                       T.C. Memo. 1996-89



                     UNITED STATES TAX COURT



    KINGMAN K. BABCOCK AND LILLIAN L. BABCOCK, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19980-93.              Filed February 29, 1996.



     Gary J. Gleba, for petitioners.

     Randall P. Andreozzi, for respondent.




                       MEMORANDUM OPINION


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

section 7443A(b)(3) of the Code and Rules 180, 181, and 182.

Unless otherwise indicated, all section numbers refer to the

Internal Revenue Code for the taxable year in issue, and all Rule

numbers refer to the Tax Court Rules of Practice and Procedure.
                               - 2 -

     Respondent determined a deficiency in petitioners' 1991

Federal income tax in the amount of $4,681.   The issue for

decision is the amount petitioners are entitled to deduct as a

charitable contribution under section 170 with respect to foster

child care expenses.

     Some of the facts in the case have been stipulated and are

so found.   Petitioners resided in Pittsford, New York, at the

time they filed their petition.

     For clarity and convenience, the findings of fact and

opinion have been combined.

     Throughout 1991, petitioners were certified by the Monroe

County Department of Social Services (Monroe County), an agency

of the New York State Department of Social Services (Department

of Social Services), as maintaining a suitable home for the care

and boarding of foster children.   The Department of Social

Services describes the issuance of a "Certificate to Board" as

follows:

          An authorized child-caring agency -- either the
     local department of social services or a private child-
     caring agency -- issues a certificate to a family
     desiring to board children who are under the care of
     the agency, after a home study indicates that the
     family meets the [New York State Department of Social
     Services'] certification requirements. The agency
     supervises the children when they are placed in
     boarding care and makes plans for their future, with
     their consent and with that of parents and foster
     (boarding) parents. The agency is financially
     responsible for the needs of the children in foster
     care. [Emphasis added.]
                                     - 3 -

     The regulations of the Department of Social Services

concerning the physical requirements of a certified foster home

are extensive, and include, among others, the following:

          (1) Physical facilities of the foster home shall
     be in good condition and present no hazard to the
     health and safety of the children.

          (2) Foster homes shall be in substantial
     compliance with all applicable provisions of State and
     local laws, ordinances, rules and regulations.

          (3) The physical space, construction and
     maintenance of each foster home and premises shall be
     in good repair and kept in a sufficiently clean and
     sanitary condition so that the physical well-being as
     well as a reasonable degree of physical comfort is
     assured the members of the foster family.

          (4) Foster homes shall have separate bedrooms for
     children of the opposite sex over four years of age.

                       *     *   *    *      *   *   *

     As foster parents, petitioners have boarded several foster

children since 1980.       In 1991, they cared for a young girl, then

aged 6, in their home.      Petitioners first received this foster

child into their home in 1989.        Petitioners' foster child, their

adopted daughter, and their son resided in petitioners' household

in 1991.   Two other sons resided outside petitioners' household.

     For 1991, petitioners were reimbursed by Monroe County in

the amount of $9,539 for the care of their foster child.       This

reimbursement included "board payments" of $8,559, a "clothing

allowance" of $509, and "special allowances" of $471.

     The Foster Parent Manual, published by the New York State

Department of Social Services and supplemented by the Monroe
                                   - 4 -

County Department of Social Services, defines "board payments",

"clothing allowance", and "special allowances" as follows:

     VIII.   Board Payments

          Foster parents are reimbursed for the foster
     child's care through board payments which are
     standardized according to the child's age. The board
     rate covers the cost of the child's food, personal care
     items, allowance as well as his share of the cost of
     shelter, household incidentals, furnishings, family
     recreation and transportation related to shopping,
     church, school or family recreational activities.

                     *   *     *    *      *   *   *

     X.   Clothing Allowance

          As soon as possible following the child's
     placement, the foster parent should review the child's
     wardrobe with the child's caseworker to decide what is
     needed to complete the child's immediate clothing
     needs. The child's caseworker will then advise the
     foster parent how much of the Basic Clothing Allowance
     will be issued to address the child's immediate
     clothing needs. * * *
          If the child continues in care, the remainder of
     the Basic Clothing Allowance will be issued to address
     his clothing needs during the first year of placement.
     Thereafter a Replacement Clothing Allowance will be
     issued twice a year * * * . The amount of money, which
     is set by the State, is related to the child's age and
     should be sufficient to provide adequate and attractive
     clothing.

                     *   *     *    *      *   *   *

     XI. Special Allowances

          Special allowances reimburse foster parents for
     the cost of attire, activities/events, transportation
     or special items which enhance a foster child's self
     esteem, encourage his ego development or assist his
     treatment plan and have prior approval by the child's
     caseworker.

                     *   *     *    *      *   *   *
                                 - 5 -

          The following is a list of approved expenses:
           A. Attire
               1.    Uniforms for special clubs or sports
     (ie. Scouts, soccer etc.)
               2.    Rental of graduation cap and gown.
               3.    Purchase or rental of prom attire * * *.

           B. Activities/Events
                1.  Club fees and dues. * * *
                2.  School field trips. * * *
                3.  Music lessons.
                4.  Activities * * * (ie. art, museum,
     swimming).

                     *   *   *    *      *   *   *

          The following will not be approved as a special
     allowance.
          1. Gifts. (ie. birthday, Christmas)
          2. Transportation for family recreational
     activities or shopping.
          3. Special clothes for confirmations, first
     communion, baptism or [bar mitzvahs].
          4. School Uniforms.

     On Schedule A of their 1991 Federal income tax return,

petitioners reported a charitable contribution "by cash or check"

of $24,286.   Of this amount, contributions of $9,185 to various

charities are not in dispute.    The remaining $15,101 was claimed

by petitioners as excess foster care expenses over amounts

reimbursed to them by Monroe County.

     Petitioners calculated the $15,101 figure in the following

manner.   First, based on the number of people in their household

(five), petitioners totaled the following "indirect expenses" for

1991 and allocated one-fifth to their foster child:   Fair rental

value of petitioners' home at 30 Trowbridge Trail; fair rental

value of petitioners' summer cottage at 32 Ladoga Park Road,
                               - 6 -

Lansing, New York; fair rental value of all furnishings in their

home and cottage; fair rental value of their 2-week use of a

condominium at Sanibel Island, Florida; fair rental value of

petitioners' boat, sailboat, and waverunner; utilities;

landscaping and repair expenses; country club dues and expenses;

and automobile mileage for family trips.   The sum of these items,

as initially computed by petitioners, was $123,507.   One-fifth of

this equaled $24,701.

     Next, petitioners added actual out-of-pocket expenses

attributable to their foster child for 1991.   These included the

following:   Food expenses directly attributable to their foster

child; clothing/toys purchased; educational expenses; babysitting

expenses; medical expenses; recreation expenses; and the

allowance given to their foster child.   The sum of these out-of-

pocket expenses, as initially calculated by petitioners, was

$6,438.   The total for both the indirect and out-of-pocket

expenses was $31,139.

     Petitioners then reduced the amount of the indirect and out-

of-pocket expenses by the $9,539 they received from Monroe

County.   This left an interim amount of $21,600.

     Last, petitioners reduced the $21,600 by $6,499.   This

resulted in the $15,101 charitable contribution deduction claimed

on their 1991 return for foster care expenses in excess of

reimbursement.
                                - 7 -

     At trial, petitioner husband explained the $6,499 reduction

as follows:

     As we went through it [the return preparer's worksheet]
     item-by-item, I thought some items that we were using
     weren't primarily for the benefit of the child or the
     children, especially the condominium in Florida, and I
     * * * felt we should back those items out, so we backed
     some items out and reduced the figure.

Petitioner husband believed their charitable deduction should be

more conservative than the amount calculated by their return

preparer.    Petitioner husband eliminated the allocated portion of

the fair rental value of the Florida condominium, boat, sailboat,

and waverunner.

     Respondent disallowed petitioners' $15,101 charitable

deduction attributable to unreimbursed foster care expenses.

     The parties stipulated that petitioners made the following

direct out-of-pocket expenditures for the care of their foster

child in 1991:

            Food                $1,739
            Clothing/toys        2,985
            Education              150
            Babysitting          1,200
            Medical                 50
            Recreation             360
            Allowance              102

            Total               $6,586

     Respondent acknowledges that petitioners are entitled to a

charitable contribution deduction for their direct out-of-pocket

expenses in excess of amounts reimbursed by Monroe County.

Respondent argues that although petitioners have incurred direct
                                - 8 -

out-of-pocket expenses of $6,586, they were reimbursed $9,539 by

Monroe County, and therefore there are no unreimbursed direct

out-of-pocket expenses for which petitioners are entitled to a

charitable deduction under section 170.

       On brief, petitioners concede that they are not entitled to

a deduction for one-fifth of their indirect expenses; i.e., the

fair rental value of their home, vacation cottage, utilities,

etc.    Petitioners contend, however, that the $8,559 received from

Monroe County as a board payment reimburses (or partially

reimburses) them for the one-fifth of these indirect costs

attributable to their foster child.     Petitioners further contend

that the direct out-of-pocket expenses listed above have only

been reimbursed to the extent of the $509 clothing allowance.

(Petitioners neglect to mention the $471 of special allowances

they received.)    Consequently, petitioners claim they are

entitled to a charitable contribution deduction in the amount of

$6,077 for their unreimbursed direct out-of-pocket expenses

($6,586 out-of-pocket expenses - $509 clothing allowance =

$6,077).

       In the alternative, petitioners argue that if this Court

finds that they have been reimbursed by a portion of the board

payment for the food expenses of $1,739 directly attributable to

their foster child, they should be allowed a charitable

contribution deduction of $4,338 for the unreimbursed direct out-

of-pocket expenses incurred to care for their foster child
                                - 9 -

($6,586 out-of-pocket expenses - $1,739 portion of board payment

for food expenses    - $509 clothing allowance = $4,338).

     Deductions are a matter of legislative grace.      New Colonial

Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).      Petitioners bear

the burden to prove they are entitled to the deductions they

claim.    Welch v. Helvering, 290 U.S. 111, 115 (1933); Rule

142(a).

     Section 170 allows a deduction for any charitable

contribution to or for the use of an entity organized and

operated exclusively for religious, charitable, scientific,

literary, or educational purposes.      Section 1.170A-1(g), Income

Tax Regs., provides, in pertinent part, that "unreimbursed

expenditures made incident to the rendition of services to an

organization contributions to which are deductible may constitute

a deductible contribution."    In applying section 1.170A-1(g) to

amounts expended by individuals who provide foster care, the

Internal Revenue Service has ruled that "foster parents are

entitled to a charitable contribution deduction within the

limitations of section 170 of the Code for any unreimbursed out-

of-pocket expenses incurred in supporting a foster child."       Rev.

Rul. 77-280, 1977-2 C.B. 14, 17.

     There is no question that the foster care reimbursements

petitioners received from Monroe County are not taxable income

under section 131.    In the instant case, petitioners claim their

total foster care expenses exceed their reimbursement.      As
                              - 10 -

mentioned, petitioners are entitled to deduct unreimbursed

expenditures made incident to the rendition of services to an

organization contributions to which are deductible.   Sec. 1.170A-

1(g), Income Tax Regs.   In other words, although Congress granted

most foster parents relief from tax recordkeeping in section 131

(as detailed in Cato v. Commissioner, 99 T.C. 633, 641-643

(1992)), if foster parents keep records which show they expended

more than they were reimbursed, they are entitled to deduct the

excess under section 1.170A-1(g).   (We note that the New York

State Department of Social Services and Monroe County require

foster parents to keep extensive records concerning their foster

children:   "Foster parents are to keep specific financial,

school, health, visitation and child adjustment records/logs".)

Thus, in this case we must decide which expenses have been

reimbursed by the $9,539 petitioners received from Monroe County

to determine the unreimbursed expenses, if any.

     The Monroe County Department of Social Services, the agency

responsible for petitioners' foster child, is an organization,

contributions to which are deductible.   For 1991, petitioners

received from Monroe County a board payment of $8,559, a clothing

allowance of $509, and special allowances of $471, for a total

reimbursement of $9,539.

     Concerning the board payment, the Monroe County Department

of Social Services Foster Parent Manual explains that the
                               - 11 -

     board rate covers the cost of the child's food,
     personal care items, allowance as well as his share of
     the cost of shelter, household incidentals,
     furnishings, family recreation and transportation
     related to shopping, church, school or family
     recreational activities.

The Foster Parent Manual also specifically designates that a

foster child's allowance "is to be taken out of the monthly board

rate."   Additionally, the Monroe County Department of Social

Services Foster Boarding Home Rate Schedule provides that the

board rate "includes the cost of shelter, food, personal care,

household furnishings and operations, education and recreation,

transportation and parent supervision."   Further, as stated by

respondent on brief:

     [Monroe] County's reimbursement rates for foster
     parents are carefully calculated and designed to
     reimburse foster parents for the reasonable costs of
     caring for their foster children, including shelter,
     utilities, and other general household expenses.
     [Emphasis added.]

     We must agree with petitioner wife that all the attendant

expenses associated with raising a foster child are simply not

covered by governmental funds.   We also observe that petitioners

are exceptional individuals.   Even though they are relatively

affluent, they have the generosity to undertake the care of those

less fortunate.

     Concerning the special allowances payments, the Foster

Parent Manual states that special allowances "reimburse foster

parents for the cost of attire, activities/events, transportation

or special items which enhance a foster child's self esteem,
                              - 12 -

encourage his ego development or assist his treatment plan".    For

1991, petitioners received the $471 of special allowances for the

following expenses (which comprise a portion of the stipulated

out-of-pocket expenses under the categories of education and

recreation):   Ski program $50; swimming $72; tutoring $240;

parking for jazz dance lessons $109.

     Based on the foregoing, we find that the board payment of

$8,559 and the special allowances of $471 reimbursed petitioners

for the following out-of-pocket expenses:    Food expenses of

$1,739; education expenses of $150; recreation expenses of $360;

and allowance expenses of $102.    We find that the remainder of

the board payment reimbursed petitioners, at least partially, for

their indirect expenses with respect to their foster child.

     For 1991, petitioners also received a clothing allowance of

$509, which was a partial reimbursement for the stipulated out-

of-pocket clothing expenses of $2,985.

     On this record, we conclude that the following out-of-pocket

expenses attributable to petitioners' foster child were not

reimbursed:

                   Clothing/toys            $2,476
                   Babysitting               1,200
                   Medical                      50

                    Total                   $3,726

     In summary, petitioners incurred $6,586 in direct out-of-

pocket expenses, and were reimbursed $2,860 for these expenses.

Consequently, petitioners are entitled to a charitable deduction
                             - 13 -

in the amount of $3,726 for the unreimbursed out-of-pocket

expenses they incurred in providing care and support to their

foster child in 1991.

     To reflect the foregoing,

                                        Decision will be entered

                                   under Rule 155.
