 Postage 4/05 9034 Bishop Battenn n.2 100.00 Donation 4/05 9187 Pastor Johnsonn n.2 50.00 Donation Total 1,170.34 n.1 This contribution was made in 2003 and thus is not deductible as a charitable contribution for 2004. See sec. 170(a)(1). Respondent's disallowance thereof is sustained. n.2 Respondent disallowed the deductions for these contibuions, reasoning that the payments fail the "to or for the use of" the organization requirement, see sec. 170(c), since the checks were deposited into the individuals' personal banking accounts rather than an account of a charitable organization. Since petitioner has not proven that the payments were "to or for the use of" a charitable organization rather than for the personal use of the individuals, respondent's disallowance thereof is sustained. See
*26 Petitioner's log also lists the following cash contributions of less than $ 250 for 2004, which respondent disputes:
Payment | ||||
Date | method | Recipient | Amount | Description |
2/04 | Cash | Los Angeles Mission | $ 35.55 | Gift |
8/04 | Cash | Los Angeles Mission | 26.55 | Gift |
10/04 | Cash | Los Angeles Mission | 45.00 | Gift |
12/04 | Cash | Los Angeles Mission | 37.17 | Gift |
8/04 | Cash | March of Dimes | 50.00 | Gift |
11/04 | Cash | Neighborhood curb painting | 10.00 | Gift |
3/04 | Cash | Easter Seals | 75.00 | Gift |
6/04 | Cash | United Negro College Fund | 100.00 | Gift |
8/04 | Cash | United Negro College Fund | 150.00 | Gift |
Total | 529.27 |
Petitioner has not provided receipts substantiating the foregoing charitable contributions. Petitioner's entitlement to her charitable contribution deductions therefore hinges on the canceled checks or her "other reliable written record".
The Court finds that neither the notations on the canceled checks nor the payees of the canceled checks prove that petitioner paid the expenses on Bethel's behalf. Indeed, the subject matter of the canceled checks indicates that the expenditures might be nondeductible personal expenses. See sec. 262(a).
With respect to the log, it is dated "11n2206" and appears to have been created by petitioner's return preparer, Mr. Applewhite. Thus, petitioner has *27 failed to establish the contemporaneous nature of the log, and she has not established that she regularly and contemporaneously recorded her contributions in the log. See
Without other reliable evidence to substantiate her deductions for charitable contributions of less than $ 250 for 2004 and 2005, the Court finds that petitioner is not entitled to claim her deductions. In addition, the Court will not apply the
As is relevant here, section *28 170(f)(8) provides that no deduction is allowed for all or part of any charitable contribution of $ 250 or more unless the contribution is substantiated by a contemporaneous written acknowledgment from the organization. See also
To substantiate the following disputed 2004 deductions for charitable contributions of $ 250 or more, petitioner has submitted into evidence a log of her contributions and certain letters:
Payment | ||||
Date | method | Recipient | Amount | Description |
"various" | Cash | Bethel | $ 18,293.71 | |
2004 | ||||
"various" | Cash | Bethel | 4,091.20 | Van payments |
2004 | ||||
Cash | Bethel | 794.39 | Van insurance | |
4/04 | Property | Dorothy | 500.00 | 7 bags clothing, |
Brown | TV, household | |||
School | items | |||
7/04 | Property | Dorothy | 500.00 | 10 bags |
Brown | clothing, TV, | |||
School | household items | |||
Total | 24,179.30 |
To *29 substantiate the following disputed 2005 deductions for charitable contributions of $ 250 or more, petitioner has submitted into evidence a log of her contributions, copies of canceled checks, certain letters, and photographs:
Payment | ||||
Date | method | Recipient | Amount | Description |
9/05 | Check | Mr. Degado | 1,000.00 | Repair-church |
No. 9141 | ||||
10/05 | Check | Bishop | 300.00 | Donation |
No. 9151 | Batten | |||
"various" | Cash | Bethel | 9,000.00 | Wrought iron |
2005 | black fence | |||
"various" | Cash | Bethel | 1,000.00 | Tractor mower |
2005 | ||||
"various" | Cash | Bethel | 3,854.68 | Van payments |
2005 | ||||
2005 | Bethel | 1,124.63 | Van insurance | |
4/05 | Property | Dorothy | 500.00 | 7 bags |
Brown | clothing, TV, | |||
School | household | |||
items | ||||
Total | 16,779.31 |
Although petitioner's log shows a $ 13,038 charitable contribution for 2004, petitioner has provided three letters purporting to substantiate cash contributions of $ 18,293.71 to Bethel during 2004. *30 A letter from Bishop Coward, dated June 3, 2008, alleges that petitioner paid $ 18,293.71 in 2004 for "major repair work on the property". A letter from Pastor Kincy, dated January 14, 2005, alleges that petitioner made a "contribution of $ 18,293.71" in 2004.
Petitioner cannot deduct the $ 1,000 charitable contribution for a tractor lawnmower that she allegedly donated to Bethel because neither the log nor the letter, dated February 5, 2007, evidencing the contribution satisfies the contemporaneous acknowledgment requirements of
Petitioner cannot deduct the $ 300 payment to Bishop Batten because neither the log nor the canceled check evidencing the payment satisfies the acknowledgment requirements of
Petitioner cannot deduct the items donated to the Dorothy Brown School because the log evidencing the contribution does not satisfy the contemporaneous acknowledgment requirements of
Petitioner submitted no other records and did not present testimony from any other representative of Bethel to substantiate her $ 18,293.71 cash contributions, her donation of the tractor lawnmower, or her $ 300 payment to Bishop Batten. Similarly, petitioner provided no other evidence to substantiate her charitable contributions to the Dorothy Brown School. Accordingly, the Court will not apply the Cohan rule to estimate a deductible amount. See
Petitioner has provided a "receipt", a letter from *33 Bethel, canceled checks, the log, and photographs of the old and new fence to substantiate payments of $ 10,100 to a Mr. Degado for her purchase of the black wrought iron fence. The so-called receipt is dated September 16, 2005, and purports to be from Juan Degado. The receipt was not issued by Mr. Degado. The receipt was created on June 2, 2008, by the new owner of the fencing business based upon information supplied by petitioner and, allegedly, by one of the workers who installed the fence.
The canceled checks consist of a $ 1,000 payment *34 to Mr. Degado that was drawn on petitioner's personal account on September 16, 2005, and a $ 3,000 payment to Mr. Degado that contained the notation "Iron Gates". *35 The canceled checks, however, are not written acknowledgments from the organization. See sec. 170(f)(8).
Taken together, the canceled checks, the letter, the log, and the photographs corroborate petitioner's claim that she expended some money to purchase the fence on Bethel's behalf. Although petitioner has not complied with the substantiation requirements of section 170(f)(8) and the regulations thereunder, the Court is satisfied that petitioner made some payments on behalf of Bethel--but not $ 10,100. Putting aside the evidentiary issues, the receipt indicates that petitioner made three payments of $ 3,000, a $ 1,000 payment, and a $ 100 payment. The record establishes that petitioner has not provided any other evidence establishing payments over $ 1,000 *36 paid the remaining $ 9,100 in 2005.
Petitioner cannot deduct the "Van Payments" as charitable contributions since she continues to own the property. The "contributions", therefore, consist of less than petitioner's entire interest in the property and are not deductible.
Petitioner cannot deduct the insurance premium payments for the van as charitable contributions. Petitioner has not shown that Bethel was the sole beneficiary of the policy. See Section *38 163(a) allows a deduction for interest paid or accrued within the taxable year on indebtedness. The "indebtedness" for purposes of section 163 must, in general, be an obligation of the taxpayer and not an obligation of another. Petitioner was not directly liable on the mortgages for which she claimed a mortgage interest deduction. But petitioner argues that she is entitled to a deduction for mortgage interest that she paid in 2005 pursuant to Petitioner claims that she has both a vested and an equitable interest in her mother's property at "319 E Newfield St". Petitioner testified that she started making the mortgage payments in February when her mother became ill and was *39 no longer able to work. State law determines the nature of property rights, while Federal law determines the appropriate Federal income tax treatment of those rights. See As is relevant here, title to the property of a decedent's estate vests, subject to administration, in his or her heirs immediately upon death under California law. The *40 Court considers several factors when determining whether a taxpayer is an equitable or beneficial owner of the property (and thus entitled to mortgage interest deductions). See Several of these factors weigh against petitioner for the period before her mother's death on August 15, 2005. Specifically, there is no indication that petitioner bore the risk of loss or that she was responsible for maintaining the property, insuring the property, or paying any taxes, assessments, or charges; and there is no indication that she had the right to make improvements. Thus, the *41 Court finds that petitioner was not an equitable or beneficial owner of the property before her mother's death on August 15, 2005. Petitioner is not entitled to mortgage interest deductions for payments she made before August 15, 2005, because she was not directly liable on the notes securing the mortgages and she has failed to prove that she was the legal, equitable, or beneficial owner of the property before August 15, 2005. Petitioner provided copies of Forms 1098, Mortgage Interest *42 Statement, to substantiate her mortgage interest deductions. The Forms 1098 show interest payments in 2005 of: (1) $ 7,857.64 to Countrywide Home Loans (Countrywide); (2) $ 2,128.85 to POPA Federal Credit Union (POPA); and (3) $ 825.49 to "Vodofsky". In addition, petitioner provided two canceled checks issued in September 2005: One to Countrywide for $ 907.89 and one to POPA for $ 245.50. Petitioner also entered into evidence bank statements from September to December 2005. For September petitioner handwrote on the statement "HP" next to drafts in the sum of $ 1,040.47. For October petitioner handwrote on the statement "2nd" with respect to a "Transfer to Coleman Lula M * * * Loan 19" for $ 245.40. For November petitioner handwrote on the statement "2nd" with respect to a "Transfer to COLEMAN LULA M * * * Loan 19" for $ 245.40 and "HP" for a withdrawal to "MRS ASSOCIATES" for $ 841.75. For December petitioner handwrote on the statement "2nd" with respect to a "Transfer to COLEMAN LULA M * * * Loan 19" for $ 245.40 and "HP" with respect to withdrawals to Countrywide in the sum of $ 1,827.78 and "MORTGAGE JIT PMT" for $ 1,728.43. It is unclear from the record that the September drafts *43 and the payment to "MRS ASSOCIATES" were in fact mortgage payments. In addition, it is unclear from the record whether the "Mortgage JIT PMT" relates to the three mortgages for which interest deductions were claimed rather than to petitioner's home at the "E. 90th" address (for which no Form 1098 was entered into evidence). Petitioner testified that she makes four mortgage payments: One to Countrywide, one to Washington Mutual, one to "Vodofsky", and one to POPA. According to petitioner, the "[Mortgage JIT PMT] could be to any one of the other three." From the evidence, the Court finds that petitioner is not entitled to mortgage interest deductions for the "Vodofsky" mortgage because she has not established that she made interest payments from August 15 to December 2005. See secs. 163(a), (h), 461. With respect to the Countrywide mortgage, petitioner has established that she made interest payments in September and December 2005, but she failed to establish that she made interest payments in August, October, and November 2005. Consequently, the Court finds that petitioner is entitled to deductions for mortgage interest paid to Countrywide in September and December 2005. See secs. 163(a), *44 (h), 461. With respect to the POPA mortgage, petitioner has established that she made interest payments from September to December 2005. Accordingly, the Court finds that petitioner is entitled to deductions for mortgage interest paid to POPA from September to December 2005. In general, section 165(a) and (c)(3) allows an individual a deduction for any theft sustained during the taxable year and not compensated for by insurance or otherwise. Among other requirements, petitioner must establish that she personally sustained the theft loss. See The police officer's incident report states that the location of the theft was Bethel. The officer's narrative explains that "unknown person(s) broke into * * * the interior of [Bethel]" and stole 2 computers, including monitors and printers, worth $ 2,000 that were located in an office in the "northwest corner *45 of [Bethel]." On her Form 4684, Casualties and Thefts Loss, petitioner described the theft event as a "HOME BURGLARY" and described the misappropriated property as "VARIOUS HOUSEHOLD ITEMS" worth $ 10,148. Petitioner testified that the items were taken from Bethel, not from her residence. Petitioner explained that she uses "many different things down at [Bethel], but they [are] my personal items". Petitioner also testified that she did not have anything to prove that she owned the items. According to petitioner, she had to take the loss because Bethel did not have insurance. Petitioner has failed to prove that she owned the misappropriated property. See also U Initially, the Commissioner has the burden of production with respect to any penalty, addition to tax, or additional amount. Sec. 7491(c). The Commissioner satisfies this burden of production by coming forward with sufficient evidence that indicates that it is appropriate to impose the penalty. See In pertinent part, section 6662(a) and (b)(1) and (2) imposes an accuracy-related penalty equal to 20 percent of the underpayment that is attributable to negligence or disregard of rules or regulations or a substantial understatement of income tax. *47 reckless, or intentional disregard." Negligence also includes any failure by the taxpayer to keep adequate books and records or to substantiate items properly. Section 6664(c)(1) provides an exception to the section 6662(a) penalty: no penalty is imposed with respect to any portion of an underpayment if it is shown that there was reasonable cause therefor and the taxpayer acted in good faith. The Court finds that respondent has met *48 his burden of production and that petitioner was negligent. Petitioner did not properly substantiate her deductions as required by the Code and the regulations. Petitioner did not establish a defense for her noncompliance with the Code's requirements. Respondent's determinations are sustained. Other arguments made by the parties and not discussed herein were considered and rejected as irrelevant, without merit, and/or moot. To reflect the foregoing,
1. Petitioner's $ 19,441 charitable contribution deduction included a $ 562 carryover from 2003. Petitioner neither argued nor established that she had a $ 562 carryover from 2003. Petitioner is deemed to have conceded the issue. See
2. The $ 1,239.26 figure consists of amounts evidenced by: (1) Copies of checks numbered 8652, 8653, 8662, 8674, and 8720 payable to Bethel Pentecostal Church (Bethel) that total $ 395.25; (2) copies of checks numbered 8713 and 8823 payable to "Bishop Martin" and "Sister Cascada" that total $ 125; and (3) copies of checks numbered 8686, 8712, 8851, 8794, 8790, 8776, and 8793 payable to various persons who performed services for the church that total $ 719.01.
3. The $ 3,014 figure consists of amounts evidenced by: (1) Copies of checks numbered 8950, 9016, 9043, 9044, 9046, 9068, 9084, 9144, 9168, and 9177 payable to Bethel that total $ 280; (2) copies of checks numbered 8981, 8990, 9145, 9146, 9149, 9150, and 9167 payable to various charities that total $ 1,200; (3) copies of checks numbered 8996 and 9119 payable to various persons who provided services for Bethel that total $ 200; (4) copies of checks numbered 9032 and 3215 payable to "Bishop T. Martin" and "Thomas Martin" that total $ 834; and (5) $ 500 that was allowed by respondent's revenue agent during the examination of petitioner's return.↩
4. The log and the letters fail to differentiate between contributions that were below $ 250 and those of $ 250 or more in the $ 18,293.71 sum that petitioner alleges that she paid at various intervals during 2004. The Court notes that such cash contributions would not be deductible even under the less stringent standard of
5. Petitioner testified that the title "Elder L.C. Kincy" is the name that she uses in her pastorage.↩
6. Specifically, the defects include: (1) Petitioner's log is not a written acknowledgment from the organization; (2) petitioner's log, the Bishop Coward letter, and the Secretary Jackson letter were not contemporaneous; and (3) the Pastor Kincy letter acknowledging petitioner's own charitable contributions issuspect in that it purports to be written by an individual other than petitioner. Thus, the Court accords little weight to the Pastor Kincy letter.↩
7. Petitioner did not call the worker as a witness to corroborate hercharitable contribution↩
8. The $ 3,000 check was signed by petitioner on Sept. 9, 2005, and was drawn on an account titled in her mother's name.
Federal law determines the appropriate Federal income tax treatment of petitioner's $ 3,000 purported contribution.
9. See
10. Petitioner entered into evidence a bank statement for the period Jan. 1 to 31, 2006, showing a $ 3,000 payment by "Draft 009207" that bears petitioner's handwritten notation "Iron Gates". Putting aside the hearsay matter, the Court notes that the payment was "Effective" on Jan. 12, 2006, and posted on Jan. 13, 2006. Thus, it appears that petitioner would be entitled to this $ 3,000 deduction, if at all, in 2006, not 2005. See secs. 446(a), 461(a).↩
11. In addition, petitioner has not proven that the limited exceptions of sec. 170(f)(3) apply. See also
12. There is no evidence in the record as to the number of miles petitioner drove in her charitable endeavors that would allow a charitable contributiond eduction based either on petitioner's out-of-pocket expenses or on the standard mileage deduction. See sec. 170(i);
13. If a taxpayer pays mortgage interest accrued before the date he became the legal or equitable owner of the mortgaged property, the amount must be capitalized as part of his cost of the property. See
14. Because the Court finds that petitioner was negligent or disregarded rules or regulations, the Court need not discuss whether there is a substantial understatement of income tax. See sec. 6662(b);
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