                         T.C. Memo. 2000-296



                       UNITED STATES TAX COURT



                LARRY WHITTINGTON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     RAY WHITTINGTON AND GLYNDA WHITTINGTON, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 5208-96, 11955-96.      Filed September 21, 2000.



     Richard D. Hall, Jr., and William B. Trevorrow, for

petitioner in docket No. 5208-96.

     Ray Whittington and Glynda Whittington, pro sese in

docket No. 11955-96.

     Ross A. Rowley and Paul G. Topolka, for respondent.
                                                - 2 -


                      MEMORANDUM FINDINGS OF FACT AND OPINION


        FOLEY, Judge:            By notices dated December 22, 1995, and March

12, 1996, respectively, respondent determined the following

deficiencies in and additions to petitioners' Federal income

taxes:
                                 Larry Whittington, docket No. 5208-96

                                                Additions to tax
Year Deficiency Sec. 6653(a)(1) Sec. 6653(a)(1)(A) Sec. 6653(a)(2) Sec. 6653(a)(1)(B) Sec. 6661
                                                              1
1985   $54,635         $2,732            --                                   --       $13,659
                                                                               1
1986    45,307           --            $2,265                --                         11,327
                                                                               1
1987    48,182           --             2,409                --                         12,046
        1
            50 percent of the statutory interest on the deficiency.

                            Ray and Glynda Whittington, docket No. 11955-96

                                                Additions to tax
Year Deficiency Sec. 6653(a)(1) Sec. 6653(a)(1)(A) Sec. 6653(a)(2) Sec. 6653(a)(1)(B) Sec. 6661
                                                              1
1985   $30,740         $1,537            --                                   --       $6,550
                                                                               1
1986    27,434           --            $1,372                --                         4,663
                                                                               1
1987    41,243           --             2,062                --                         9,079
        1
            50 percent of the statutory interest on the deficiency.

        Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.           After concessions, the issues for decision are

whether petitioners are:                  (1) Entitled to exclude parsonage

allowances from income; (2) subject to tax on certain income;

(3) entitled to deduct certain charitable contributions;

(4) liable for additions to tax for negligence; and (5) liable

for additions to tax for substantial understatements of tax.
                                 - 3 -


                          FINDINGS OF FACT

     When their respective petitions were filed, Larry

Whittington resided in North Charleston, South Carolina, and Ray

and Glynda Whittington resided in Greensboro, North Carolina.

     During the years in issue, Larry and Ray worked for Fountain

of Life, Inc. (FOL), an evangelical organization established by

their brother Jim Whittington.    On January 1, 1976 and 1977,

respectively, Ray and Larry were ordained as ministers of the

Gospel by FOL.   In addition to their ministerial duties, Ray was

employed as FOL's secretary-treasurer, Larry was employed as

FOL's vice president, and both were members of FOL's board of

directors.

     During the years in issue, FOL presented the Gospel through

services, crusades, and publications.    Daily services were

conducted by Jim, Larry, and Ray and included sermons, songs, and

the distribution of religious materials (e.g., pamphlets, books,

albums, and cassettes).   Jim, Larry, and Ray routinely officiated

at marriages and funerals and provided counseling to FOL members.

FOL had members who were not associated with any other religious

organization or denomination.    In addition, FOL conducted several

crusades each month and developed a loyal group of followers.

Some of the crusades were videotaped and later broadcast on "The

Fountain of Life Presents Jim Whittington" television program,

which at its peak was broadcast in 75 television markets.
                                - 4 -


     The Whittingtons created a production plan for FOL events.

To execute this plan, Larry founded Lovejoy Agency, Inc.

(Lovejoy), a for-profit corporation, and Larry served as its

president and a member of its board of directors.   Lovejoy

purchased television, radio, and newspaper advertisements for FOL

events; made travel arrangements and leased facilities for FOL

events; and produced FOL's television shows, albums, and

cassettes.

     To fund FOL operations, FOL solicited contributions through

mass mailings.   The mailings were also used to inform FOL members

of scheduled FOL events, such as crusades, in their geographic

area.    FOL mailed approximately one-half million pieces of mail a

month.    To produce these mailings, Ray founded Whittington, Inc.,

a for-profit corporation.   Whittington, Inc., bought equipment

and prepared the mass mailings on behalf of FOL in exchange for

fees from FOL.

     During the years in issue, FOL paid Larry and Ray salaries,

housing allowances, and other benefits (i.e., travel

reimbursements, football tickets, and scholarship pledges).    The

salaries and housing allowances were authorized by FOL's board of

directors before payment.   The following chart delineates the

payments from FOL to petitioners.
                                            - 5 -
                                       Larry Whittington

                     Housing Allowance                    Travel        ECU
Scholarship
Year   Salary    Authorized    Paid      Expended1    Reimbursement   Tickets2    Pledges3

1985   $88,400    $52,000     $61,600     $57,108         $20,421       --          --

1986    91,000     45,000      40,500      25,903          23,169      $522      $2,000
1987    88,000     45,000      55,500      25,608          20,825       --        2,000

                                        Ray Whittington

                     Housing Allowance                     Travel       ECU
Scholarship
Year   Salary    Authorized     Paid      Expended1   Reimbursement   Tickets2   Pledges3

1985   $88,400    $52,000     $48,100     $35,738         $2,606        --          --

1986    91,000     45,000      40,500      48,247          1,902       $522      $2,000
1987    88,000     45,000      58,000      25,733          4,300        --        2,000
        1
         The portion of the allowance expended for housing-related expenses.
        2
         FOL purchased East Carolina University (ECU) football tickets for
petitioners.
       3
         FOL made scholarship pledges to ECU on behalf of petitioners.

        In 1985, Whittington, Inc., issued three checks payable to

Ray for $1,750 each, and Lovejoy issued six checks payable to

Larry for $1,750 each.            In April of 1987, Whittington, Inc.,

issued four checks payable to Ray or his creditors totaling

$21,172.

        On their respective Federal income tax returns, Larry

claimed charitable deductions of $6,500, $15,751, and $26,500,

and Ray claimed charitable deductions of $11,500, $28,362, and

$18,300, relating to contributions to FOL in 1985, 1986, and

1987, respectively.

                                          OPINION

I.     Parsonage Allowances

       Respondent determined that petitioners are not, pursuant to

section 107, entitled to exclude from income parsonage allowances

received from FOL.            Section 107 provides that a minister of the

Gospel may exclude from gross income a rental allowance paid to
                               - 6 -

him as part of his compensation, to the extent used by him to

rent or provide a home.   The accompanying regulations provide

that the rental allowance must be provided as remuneration for

ministerial services.   See sec. 1.107-1(a), Income Tax Regs.

Such services include the ministration of sacerdotal functions;

the conduct of religious worship; and the control, conduct, and

maintenance of religious organizations, under the authority of a

religious body constituting a church.   See sec. 1.1402(c)-

5(b)(2), Income Tax Regs.

     Respondent's only contention regarding section 107 is that

FOL is not a "church" and, therefore, Ray and Larry were not

ministers performing services under the authority of a church.

We disagree.   The term "church" is not defined in section 107 or

the regulations thereunder.   Nevertheless, we have previously

stated:

     To classify a religious organization as a church under
     the Internal Revenue Code, we should look to its
     religious purposes and, particularly, the means by
     which its religious purposes are accomplished. * * *
     At a minimum, a church includes a body of believers or
     communicants that assembles regularly in order to
     worship. When bringing people together for worship is
     only an incidental part of the activities of a
     religious organization, those limited activities are
     insufficient to label the entire organization a church.
     [Foundation of Human Understanding v. Commissioner, 88
     T.C. 1341, 1357 (1987) (Court reviewed); citations and
     internal quotation marks omitted.]

FOL had a far-ranging ministry that reached its members through

television and radio broadcasts, written publications, and
                                 - 7 -

crusades.    FOL had loyal followers, some who attended worship

services held regularly in Greenville, and others who attended

crusades held regularly in various cities.      Many of FOL's members

were not associated with any other religious organization or

denomination.    In essence, FOL had the requisite body of

believers, and, therefore, Ray and Larry performed services under

the authority of a church.     In addition, Larry and Ray were

"authorized to administer the sacraments, preach, and conduct

services of worship" and were ordained ministers of the Gospel.

Salkov v. Commissioner, 46 T.C. 190, 194 (1966).

      The housing allowances are excludable only to the extent

such allowances were authorized, paid, and expended for housing.

See sec. 107(2).    Accordingly, Larry is allowed to exclude

$52,000, $25,903, and $25,608, and Ray is allowed to exclude

$35,738, $40,500, and $25,733, relating to 1985, 1986, and 1987,

respectively.

II.   Unreported Income

      A.   Payments From FOL

      Respondent determined that Larry's and Ray's travel

reimbursements were taxable income.      Generally, an employee is

not required to report reimbursements received from an employer

for travel expenses incurred by the employee, for the benefit of

the employer, if the employee makes an "adequate accounting" to

his employer.    Sec. 1.274-5(e)(2)(i), Income Tax Regs. (requiring
                               - 8 -

the taxpayer to provide the amount of the expense and the time,

place, and business purpose of such travel).    An employee who

does not make an "adequate accounting" must report as income any

travel reimbursements and will be entitled to deductions only to

the extent that the employee can substantiate the expenditure.

Sec. 1.274-5(e)(2), Income Tax Regs.    If, however, the taxpayer

establishes that the failure to produce adequate records is due

to the loss of such records through circumstances beyond the

taxpayer's control, the taxpayer shall have the right to

substantiate a deduction by reasonable reconstruction of the

expenses.   See sec. 1.274-5(c)(5), Income Tax Regs.

     We hold that to the extent petitioners did not make an

adequate accounting they substantiated the related deductions.

Petitioners presented credible testimony relating to this issue

and adequately substantiated and reconstructed their travel

expenses.   Respondent took possession of, and limited

petitioners' access to, their records.    Consequently,

petitioners' failure to produce more adequate records is due to

circumstances beyond their control.

     FOL, in 1986, purchased ECU football season tickets for Jim,

Ray, and Larry, and, in 1986 and 1987, made scholarship pledges

to ECU on behalf of Ray and Larry.     A third party's payment of a

taxpayer's personal expenses is income to the taxpayer.    See sec.

61; Coors v. Commissioner, 60 T.C. 368, 407-409 (1973), affd. 519
                                 - 9 -

F.2d 1280 (10th Cir. 1975).     These payments were for petitioners'

personal benefit, and, accordingly, are income.

       B.   Payments From Whittington, Inc., and Lovejoy

       In 1985, Ray received three $1,750 checks from Whittington,

Inc., and Larry received six $1,750 checks from Lovejoy.     On the

memo line of each of these checks, notations were made indicating

a $2,500 salary payment and purported withholdings of $750.     In

1987, Whittington, Inc., issued four checks payable to Ray or his

creditors totaling $21,172.     Respondent determined that, in 1985,

Ray and Larry received income of $2,500 relating to each check

with the aforementioned notation, and that, in 1987, Ray was

subject to tax on the payments from Whittington, Inc.

Conversely, petitioners contend that these checks related to

repayment of loans Ray made to Whittington, Inc., and Larry made

to Lovejoy.     We reject respondent's and petitioners' positions

relating to the $2,500 payments and hold that petitioners are

subject to tax on $1,750 relating to each check.     In addition, we

sustain respondent's determination relating to the 1987 payments.

III.    Charitable Contribution Deductions

       Respondent determined that petitioners may not deduct

charitable contributions to FOL.     Section 170(a)(1) allows as a

deduction any charitable contribution as defined in subsection

(c).    Section 170(c) defines a charitable contribution as a gift

to a corporation "no part of the net earnings of which inures to
                                - 10 -

the benefit of any private shareholder or individual".    Sec.

170(c)(2)(C); McGahen v. Commissioner, 76 T.C. 468, 481 (1981)

(stating that the taxpayer "must prove that the recipient

qualified under section 170(c)(2)").     We have found that, during

the years in issue, Larry and Ray received certain payments from

FOL (i.e., unauthorized payments, football tickets, and

scholarship pledges).    These payments inured to the benefit of

petitioners.    In addition, petitioners failed to establish that

these payments were compensation or were from a source other than

FOL's net earnings.     Accordingly, petitioners are not allowed the

claimed charitable deductions.

IV.    Additions to Tax for Negligence

       Respondent determined that petitioners were liable for

additions to tax for negligence under section 6653(a)(1) and (2)

relating to 1985 and section 6653(a)(1)(A) and (B) relating to

1986 and 1987.    Petitioners did not exercise due care in

reporting their tax liabilities.    Accordingly, they are liable

for the additions to tax for negligence.

V.    Additions to Tax for Substantial Understatement

       Respondent determined that, pursuant to section 6661,

petitioners were liable for additions to tax for substantial

understatements during the years in issue.    An understatement is

substantial if it exceeds the greater of $5,000 or 10 percent of

the amount of tax required to be shown on the return.    See sec.
                              - 11 -

6661(b).   Petitioners' understatements were not based on

substantial authority or adequately disclosed.   Accordingly, if

the recomputed deficiencies satisfy the statutory percentage or

amount, petitioners will be liable for those additions to tax.

See, e.g., Cluck v. Commissioner, 105 T.C. 324, 340 (1995).

     All other contentions raised by the parties are either moot,

meritless, or irrelevant.

     To reflect the foregoing,


                                         Decisions will be entered

                                    under Rule 155.
