                  T.C. Summary Opinion 2003-101



                     UNITED STATES TAX COURT



   GABE W. STEWART, JR., AND DORIS R. STEWART, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8253-00S.               Filed July 24, 2003.


     Gabe W. Stewart, Jr., and Doris R. Stewart, pro sese.

     Lorianne D. Masano, for respondent.



     ARMEN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed.1   The decision to

be entered is not reviewable by any other court, and this opinion

should not be cited as authority.


     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 1996,
the taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                 - 2 -

     Respondent determined a deficiency in petitioners’ Federal

income tax for 1996 in the amount of $21,486, as well as an

accuracy-related penalty under section 6662(a) in the amount of

$4,297.

     After the parties’ agreement at trial regarding the fair

market value of a noncash charitable contribution of realty, the

issues for decision are:

     (1) Whether petitioners are entitled to a deduction for a

noncash charitable contribution of personalty in excess of the

amount allowed by respondent.    We hold that they are not.

     (2) Whether petitioners are liable for an accuracy-related

penalty under section 6662(a).    We hold that they are to the

extent provided herein.

     The adjustment relating to petitioners’ long-term capital

gain with respect to an installment sale is purely a mechanical

matter, the resolution of which is dependent on the parties’

agreement described above regarding the fair market value of

certain realty.

Background

     Some of the facts have been stipulated, and they are so

found.    Petitioners resided in Panama City, Florida, at the time

that their petition was filed with the Court.

     A.   The Winter Haven Property

     During 1996, petitioners were contacted by the Auburndale
                                  - 3 -

Community Church (Community Church) about purchasing property

petitioners owned in Winter Haven, Florida (Winter Haven

property).   The Winter Haven property consisted of a building and

approximately one acre of land.

     On October 16, 1996, David Collins (Mr. Collins),

petitioners’ real estate agent who managed the Winter Haven

property, indicated by letter to petitioners that an appropriate

asking price for the Winter Haven property would be “$185,000 to

$200,000”.   Petitioners and Community Church subsequently agreed

on a sales price of $200,000 for the Winter Haven property.

     Prior to completing the sale with Community Church,

petitioners met with their accountant, Edmund Nunez (Mr. Nunez),

C.P.A.    Petitioners provided Mr. Nunez with a copy of the letter

from Mr. Collins.   Mr. Nunez suggested to petitioners that the

transaction with Community Church be structured as a part

sale/part gift.   Mr. Nunez specifically suggested that

petitioners sell the Winter Haven property to Community Church

for $100,000 and make a gift to Community Church of the remaining

$100,000.

     On December 5, 1996, petitioners and Community Church

executed the part sale/part gift arrangement.

     B.   The Angler Motor Boat

     During 1996, petitioners owned a 1982 21-foot Angler motor
                                - 4 -

boat with a 115-horsepower outboard motor and a boat trailer.2

After petitioner Gabe Stewart (Mr. Stewart) experienced medical

problems, petitioners decided to dispose of the boat.

Petitioners were unsuccessful in their attempts to sell the boat.

     On December 30, 1996, petitioners contributed the boat to

The Salvation Army.   Mr. Stewart testified that at the time

petitioners donated the boat to The Salvation Army, “it was in

mint condition” and ready for use.      The receipt given to

petitioners from The Salvation Army for their contribution listed

the condition of the boat as “good”.      Petitioners did not obtain

an appraisal for the boat.

     On December 30, 1996, Mr. Arthur Morden (Mr. Morden), an

employee of The Salvation Army for more than 25 years whose

duties included obtaining appraisals for donated items, had the

boat delivered to the owner of Paul’s Repair (boat appraiser), a

local boat and motor repair shop, to obtain an appraisal.      Mr.

Morden testified that he often used the boat appraiser because he

would “try to give me his best and honest appraisal”.      After

inspecting the boat, the boat appraiser determined that the boat

had previously been sunk.    The boat appraiser specifically

indicated, among other things, that the boat had a rotten

transom, rusty cables, and a locked-up motor.      The boat appraiser


     2
        The boat, motor, and trailer are herein collectively
referred to as “the boat”.
                                - 5 -

valued the boat at $500, with most of the value attributable to

the trailer.

     After obtaining the appraisal, The Salvation Army’s local

corps commander determined the sales price for the boat.     The

boat was subsequently sold by The Salvation Army for $500.

     C.   Petitioners’ Income Tax Return

     On October 10, 1997, petitioners filed a Form 1040, U.S.

Individual Income Tax Return, for 1996.     On their 1996 return,

petitioners claimed noncash charitable contributions of $100,000

for the Winter Haven property and $10,000 for the boat.

Petitioners attached the second page of two Forms 8283, Noncash

Charitable Contributions, to their 1996 return.     The second page

of the Form 8283 for the Winter Haven property listed the

appraised fair market value as $200,000, specified the appraisal

date as January 1, 1997, and was signed by the pastor of

Community Church as the appraiser.      The second page of the Form

8283 for the boat listed the fair market value as $10,000 and was

not signed by an appraiser.

     Petitioners’ 1996 return was prepared by Mr. Nunez.     Mr.

Nunez had prepared petitioners’ income tax returns for nearly 40

years.    As previously noted, Mr. Nunez advised petitioners of the

part sale/part gift arrangement with respect to the Winter Haven

property.   Mr. Nunez was not aware of the contribution of the

boat until he obtained information from petitioners necessary to
                                - 6 -

prepare their 1996 return.   Petitioners signed but did not review

the 1996 return as prepared by Mr. Nunez.

     D.   The Notice of Deficiency

     In the notice of deficiency, respondent determined that

petitioners overstated the fair market value of their noncash

charitable contributions.    In the notice, respondent determined

that the fair market value of the Winter Haven property was

$155,000 and that the fair market value of the boat was $500.

Thus, respondent disallowed $54,500 ($45,000 for the Winter Haven

property and $9,500 for the boat) of petitioners’ $110,000

noncash charitable contributions for 1996.3

Discussion

     In general, the determinations of the Commissioner in a

notice of deficiency are presumed correct, and the burden is on

the taxpayer to show that the determinations are incorrect.    Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).4

     A. Charitable Contributions

     Section 170(a)(1) allows a deduction for charitable


     3
        At trial, petitioners and respondent agreed that the fair
market value of the Winter Haven property was $183,000.
Accordingly, petitioners are allowed a charitable deduction with
respect to the Winter Haven property in the amount of $83,000
($183,000 fair market value less the $100,000 sales price).
     4
        Sec. 7491 does not apply in this case to shift the burden
of proof to respondent because petitioners neither alleged that
sec. 7491 was applicable nor established that they fully complied
with the requirements of sec. 7491(a)(2).
                                - 7 -

contributions (as defined in section 170(c)) made within the

taxable year.    In general, the amount of a charitable

contribution made in property other than money is the fair market

value of the property at the time of the contribution.    See sec.

1.170A-1(c)(1), Income Tax Regs.    Fair market value is defined as

the price at which the property would change hands between a

willing buyer and a willing seller, neither being under any

compulsion to buy or sell and both having reasonable knowledge of

the relevant facts.    See sec. 1.170A-1(c)(2), Income Tax Regs.

Fair market value is a question of fact to be determined from the

entire record.    Skripak v. Commissioner, 84 T.C. 285, 320 (1985).

     Under section 1.170A-13(c), Income Tax Regs., if a

contributed item is valued in excess of $5,000, the donor must

obtain a qualified appraisal for the contributed property, attach

a fully completed appraisal summary to the Federal income tax

return, and maintain reasonably detailed records containing a

description of the property, the fair market value of the

property at the time of the donation, the method used in

determining the fair market value, and the cost or other basis.

     A qualified appraisal shall include, inter alia, a

description of the property in sufficient detail for a person who

is not generally familiar with the type of property that was

contributed, a description of the physical condition of the

property, the qualifications of the qualified appraiser, the
                                - 8 -

method of valuation used to determine the fair market value, and

the specific basis for the valuation.   See sec. 1.170A-3(c)(3),

Income Tax Regs.   The appraisal summary shall include, inter

alia, a description of the property in sufficient detail for a

person who is not generally familiar with the type of property to

ascertain that the property that was appraised is the property

that was contributed, a brief summary of the physical condition

of the property, the manner of acquisition, and the cost or other

basis.   See sec. 1.170A-13(c)(4), Income Tax Regs.

     After the parties’ agreement with respect to the fair market

value of the Winter Haven property, the Court must decide whether

petitioners are entitled to a charitable contribution for the

boat in excess of $500.

     Petitioners argue that the fair market value of the boat was

$10,000 at the time that the contribution was made to The

Salvation Army.    Petitioners did not obtain an appraisal of the

boat.    Although Mr. Stewart testified as to the condition of the

boat, petitioners were unable to offer any other persuasive

evidence to aid in the valuation of the boat.   We are not

required to accept a taxpayer’s uncorroborated testimony at face

value.   Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).

Regardless, Mr. Stewart’s testimony, which was uncorroborated,

does not sufficiently establish the fair market value of the boat

at the time of the contribution.
                                 - 9 -

     The boat appraiser, a disinterested third party who provided

appraisals for The Salvation Army, inspected the boat and offered

a detail description of the boat’s condition.   After his

inspection, the boat appraiser valued the boat at $500.     After

the appraisal, the boat was subsequently sold by The Salvation

Army for $500.

     The record does not establish that the value of the boat was

greater than $500 at the time contributed by petitioners to The

Salvation Army.   Accordingly, we hold that petitioners are not

entitled to a charitable deduction with respect to the boat in

excess of the amount allowed by respondent.

     B.   Section 6662(a)5

     The last issue for decision is whether petitioners are

liable for an accuracy-related penalty pursuant to section

6662(a) for the year in issue.    Section 6662(a) and (b)(1)

provides that if any portion of an underpayment of tax is

attributable to negligence or disregard of rules or regulations,

then there shall be added to the tax an amount equal to 20

percent of the amount of the underpayment that is so


     5
        Respondent has satisfied his burden of production under
sec. 7491(c) with respect to the accuracy-related penalty under
sec. 6662(a) and (b)(1). Sec. 7491(c); Rule 142(a); Higbee v.
Commissioner, 116 T.C. 438, 446-447 (2001). Accordingly,
petitioners bear the burden of proving that the penalty is
inapplicable. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503
U.S. 79, 84 (1992); Welch v. Helvering, 290 U.S. 111, 115 (1933);
Higbee v. Commissioner, supra.
                               - 10 -

attributable.   The term “negligence” includes any failure to make

a reasonable attempt to comply with the provisions of the

internal revenue laws, and the term “disregard” includes any

careless, reckless, or intentional disregard.   Sec. 6662(c); see

sec. 1.6662-3(b)(2), Income Tax Regs.

     Negligence often takes the form of an understatement of

income or an overstatement of deductions.   See Healey v.

Commissioner, T.C. Memo. 1996-260, and cases cited therein.

Understatement of income or overstatement of deductions may

reflect the inadequacy of the taxpayer's records, which is, of

itself, a basis for sustaining the accuracy-related penalty.    In

this regard, we observe that a taxpayer is required to maintain

records sufficient to establish all items of income, deduction,

and credit that are required to be shown on the taxpayer’s tax

return.   See sec. 6001; sec. 1.6001-1(a), Income Tax Regs.; see

also Lysek v. Commissioner, 583 F.2d 1088, 1094 (9th Cir. 1978),

affg. T.C. Memo. 1975-293; Crocker v. Commissioner, 92 T.C. 899,

916 (1989); Schroeder v. Commissioner, 40 T.C. 30, 34 (1963);

sec. 1.6662-3(b)(1), Income Tax Regs.   Additionally, failure to

keep adequate records is evidence of intentional disregard of the

regulations.    See Crocker v. Commissioner, supra at 917.

     On the other hand, no penalty shall be imposed under section

6662(a) with respect to any portion of an underpayment if it is

shown that there was a reasonable cause for such portion and that
                              - 11 -

the taxpayer acted in good faith with respect to such portion.

See sec. 6664(c).   The determination of whether the taxpayer

acted with reasonable cause and in good faith depends on the

pertinent facts and circumstances.     See sec. 1.6664-4(b)(1),

Income Tax Regs.

     As a general rule, the duty of filing accurate tax returns

cannot be avoided by placing responsibility on an agent.     See

Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662 (1987);

Pritchett v. Commissioner, 63 T.C. 149, 174 (1974).     However, a

taxpayer may avoid the accuracy-related penalty by showing that

his or her reliance on the advice of a professional, such as a

commercial return preparer, was reasonable and in good faith.

Sec. 1.6664-4(b)(1), Income Tax Regs.     Specifically, the taxpayer

must establish that complete and correct information was provided

to the return preparer and that the item incorrectly claimed or

reported on the return was the result of the preparer's error.

See Ma-Tran Corp. v. Commissioner, 70 T.C. 158, 173 (1978).

     With regard to the noncash charitable contributions made by

petitioners, section 1.170A-13, Income Tax Regs., provides

specific recordkeeping and return requirements.     While strict

compliance with the recordkeeping and return requirements is not

necessary, we have required that taxpayers must substantially

comply with the regulation in order to claim the deduction for a

charitable contribution.   See Hewitt v. Commissioner, 109 T.C.
                              - 12 -

258 (1997), affd. 166 F.3d 332 (4th Cir. 1998).   In the present

case, the record establishes that petitioners did not comply, or

substantially comply, with the recordkeeping and return

requirements with respect to either the contribution of the

Winter Haven property or the boat.

     However, petitioners relied on Mr. Nunez to prepare their

1996 income tax return.   Mr. Nunez suggested to petitioners that

the transaction with Community Church be structured as a part

sale/part gift.   We are satisfied that petitioners in good faith

reasonably relied on the advice of Mr. Nunez to properly account

for the transaction between petitioners and Community Church with

regard to the Winter Haven property.   Accordingly, we conclude

that the accuracy-related penalty with regard to the underpayment

attributable to the Winter Haven property should not be imposed.

     In contrast, petitioners did not seek the advice of Mr.

Nunez with respect to the contribution of the boat.   Thus,

petitioners did not reasonably rely on the advice of a return

preparer with respect to the boat contribution.   Likewise,

petitioners offered no evidence that their disregard of the

recordkeeping and reporting requirements with respect to the boat

was reasonable.   Accordingly, we sustain respondent’s imposition

of the accuracy-related penalty with regard to the underpayment

attributable to the charitable contribution of the boat.
                            - 13 -

    Reviewed and adopted as the report of the Small Tax Case

Division.

    To reflect the foregoing,



                                       Decision will be entered

                                  under Rule 155.
