                   T.C. Summary Opinion 2010-138



                      UNITED STATES TAX COURT



                  GILBERT SAUNDERS, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 22122-05S, 3462-06S.   Filed September 20, 2010.



     Lawrence J. Avallone, for petitioner.

     Harry J. Negro, for respondent.



     CHABOT, Judge:   These cases were heard pursuant to section

7463.1   The decisions to be entered are not reviewable by any

other court, and this opinion shall not be treated as a precedent

for any other case.   Sec. 7463(b).


     1
      Unless indicated otherwise, all section references are to
sections of the Internal Revenue Code of 1986 as in effect for
the years in issue, except as to sec. 7463, which is as in effect
for proceedings commenced on the dates the petitions in the
instant cases were filed.
                                   - 2 -

     Respondent determined deficiencies in Federal individual

income taxes, penalties, and an addition to tax against

petitioner as follows:

                                            Penalty    Addition to Tax
   Docket No.   Year     Deficiency        Sec. 6662   Sec. 6651(a)(1)

   22122-05S    2002      $5,296       $1,059.20            -0-
                2003       4,845          -0-             $404.40

   3462-06S     2004       8,505           1,701.00         -0-

     After concessions by both sides,2 the issues for decision are:


     2
      Petitioner concedes he is not entitled to the education
credits he claimed for 2002 and 2003. Both sides have made
concessions regarding specific deductions on Schedule E,
Supplemental Income and Loss, for each of the years in issue;
these concessions are noted in the discussion infra part B.

     Respondent determined that petitioner filed his 2003 tax
return on June 18, 2004 (i.e., that the IRS received the tax
return on that date), and that petitioner is liable for a 15-
percent addition to tax for 2003 because of this late (i.e.,
after April 15, 2004) filing. At trial petitioner contended as
follows:

          We will show that Mr. Saunders justifiably relied
     on the expertise and the advice of his accountant.
     That a[n] allegedly late filing in the year 2003 was to
     some extent was not the fault of Mr. Saunders, but
     rather was the negligence of his accountant. Thank
     you, Your Honor.

     Petitioner testified that he was reasonably sure that he
received his claimed 2003 tax refund in March 2004 and so his
2003 tax return must have been filed timely. Respondent
introduced evidence that IRS records showed the 2003 tax return
was received on June 18, 2004, and petitioner’s claimed refund
was mailed on July 12, 2004. On brief petitioner does not refer
to this issue and does not object to respondent’s proposed
findings of fact. We conclude that petitioner has abandoned his
objection to imposition of the late filing addition to tax for
2003, at 15 percent, although the dollar amount of this addition
                                                   (continued...)
                                 - 3 -

           (1) Whether petitioner is entitled to any

     deduction for:

                  (a) specific expenses claimed on

           Schedule E, Supplemental Income and Loss,

           and, if so, then in what amounts;

                  (b) Schedule E depreciation expenses

           and, if so, then in what amounts; and

                  (c) charitable contributions and, if so,

           then in what amounts; and

           (2) whether petitioner is liable for accuracy-

     related penalties for 2002 and 2004 and, if so, then in

     what amounts.

                              Background

     The instant cases were consolidated for trial, briefing, and

opinion.

     Petitioner resided in Pennsylvania when the petitions in the

instant cases were filed.

     For convenience, we will combine our findings and analysis

issue by issue.




     2
      (...continued)
to tax is to be recalculated to take account of our
determinations and respondent’s concessions. See Palahnuk v.
Commissioner, 127 T.C. 118, 119 n.2 (2006), affd. 544 F.3d 471
(2d Cir. 2008); Petzoldt v. Commissioner, 92 T.C. 661, 683
(1989).
                                 - 4 -

                              Analysis

A.   In General

      In general, the Commissioner’s determinations as to matters

of fact in the notice of deficiency are presumed to be correct,

and the taxpayer has the burden of proving otherwise.    See Rule

142(a);3 Welch v. Helvering, 290 U.S. 111, 115 (1933).

Petitioner contends that section 7491(a) applies to shift the

burden of proof but does so only with regard to the deductions

for charitable contributions.    We deal with this matter in our

discussion of the charitable contribution deductions, infra part

C.   We deem petitioner’s lack of argument with respect to the

burden of proof on the remaining disputed deductions a concession

that he retains the burden of proof for those items.

      Section 7491(c) imposes on respondent the burden of

production with respect to the section 6662 penalties.    This will

be dealt with infra part D.     (Because we have concluded that

petitioner abandoned his opposition to imposition of the section

6651(a)(1) addition to tax for 2003, see supra note 2, we

conclude that section 7491(c) does not impose on respondent any

burden of production with respect to that issue.    If respondent

had had this burden, then we would have held that respondent had

carried this burden.)



      3
      Unless indicated otherwise, all Rule references are to the
Tax Court Rules of Practice and Procedure.
                                - 5 -

B.   Schedule E Deductions

      Petitioner owned rental real estate in Philadelphia,

Pennsylvania (hereinafter sometimes referred to as the

Philadelphia Property), during each of the years in issue.    The

Philadelphia Property includes a three-story building, each story

of which contains a separate apartment.

      1.   Specific Deductions for 2002

      Petitioner claimed $13,468 of expense deductions on his 2002

tax return Schedule E on account of the Philadelphia Property.

Respondent disallowed the entire amount.

            (a) Agreed Items

      The parties agree that the amounts set forth in table 1 are

deductible in full for 2002.

                               Table 1

                 Company                     Item        Amount

      West Philadelphia Locksmith Co.     Lock change        $85
      Weinstein Supply                    Plumbing            54
      King Tu, Inc.                       Storm door          57
      Tommy D’s Home Improvement          Compound             5
        Total                                                201

      The parties agree that the amounts set forth in table 2 are

to be capitalized and depreciated under the modified accelerated

cost recovery system (hereinafter sometimes referred to as

MACRS).
                                   - 6 -
                                   Table 2

                                                               Recovery
           Company              Item              Amount     Period (Yrs.)

Alarmist Security Systems   Fire alarm            $1,551         27.5
Southwest Vinyl Windows     Windows                  614         27.5
ACAR Refrigeration, Inc.    Range, refrigerator      375          5.0
  Total                                            2,540

     The amounts that are deductible for 2002 are to be

calculated in the computations under Rule 155.             As a result of

the parties’ agreement, appropriate amounts (hitherto unclaimed)

also will be deductible for 2003 and 2004.

           (b) Disputed Items

     The parties dispute the remaining $10,727 of items.                The

items, and our dispositions, are set forth in table 3.               We

consider the items seriatim.

                                  Table 3

        Company                        Item                Claimed    Allowed1

   Neighborhood Spirit         Homeowner’s insurance        $1,109        -0-
     Property & Casualty

   Vincent Goffredo            Plumbing repairs              2,025      $2,025
     Registered Plumbing
     & Heating, Inc.

   ADR Services, Inc.          Bathtub refinishing             335         335

   Z.T. Home Remodeling        Kitchen renovation            4,800        4,800
     and Repairs

   Chester Muhammad            Accounting services             600         200

   Other                       Other                         1,858        -0-
           1
           The $4,800 item is to be capitalized and
     depreciated under MACRS over a 27.5-year recovery
     period, with appropriate amounts deductible for 2003
     and 2004. See text immediately following table 2,
                                  - 7 -

     supra. The other allowed items are deductible in full
     for 2002. We note that sec. 179 (relating to election
     to expense certain depreciable assets) does not apply
     to any of the capitalized items involved in the instant
     cases. See LaPoint v. Commissioner, 94 T.C. 733, 735-
     736 (1990).

                  (1) Homeowner’s Insurance

     Petitioner contends that he paid $1,109 for homeowner’s

insurance for the Philadelphia Property in 2002.     He relies on an

exhibit that is an expiration notice from the insurance company.

The notice states that the due date was February 20, 2002 (the

date of the notice is February 27, 2002), but:     “If payment is

received within 15 days after the due date, your policy will

renew without interruption of coverage.”      Petitioner testified:

          Q [Petitioner’s counsel] Okay. What is the
     total amount of the homeowners insurance for that
     property?

            A   [Petitioner]   $1,109.31.

          Q And is it your testimony today that you paid
     your homeowners insurance?

           A Yes. What I do is, I pay it in two parts. I
     pay it in February, and I paid as is indicated in the
     last line, $561.65, and I have to pay the balance in
     June.

     Respondent contends that (1) the one exhibit petitioner

presented showed that petitioner had not paid, (2) petitioner did

not present any checks or other proofs of payment, and (3)

petitioner presented no evidence as to 2003 and 2004, “which

leads to the inference that the policy did expire and was never

renewed.”
                               - 8 -

     Petitioner claimed the amounts shown in table 4 on his

Schedules E as insurance expenses.

                              Table 4

                     Year                Amount

                     2002               $1,250
                     2003                1,400
                     2004                1,400

     Petitioner did not provide any documents (even past due

notices) as to his claimed insurance expense deductions for 2003

and 2004, nor did he testify as to those years.    Although on

brief petitioner contends he paid $1,109 for insurance on the

Philadelphia Property in 2002 (not the $1,250 he claimed on his

2002 tax return), we have not found any contention on brief as to

the claimed homeowner’s $1,400 insurance deductions for 2003 and

2004.

     We conclude that it is more likely than not that petitioner

let the insurance lapse and never made any of the claimed

insurance payments on the Philadelphia Property.    We so hold.

               (2) Plumbing Repairs

     Petitioner contends that he paid $2,025 in 2002 to Vincent

Goffredo Registered Plumbing & Heating, Inc. (hereinafter

sometimes referred to as Goffredo), for plumbing repair work on

the Philadelphia Property.   Respondent contends there are flaws

in the Goffredo invoice petitioner presented and that the invoice

does not show that it was paid; respondent concludes the analysis
                                - 9 -

as follows:    “The invoice by itself does not substantiate that

the claimed expenditure was actually paid.”

     The exhibit is labeled “Statement”, and states that payment

is due “Upon Receipt”.    The exhibit is dated “5-8-02”, which

respondent concedes is May 8, 2002.     Next to the exhibit’s

description of plumbing work done in the basement and side yard

of the Philadelphia Property is the date “5-1-3”.     At trial

respondent’s counsel read it as “5-1-03”.     On brief respondent

interprets it as “May 1, 2003.”    It is evident that an invoice or

statement dated May 8, 2002, is not requiring payment “Upon

Receipt” for work to be done May 1, 2003.     Also, the exhibit’s

description of the work is in the past tense.     The obvious

interpretation of “5-1-3” is that the work was done between May 1

and May 3, consistent with petitioner’s testimony.     Thus, we

reject respondent’s proposed finding of fact that “Exhibit 6-J

has conflicting dates as to the year.”

     Respondent does not contend that this item should be

capitalized.

     We conclude that it is more likely than not that the work is

a repair item and that petitioner paid the $2,025 stated amount

in 2002.   Petitioner is entitled to deduct the full $2,025 for

2002.   We so hold.
                              - 10 -

               (3) Bathtub Refinishing

     Petitioner contends that he paid $335 to ADR Services, Inc.,

in 2002 for stripping and refinishing the bathtub in the third

floor apartment of the Philadelphia Property.   Respondent

contends that petitioner has not shown documentary evidence that

the ADR Services invoice was paid.

     The invoice and petitioner’s testimony convince us that it

is more likely than not that petitioner paid the $335 invoice

amount, that the work is a repair item that need not be

capitalized (respondent does not contend for capitalizing), and

that the full $335 is deductible for 2002.   We so hold.

               (4) Kitchen Renovation

     On his 2002 tax return petitioner claimed a $4,800 deduction

for kitchen renovation.   Respondent disallowed the entire amount.

On brief petitioner concedes that the $4,800 should be

capitalized and depreciated under MACRS over a 27.5-year period.

Respondent continues to maintain that no deduction should be

allowed, but as a backup, states on brief:

          If the Court determines that Exhibit 4-J is
     adequate substantiation for the second floor
     renovations, the Court should hold that the expenditure
     is capital in nature. The installation of a new
     kitchen certainly adds value to the property.
     Petitioner may not deduct capital expenditures as a
     current expense. I.R.C. § 263(a). The alleged second
     floor renovation is a structural upgrade to the
     existing residential real estate and would be
     depreciated under MACRS on a straight line basis with a
     recovery period of 27.5 years. I.R.C. § 168(b)(3)(B)
     and I.R.C. § 168(c).
                              - 11 -

     In support of petitioner’s contention he offered his own

testimony and an exhibit that purports to be a “job work order”

from Z.T. Home Remodeling and Repairs.    The document references

Zebaler Thomas, Sr., who is hereinafter sometimes referred to as

Thomas.   The document is hereinafter sometimes referred to as the

2002 Thomas job work order.

     Respondent’s analysis appears to be an attack on the

adequacy of the 2002 Thomas job work order as substantiation of

the claimed deduction.   Respondent appears to take the position

that petitioner has even failed to show that there was a kitchen

renovation in 2002.

     Although the matter is not free from doubt, on the basis of

the 2002 Thomas job work order and petitioner’s testimony we

conclude that it is more likely than not that petitioner paid

$4,800 in 2002 for the renovation of the kitchen in the second

floor apartment of the Philadelphia Property.4   We so hold.

                (5) Accounting, Other

     The foregoing disposes of all but $2,458 of the disallowed

claimed Schedule E expenses for 2002.    On his Schedule E

petitioner claimed a deduction for $600 of legal and other

professional fees.




     4
      We note that the effect of this resolution is to disallow
substantially all of the claimed 2002 deduction.
                              - 12 -

     Chester Muhammad (hereinafter sometimes referred to as

Chester), assisted by his daughter, Chalamar Muhammad

(hereinafter sometimes referred to as Chalamar), were

petitioner’s accountants.   Chester, assisted by Chalamar,

prepared petitioner’s tax returns for each of the years from 1997

through the years in issue.   Petitioner did not substantiate the

$600 claimed deduction.   Yet, he must have paid Chester or

Chalamar for their business accounting services.   Bearing heavily

against petitioner because the inexactitude is of his own making,

we conclude that he paid at least $200 for these services in 2002

and is entitled to deduct $200.   See Cohan v. Commissioner, 39

F.2d 540, 543-544 (2d Cir. 1930).   We so hold.

     As to all 2002 Schedule E specific expense deductions not

otherwise disposed of, we conclude that petitioner has failed to

carry his burden of proving error in respondent’s determinations.

We so hold.

     2.   Specific Deductions for 2003

     Petitioner claimed $12,200 of expense deductions on his 2003

tax return Schedule E on account of the Philadelphia Property.

Respondent disallowed the entire amount.

     Repairs of $5,000 were included in the $12,200 so claimed

and disallowed.
                                   - 13 -

            (a) Agreed Items

       The parties agree that the amounts set forth in table 5 are

deductible.

                                   Table 5

                  Item             Amount       Tax Treatment1

   Unspecified repair items         $681     Currently deductible
   ACAR Refrigeration, Inc.          350     Capitalized; MACRS; 5 yrs.
   Colonial Iron                   1,150     Capitalized; MACRS; 15 yrs.
            1
             As to the capitalized items, appropriate amounts
       (hitherto unclaimed) also will be deductible for 2004.
       See text immediately following table 2, supra.

            (b) Disputed Items

                    (1) Flooring

       Petitioner spent $219 for 70 square feet of porcelain tile

and related materials and included the deduction in the repairs

category.       Petitioner contends the $219 is currently deductible.

Respondent contends the $219 should be capitalized under MACRS

with a 27.5-year recovery period.

       Petitioner testified that the tiles and other materials were

for a bathroom or kitchen floor and that such tile floors are not

replaced every year.       Petitioner does not explain on brief or in

his testimony why the flooring cost should be deductible in full

for 2003.       We will not conjure up plausible possibilities for

him.

       We conclude that the $219 must be capitalized.       Section

168(c) provides that the recovery period for residential rental
                               - 14 -

property is 27.5 years.   Petitioner has not suggested that any of

the seven shorter recovery periods listed in section 168(c)

applies.   We conclude that the $219 must be capitalized under

MACRS with a 27.5-year recovery period.    We so hold.   As with the

other capitalized items, an appropriate amount (hitherto

unclaimed) also will be deductible for 2004.    See text

immediately following table 2, supra.

                 (2) Accounting, Other

     The foregoing disposes of all but $9,800 of the disallowed

claimed Schedule E expenses.    On his Schedule E petitioner

claimed a deduction for $600 of legal and other professional

fees.

     For the reasons set forth in our analysis of 2002 expenses,

we conclude that petitioner paid at least $200 for Chester’s

accounting services in 2003 and is entitled to deduct $200.    We

so hold.

     As to all 2003 Schedule E specific expense deductions not

otherwise disposed of, we conclude that petitioner has failed to

carry his burden of proving error in respondent’s determinations.

We so hold.

     3.    Specific Deductions for 2004

     Petitioner claimed $29,547 of expense deductions on his 2004

tax return Schedule E on account of the Philadelphia Property.

Respondent disallowed the entire amount.    Repairs of $22,000 were
                                - 15 -

included in the $29,547 so claimed and disallowed, as was $1,600

described as “fire control box”.

           (a) Agreed Items

     The parties agree that petitioner is entitled to deduct (1)

$110 for the smoke detectors in the second floor apartment (we

assume this is a part of the tax return’s $1,600 fire control box

item) and (2) $90 for a housing inspection license (which the

parties have not further identified as to tax return category).

           (b) Disputed Items

                (1) Remodeling of Third Floor Apartment

     On his tax return petitioner claimed a $22,000 deduction for

repairs.   On brief he concedes that the $22,000 should be

capitalized and depreciated under MACRS with a recovery period of

27.5 years.   Respondent contends that no deduction should be

allowed, but that if we find that there was a remodeling of the

third floor apartment, then the cost should be capitalized and

depreciated under MACRS with a recovery period of 27.5 years.

     Petitioner’s concession as to capitalization disposes of

substantially all of the $22,000 claimed deduction.   There

remains for our determination whether any deduction at all should

be allowed for 2004 on account of this item.

     In support of his contention petitioner offered his own

testimony that “We redid the whole third floor”, and four

exhibits; the exhibits are hereinafter sometimes collectively
                               - 16 -

referred to as the 2004 Thomas job work order.       Three of these

four exhibits, each of which is described in table 6, are Z.T.

Home Remodeling and Repairs job work orders.       (In the various

documents and petitioner’s testimony, “renovation” and

“remodeling” appear to be used interchangeably.       For convenience,

we will use “remodeling”.)

                               Table 6

          Item             Exh. 22-J     Exh. 23-J    Exh. 24-J

     Date of order         2/18/04        6/1/04        6/1/04
     Start date            2/20/04        6/3/04        6/3/04
     Date completed        4/18/06        7/1/04       8/30/04
     Materials             $5,000          $800         $8,000
     Labor                 15,000         1,200         12,000
       Total               20,000         2,000         20,000

The fourth exhibit (Exhibit 30-P) is a letter from Thomas, dated

September 24, 2007, stating as follows:

     To Whom It May Concern:

     Please note that I completed a remodeling project at
     the above referenced property for $20,000 total. This
     amount was paid in cash per the attached invoice.

The referenced “attached invoice” is a copy of Exhibit 22-J.

     Petitioner testified that the April 18, 2006, completion

date shown on Exhibit 22-J was a mistake; the work was completed

on April 18, 2004.    He did not explain how it was that, years

later when Exhibit 30-P was generated and trial preparations were

under way, neither Thomas nor petitioner noticed the 2006

completion date error.
                               - 17 -

     As table 6, supra, shows, Exhibits 22-J and 24-J state

different dates for order, start, and completion.     Petitioner

explained as follows:

          Q [Respondent’s counsel]      And so something is
     wrong; is that correct?

          A [Petitioner] Like I said, Mr. Negro, where
     this invoice [Exh. 24-J] came was probably later. This
     [Exh. 22-J] is the original. There were so many files
     and documents given to my attorney. I had asked if
     this was in there, and I had asked Mr. Thomas to draft
     me -- to write an estimate based on the best of his
     ability to the work that he did on the third floor.

          He didn’t have anything, and didn’t have any
     copies of his invoice. It was a simple error, but the
     work was done.

On redirect examination petitioner gave essentially the same

explanation, including the statement that “he [Thomas] didn’t use

the same dates because he didn’t have a copy.”     Notwithstanding

petitioner’s explanation, Exhibit 30-P includes a copy of Exhibit

22-J.   Evidently, Thomas did have Exhibit 22-J in his files and

so it was not necessary for Thomas to try to reconstruct from

memory what was on the original job work order.     On re-cross-

examination petitioner explained that he gave to Thomas the copy

of Exhibit 22-J that Thomas attached to the cover letter to

create Exhibit 30-P.    But if petitioner had Exhibit 22-J all the

time, then why did he ask Thomas to create from memory what

became Exhibit 24-J?    However one cuts them, the pieces

petitioner presents do not fit together.
                              - 18 -

     Exhibit 23-J is another dangling part of the picture.    That

exhibit also states that it is for remodeling the third-floor

apartment of the Philadelphia Property; the stated cost is

$2,000.   Petitioner testified that “22-J and 23-J are valid.”    In

the cover letter portion of Exhibit 30-P Thomas states that

“$20,000 total” was his charge for the “remodeling project”.

What, then, does the $2,000 cost on Exhibit 23-J relate to?

     Finally, we deal with petitioner’s testimony as to payment.

Petitioner testified he paid the $20,000 total remodeling cost in

cash, $5,000 “to start with, and I paid 15 upon completion.”

Petitioner variously explained that he may have gotten the cash

from either (1) a credit line, (2) an advance on his credit

cards, or (3) his wife.5   Twenty thousand dollars was not a small

amount for petitioner in 2004, when he reported wages of

$59,228,6 taxable interest of $97, and rent receipts of $4,800.

We are troubled by petitioner’s inability to search his records,

obtain records from credit card companies, obtain testimony from

his “wife”, or otherwise explain his source for the asserted

$20,000 of cash.



     5
      Though petitioner testified he may have gotten the $20,000
from his wife, he filed his income tax returns as a single person
for each of the years in issue. This apparent inconsistency was
not explained, and we leave the parties where we find them on
this issue.
     6
      Petitioner’s 2004 tax return shows that $13,729 had been
withheld as taxes from his $59,228 wages.
                               - 19 -

     Petitioner’s testimony and the conflicting substantiating

documents in the 2004 Thomas job work order convince us that it

is more likely than not that any such remodeling and payment did

not occur, at least not in 2004.    Thus, there is nothing to

capitalize and deduct, even in part, for 2004.    We so hold.

               (2) Accounting, Other

     The foregoing disposes of all but $7,347 of the disallowed

claimed Schedule E expenses.

     Unlike the 2002 and 2003 Schedules E, petitioner’s 2004

Schedule E did not claim any deduction for legal and other

professional fees.   On brief petitioner does not refer to any

2004 Schedule E specific expense deduction items other than those

dealt with supra.    We conclude that petitioner has conceded all

of the remaining $7,347.    We so hold.

     Petitioner introduced a letter from Chalamar stating that

petitioner “utilized my company’s professional services for the

tax year 2004 for the total amount of $600.00.”    (The record does

not include similar evidence for 2002 or 2003.)    However,

petitioner did not claim a deduction for such an expense on his

2004 tax return (neither on Schedule E nor on Schedule A,

Itemized Deductions).    Petitioner did not contend in his

posttrial briefs that any such deduction should be allowed, and

he did not comment on respondent’s proposed findings of fact

regarding that letter.   We conclude that petitioner abandoned
                              - 20 -

whatever purpose he had at trial in offering that letter.     See

supra note 2.   We so hold.

     4.   Depreciation Deductions, 2002-2004

     Petitioner claimed $1,725 in depreciation deductions for the

Philadelphia Property for each of the years in issue.    This was

determined by using the straight-line method, a cost basis of

$69,000, and a useful life of 40 years.    Respondent disallowed

the entire deduction for each of those years.    Respondent

contends that petitioner did not establish the Philadelphia

Property’s basis or the recovery period for the related

depreciation deductions.

     Petitioner’s father transferred the Philadelphia Property to

petitioner for a stated price of $1 on April 30, 1986.    Attached

to the grantor deed is a certification (“required by City of

Philadelphia real estate transfer tax ordinance”) that “The fair

value of the property is * * * $12,000.”    From the schedules

attached to petitioner’s 2003 and 2004 tax returns, we gather

that petitioner had claimed $9,252 in depreciation before 2002.

(Petitioner’s 2002 tax return does not appear to include any

comparable schedule.)

     In the face of respondent’s determinations disallowing the

entire claimed depreciation deduction for each year in issue,

petitioner failed to provide any information from which we could

determine (a) petitioner’s basis in the Philadelphia Property
                                - 21 -

when he acquired the property in 1986, (b) how much depreciation

petitioner had successfully claimed in the years after the

acquisition and before the years in issue, or (c) whether

petitioner had any depreciable basis left at the start of the

years in issue.   See secs. 167(c), 1016(a).    Accordingly, we

conclude that petitioner failed to show any error in respondent’s

determinations on this matter.    We so hold.

C.   Charitable Contributions

      Petitioner is entitled to deduct his charitable

contributions.    See sec. 170(a).

      We consider first petitioner’s contention as to the burden

of proof for all 3 years in issue, and then the allowability of

the claimed charitable contribution deductions for each of these

years.

      1.   Burden of Proof

      Section 7491(a) imposes the burden of proof on the

Commissioner as to a factual issue if certain conditions have

been met, including as here relevant:    (1) The taxpayer has

introduced credible evidence on that issue; (2) the taxpayer has

substantiated the item in accordance with the Internal Revenue

Code’s requirements; (3) the taxpayer has maintained all records

required under the Internal Revenue Code; and (4) the taxpayer

has cooperated with reasonable requests by the Commissioner for

witnesses, information, documents, meetings, and interviews.
                               - 22 -

     Petitioner contends:

          In the case presently before the Court, the
     taxpayer has met and exceeded the aforesaid
     requirements, certainly going well beyond that of a
     frivolous claim or tax-protester type argument.

          Petitioner introduced the testimony of Reverand
     [sic] Charles Vincent Daniels, Sr., Reverand [sic] of
     Ebenezer Baptist Church. (exhibit 35-J) to supplement
     the written documentation and substantiation offered in
     regard to the charitable contribution deductions taken
     in regard to the relevant tax years.

     Respondent contends petitioner has not satisfied any of

these requirements.

     On his tax returns petitioner claimed charitable

contribution deductions as shown in table 7.

                               Table 7

                  Item         2002       2003     2004

              Cash or check   $4,000     $7,000   $7,500
              Other1             500       -0-      -0-
                Total          4,500      7,000    7,500
          1
           The only explanation of this item on petitioner’s
     2002 tax return is “SALVATION ARMY”. The tax return
     does not include any description of the property
     asserted to have been contributed.

     The only document petitioner submitted in support of his

2002 deduction was a “self-prepared” (i.e., not prepared by or on

behalf of the charitable donee) list showing that on every Sunday

in 2002 petitioner contributed cash to the Ebenezer Baptist

Church; the list showed contributions of $100 on each of the

first 2 Sundays and $86 on each of the remaining 50 Sundays.

Petitioner submitted similar documents in support of his 2003 and
                                - 23 -

2004 deductions.     All were prepared by Chester, assertedly from

notebooks in which petitioner recorded each week the contribution

he made that week.

     The 2002 document conflicts with petitioner’s 2002 tax

return, also prepared by Chester, in that the document shows

$4,500 of cash contributions to Ebenezer Baptist Church, while

the tax return shows $500 of the same $4,500 total was noncash

contributed to the Salvation Army.       Petitioner ignores these

conflicts in his testimony7 and on brief.


     7
      Petitioner testified as follows:

          Q [Petitioner’s counsel] All right. Now in the
     year 2002, if you will look at the second page, you see
     at the bottom right-hand corner a little box with a
     grand total?

          A   [Petitioner]    Yes.

          Q   And could you read that number, please?

          A   $4,500.

          Q Okay. Is that the amount of money that you are
     testifying that you contributed to Ebenezer Baptist
     Church in the year 2002?

          A   Yes.

          On cross-examination, when petitioner was
     confronted by the conflict between the document and his
     testimony on the one hand, and his 2002 tax return on
     the other hand, he testified as follows:

          Q [Respondent’s counsel] So can we agree that
     either your income tax return is wrong or this
     statement is wrong?

                                                        (continued...)
                              - 24 -

     Petitioner testified that each of his weekly contributions

was a tithe, which he testified was 10 percent of his gross

salary, for a total of $4,500.   Petitioner’s tax return shows his

2002 gross salary was $38,755 (from Pennsylvania Power and

Lighting), 10 percent of which is $3,876.   For 2003 the tithes8

totaled $5,200, while 10 percent of petitioner’s gross salary was

only $3,790.   For 2004 the tithes9 totaled $5,200, while 10

percent of petitioner’s gross salary was $5,923.   Petitioner



     7
      (...continued)
          A No, everything is valid as it is.

     Perhaps petitioner was trying to emulate the White
Queen’s advice to Alice:

               “Now I’ll give you something to believe.
          I’m just one hundred and one, five months and
          a day.”
               “I ca’n’t believe that!” said Alice.
               “Ca’n’t you?” the Queen said in a
          pitying tone. “Try again: draw a long
          breath, and shut your eyes.”
               Alice laughed. “There’s no use trying,”
          she said: “one ca’n’t believe impossible
          things.”
               “I daresay you haven’t had much
          practice,” said the Queen. “When I was your
          age, I always did it for half-an-hour a day.
          Why, sometimes I’ve believed as many as six
          impossible things before breakfast.”

     Dodgson, C.L., The Complete Works of Lewis Carroll
     (Through the Looking-Glass) 200 (Modern Library ed.).
     8
      In addition, petitioner’s 2003 document showed $1,800 of
“pastors offering”, about which more infra.
     9
      In addition, petitioner’s 2004 document showed $2,300 of
“pastors offering”, about which more infra.
                              - 25 -

testified that he had gotten a raise in 2003 and that was why his

charitable contributions increased from $4,500 in 2002 to $7,000

in 2003.   When confronted with his tax returns showing 2002 wages

of $38,755 and 2003 wages of $37,900, petitioner conceded that in

fact he had not gotten a raise in 2003.   Petitioner did not

revise his “tithe” explanation at that point or later in the

trial or provide any other explanation on brief.

     Petitioner testified that he made his charitable

contributions each Sunday by first putting the cash into a plain

white envelope and then putting the envelope into a collection

plate as the plate was passed around.   Petitioner provided as a

corroborating witness Reverend Charles Vincent Daniels, Sr.

(hereinafter sometimes referred to as Daniels), pastor of the

Ebenezer Baptist Church.   In his deposition (because of time

constraints, Daniels was unable to testify at the trial), Daniels

stated that congregants or participants in the services make

their offerings by going to the front of the church and placing

their offerings “in baskets on a table in the front of the

church”.   He stated that the baskets are not passed around among

the congregants or participants.   Petitioner ignores this

conflict in his testimony and on brief.

     The documents petitioner submitted in support of his 2003

and 2004 deductions are essentially the same as the one for 2002,

but there are some differences.    One difference is that each of
                               - 26 -

the 2003 and 2004 documents shows a weekly “tithe” of $100 and a

weekly “pastors offering” of $34 or $45 or $50, as the case may

be.   In his deposition Daniels states that the pastor’s offering

did not start until after 2005.   Petitioner ignores this conflict

in his testimony and on brief.

      Each of the three documents is headed “IRS Tax Receipt”.

When asked why the documents use the word “receipt”, since none

of them is signed by anyone, much less by someone purporting to

act on behalf of the donee Ebenezer Baptist Church, petitioner

testified that he did not know.   Petitioner testified that he

never asked Chester about this and Chester never explained why

the word “receipt” was used.

      The first requirement of section 7491(a) is that the

taxpayer provide credible evidence.     As we noted in Higbee v.

Commissioner, 116 T.C. 438, 442 (2001),

           In order for section 7491(a) to place the burden
      of proof on respondent, the taxpayer must first provide
      credible evidence. The statute itself does not state
      what constitutes credible evidence. The conference
      committee’s report states as follows:

           Credible evidence is the quality of evidence
           which, after critical analysis, the court
           would find sufficient upon which to base a
           decision on the issue if no contrary evidence
           were submitted (without regard to the
           judicial presumption of IRS correctness).
           * * * [H. Conf. Rept. 105-599, at 240-241
           (1998), 1998-3 C.B. 747, 994-995.]

      After critical analysis it is clear that the evidence

provided by petitioner contains so many internal conflicts (i.e.,
                                - 27 -

conflicts in petitioner’s evidence and not based on any rebuttal

or contrary evidence presented by respondent) that we would not

find it sufficient to base a decision on this matter in favor of

petitioner.   Accordingly, we conclude that section 7491(a) does

not apply and the burden of proof on the charitable contribution

deductions issue has not been shifted to respondent.       Under the

circumstances, it is not necessary to consider the other

requirements imposed by section 7491(a).

     2.   Allowability of Deductions

     Respondent’s disallowances of petitioner’s charitable

contribution deductions resulted in the unchallenged remaining

itemized deductions being less than the standard deduction for

each of the years in issue.   Table 8 compares petitioner’s

claimed itemized deductions and the standard deduction.

                                Table 8

                                          2002    2003     2004

     Charitable contributions        $4,500      $7,000   $7,500

     Other itemized deductions           2,878    1,999    3,731

     Standard deduction                  4,700    4,750    4,850

     Amount by which the                 1,822    2,751    1,119
       standard deduction
       exceeds the other
       itemized deductions

     In the notices of deficiency respondent allowed the standard

deduction in lieu of all of petitioner’s itemized deductions for

each of the years in issue.   As a result, respondent’s
                              - 28 -

determinations must be sustained unless petitioner carries his

burden of proving, as to any of the years in issue, that he is

entitled to charitable contribution deductions greater than the

amount shown for that year10 on the last line of table 8.

     For the reasons explained supra in part C.1., Burden of

Proof, petitioner’s documents and his testimony are largely

discredited.   Petitioner testified that he recorded his Sunday

contributions in notebooks on Sunday afternoons, that he gave

these notebooks to Chester, and that Chester used the notebooks

to prepare petitioner’s tax returns and also the documents

(notwithstanding the above-noted conflicts between the documents

and the tax returns).   Petitioner did not produce any notebooks.

Chester is dead.   Chalamar sent a letter that does not deal with

this matter.

     Although petitioner may well have made deductible charitable

contributions to the Ebenezer Baptist Church in each of the years

in issue, we conclude that he has failed to carry his above-

described burden of proving, for any of the years in issue, that

his deductible contributions exceeded the amount shown on the

last line of table 8.   Thus, respondent’s determination is

sustained as to each of the years in issue.   We so hold.


     10
      For 2003 petitioner claimed an item that was subject to a
2-percent floor. As a result of other issues, that floor is
greater than the amount shown on petitioner’s tax return, so the
allowable deduction is less than that shown and the 2003 “excess”
will be greater than the amount shown in table 8.
                                 - 29 -

D.   Section 6662 Penalty

      For each of the years 2002 and 2004 respondent determined an

accuracy-related penalty under section 6662(a) for negligence or

disregard of rules or regulations.11

      Under section 6662(a) and (b)(1), a taxpayer may be liable

for a penalty of 20 percent of the portion of an underpayment of

tax due to, among other things, negligence or disregard of rules

or regulations.   The term “negligence” includes any failure to

make a reasonable attempt to comply with the provisions of the

internal revenue laws or to exercise ordinary and reasonable care

in the preparation of a tax return.       Sec. 6662(c); sec. 1.6662-

3(b)(1), Income Tax Regs.      “Negligence” also includes any failure

by the taxpayer to keep adequate books and records or to

substantiate items properly.      Stovall v. Commissioner, 762 F.2d

891, 895 (11th Cir. 1985), affg. T.C. Memo. 1983-450; Higbee v.

Commissioner, 116 T.C. at 449; sec. 1.6662-3(b)(1), Income Tax

Regs.

      The term “disregard” includes any careless, reckless, or

intentional disregard.      Sec. 6662(c).   Disregard of rules or

regulations is “careless” if the taxpayer does not exercise

reasonable diligence to determine the correctness of a return


      11
      Respondent determined, in the alternative for 2002 and
2004, accuracy-related penalties for substantial understatement
of income tax. Our ruling on the negligence alternative for 2002
and 2004 makes it unnecessary to analyze or rule on the
substantial understatement alternative.
                             - 30 -

position that is contrary to the rule or regulation.   Sec.

1.6662-3(b)(2), Income Tax Regs.   Disregard of rules or

regulations is “reckless” if the taxpayer makes little or no

effort to determine whether a rule or regulation exists, under

circumstances that demonstrate a substantial deviation from the

standard of conduct that a reasonable person would observe.     Id.

     Section 6664(c)(1) provides, in pertinent part, that the

section 6662(a) penalty shall not be imposed with respect to any

portion of an underpayment if a taxpayer shows that there was

reasonable cause for such portion and that the taxpayer acted in

good faith with respect to such portion.   Reasonable cause and

good faith may be indicated by an honest misunderstanding of fact

or law that is reasonable in light of the experience, knowledge,

and education of the taxpayer.   Sec. 1.6664-4(b)(1), Income Tax

Regs.

     Reliance on the advice of a tax professional also may

establish reasonable cause and good faith for the purpose of

avoiding liability for the section 6662(a) penalty.    The taxpayer

claiming reliance on a tax professional’s advice

     must prove by a preponderance of the evidence that the
     taxpayer meets each requirement of the following three-
     prong test: (1) The adviser was a competent
     professional who had sufficient expertise to justify
     reliance; (2) the taxpayer provided necessary and
     accurate information to the adviser; and (3) the
     taxpayer actually relied in good faith on the adviser’s
     judgment. * * *
                               - 31 -

Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 99

(2000), affd. 299 F.3d 221, 233-234 (3d Cir. 2002).    Reliance on

a return preparer is not reasonable where “even a cursory review”

of the tax return would reveal errors.     Metra Chem. Corp. v.

Commissioner, 88 T.C. 654, 662 (1987).

     Under section 7491(c), the Commissioner has the burden of

production with respect to liability for the negligence or

disregard penalty.   That is, the Commissioner must see to it that

the record includes sufficient evidence indicating that it is

appropriate to impose this penalty.     Higbee v. Commissioner, 116

T.C. at 446-447.   If the Commissioner satisfies this burden of

production, then the taxpayer has the burden of proving that (1)

the underpayment was not attributable to negligence or disregard

of rules or regulations, or (2) the reasonable cause exception

applies.   Idem.

     As we explained supra (in part C. Charitable Contributions),

petitioner produced at trial documents purportedly prepared by

Chester from notebooks petitioner gave to Chester memorializing

his weekly contributions.   The 2002 document contradicted

petitioner’s 2002 tax return, also prepared by Chester.    See

supra note 7.   Petitioner’s testimony as to tithing, as well as

the 2002 and 2004 documents, conflicts with the gross salaries

reported on his tax returns.   Petitioner’s testimony as to the

manner in which he made the contributions conflicts with his
                              - 32 -

witness’ explanation of the manner in which such contributions

were made in 2002 and 2004.

     Petitioner claimed a $1,500 education credit (Hope Credit)

for 2002; respondent disallowed it and included the disallowed

amount in the underpayment to which the negligence penalty

applies.   Petitioner conceded the disallowance.    Petitioner

testified that he did not have any idea what an education credit

was at the time he filed his 2002 tax return.     He testified that

he had not gone to school in 2002 and had “not been in school

since 1978”, when he received a bachelor’s degree from Cheney

University.   His only explanation for the claiming of the credit

was that this was some accountant’s manipulation of the tax code.

He did not discuss the education credit with Chester.

Petitioner’s claim of a $1,500 education credit on his 2002 tax

return is evidence of negligence.

     The bulk of the adjustments and the bulk of the trial time

dealt with Schedule E adjustments.     Petitioner’s documentary

substantiation was largely a hodgepodge, with few clear receipts.

Petitioner failed to keep adequate records or to substantiate

properly many of the items that he claimed and has since conceded

or that he disputed unsuccessfully.     Such a failure in the

instant cases is evidence of negligence.     See Higbee v.

Commissioner, 116 T.C. at 449.
                              - 33 -

     Petitioner deducted in full numerous expenditures that

petitioner now concedes were capital items.    See, e.g., supra

table 2; part B.1.(b)(4) Kitchen Renovation; and part B.3.(b)(1)

Remodeling of Third Floor Apartment.    As best we can tell from

petitioner’s evidence, it was obvious that these comparatively

large deductions were for capital items not currently deductible

in full.

     These items cause us to conclude that respondent has carried

the burden of production with respect to significant items on

petitioner’s 2002 and 2004 tax returns.12

     Petitioner argues that he reasonably relied on his

accountant for assistance.   But petitioner did not show that

Chester was a competent professional who had sufficient tax

expertise to justify reliance.   He testified that Chester was not

a certified public accountant.   We have not found anything in the

record about Chester’s tax expertise, except the tax returns and

the other documents (such as the charitable contributions

statements) that Chester prepared.     Those materials do not lead

us to conclude that Chester was a competent tax professional.

     Petitioner also failed to show that he provided Chester with

necessary and accurate information.    Petitioner said he kept all



     12
      The same analysis would lead to the same conclusion as to
2003. However, respondent did not determine an accuracy-related
penalty for 2003. We leave the parties as we find them for 2003
on this issue.
                                       - 34 -

of his tax documents, including receipts, in a folder during the

year.        He said he then photocopied those documents and sent them

to Chester, along with his Forms W-2, Wage and Tax Statement.           It

is not clear whether petitioner sent the originals or the

photocopies to Chester.          But, presumably, petitioner’s purpose in

making the photocopies was to have a complete set of his business

and other tax-relevant records.           Because petitioner was able to

produce so few of his records and was so vague and general in his

testimony13 we cannot tell what petitioner asked of Chester on

any specific matter and what specific advice Chester gave on that

matter.        As best we can tell, petitioner gave “stuff” to Chester

and Chester gave tax returns (not advice) to petitioner.14          That

is not enough reliance on professional advice to enable



        13
      On cross-examination, petitioner testified that he
photocopied and sent documents to Chester semiannually.
        14
             Petitioner testified as follows:

             Q [Petitioner’s counsel] I just want to go back
        for a second to the actual tax return. I want to make
        sure that I understand and the Court understands the
        process. After you provided all the paperwork to Mr.
        Muhammad, then he would prepare a tax return?

                A   [Petitioner]   That’s correct.

                        *    *     *     *      *    *   *

             Q So what you are saying is that as far as you
        know, you submitted all of your paperwork to Mr.
        Muhammad and the tax returns were always prepared?

                A   That’s correct.
                             - 35 -

petitioner to avoid the negligence penalty as to any portion of

the underpayment for 2002 or 2004.    See Neonatology Associates,

P.A. v. Commissioner, 299 F.3d at 233-234; ASAT, Inc. v.

Commissioner, 108 T.C. 147, 176-178 (1997).   We so hold.

     To take account of the foregoing,


                                          Decisions will be

                                     entered under Rule 155.
