                         T.C. Memo. 1998-265



                       UNITED STATES TAX COURT



   BARRY JOHN SERGEANT AND CHRISTINE M. SERGEANT, Petitioners
         v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13646-96.                      Filed July 20, 1998.



     Barry John Sergeant and Christine M. Sergeant, pro sese.

     Michael P. Breton, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     VASQUEZ, Judge:    Respondent determined the following

deficiencies in, and penalty on, petitioners' Federal income

taxes:

                                            Penalty
     Year           Deficiency             Sec. 6662

     1993               $2,852                   --
     1994               10,402                 $2,080
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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.

     The issues for decision are:   (1) Whether petitioners are

entitled to charitable contribution deductions in excess of the

amount allowed by respondent; and (2) whether petitioners are

liable for the penalty for a substantial valuation misstatement

for 1994.

                        FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioners resided in

Rowayton, Connecticut, at the time they filed their petition.

     As of the time of trial, Donald Miller (Mr. Miller), the

owner and operator of Miller Yacht Sales, Inc. (Miller Yacht),

had been in the business of selling boats for 35 years.   In

November 1987, Mr. Miller sold the boat in issue in this case--a

1967 42-foot Trojan Motor Yacht with a wooden hull, gasoline-

powered engines, and no fly bridge (the boat)--to a third party

for $32,000 plus a trade-in valued at approximately $5,000.    At

the time of this sale, the boat was in above-average condition.

In 1992, Mid-Atlantic Bank repossessed the boat from the third

party and sold it back to Miller Yacht for $3,750.   On February

13, 1992, Mr. Sergeant purchased the boat from Miller Yacht for
                                - 3 -


$8,500.    By the time Mr. Sergeant purchased the boat, it had

deteriorated considerably and needed a lot of repairs.

      Mr. Sergeant made repairs to the boat and attempted to sell

it for between $60,000 and $82,500; however, he could not sell

it.   During this time, Mr. Sergeant carried $25,000 of property

damage insurance policy on the boat.

      Mr. Sergeant saw an advertisement in The Wall Street Journal

soliciting boat donations to the Oceanus Institute, Inc., of

Manset, Maine (Oceanus).1    On August 12, 1993, Mr. Sergeant

donated the boat to Oceanus.    Twenty days after he donated the

boat, Oceanus sold the boat for $4,000.2

      On their 1993 Federal income tax return, petitioners claimed

a gift made to charity, for the boat donation, in the amount of

$75,100.    However, they deducted only a portion of this amount

due to limitations on charitable deductions.    On their 1994

Federal income tax return, petitioners deducted the charitable

contribution carryover from 1993.    Petitioners attached an

appraisal of the boat prepared by Gregory Hurt (the Hurt

appraisal) to their 1993 Federal income tax return.3    Petitioners

based their deduction for the boat on the Hurt appraisal.


      1
        Oceanus is a charitable organization recognized under
sec. 501(c)(3).
      2
          It appears that Oceanus damaged the boat prior to this
sale.
      3
        Mr. Hurt based his appraisal on figures contained in the
BUC Guide, 61st edition.
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     The National Automobile Dealers Association Large Boat

Appraisal Guide (NADA Guide) and the BUC Guide are boat valuation

guides.    The NADA Guide, for May through August 1994, and the BUC

Guide, 64th Edition, for Summer 1994, listed the following value

ranges for a 1967 42-foot Sea Voyager Motor Yacht4 with inboard

gasoline engines and a wooden hull:5

                        Low              Average        High

     NADA Guide       $22,750            $27,000       $31,200
     BUC Guide         56,200               --         $61,800

     Respondent determined that the fair market value of the boat

at the time of its contribution was $22,125.       In 1998, Mr. Miller

sold a 1968 42-foot Chris Craft with a wooden hull, gasoline

engines, and no fly bridge--a make and model similar to the boat-

-for $10,000.

                                OPINION

Fair Market Value

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

contributions made to qualified entities during the taxable year.

"If a charitable contribution is made in property other than

money, the amount of the contribution is the fair market value of

the property at the time of the contribution".      Sec. 1.170A-

1(c)(1), Income Tax Regs.     Fair market value is the price at



     4
          This boat is comparable to petitioners' boat.
     5
        The parties presented evidence regarding fair market
value according to both guides only for 1994.
                                 - 5 -


which the property would change hands between a willing buyer and

a willing seller, both having a reasonable knowledge of relevant

facts and neither being under any compulsion to buy or sell.

Sec. 1.170A-1(c)(2), Income Tax Regs.    Fair market value is a

question of fact to be determined from the entire record.     Zmuda

v. Commissioner, 79 T.C. 714, 726 (1982), affd. 731 F.2d 1417

(9th Cir. 1984); Estate of DeBie v. Commissioner, 56 T.C. 876,

894 (1971).   The Commissioner's determination of the property's

fair market value is presumed to be correct, and petitioners bear

the burden of proving a higher value.    Rule 142(a).

     It is undisputed that Oceanus is a qualified entity.

Petitioners attempted to satisfy their burden of proving the

boat's fair market value principally through Mr. Sergeant's

testimony and the Hurt appraisal.    We do not accept Mr.

Sergeant's unsubstantiated testimony regarding the boat.    See

Wood v. Commissioner, 338 F.2d 602, 605 (9th Cir. 1964), affg. 41

T.C. 593 (1964).    The Hurt appraisal based its value for the boat

on the BUC Guide.    We do not place much weight on this appraisal.

Mr. Miller credibly testified that the BUC Guide inflates the

value of used boats and that the NADA Guide more accurately

reflects their fair market value.    We note that many banks, for

financing purposes, no longer use the BUC Guide and instead use

the NADA Guide.     Furthermore, petitioners did not offer Mr. Hurt

as a witness at trial, and respondent and the Court did not have

the opportunity to question him regarding the conclusions set
                               - 6 -


forth in the Hurt appraisal.   Additionally, the evidence

presented regarding comparable sales does not support

petitioners' claimed fair market value of the boat.

     Based on the evidence presented at trial, we conclude that

petitioners are not entitled to a deduction for the boat in

excess of the amount determined by respondent.

Substantial Valuation Misstatement

     Taxpayers are liable for a penalty equal to 20 percent of

the portion of the underpayment of tax attributable to a

substantial valuation misstatement.    Sec. 6662(a), (b)(3).

Section 6662(e)(1)(A) provides that there is a substantial

valuation misstatement if the value of any property claimed on

any tax return imposed by chapter 1 is 200 percent or more of the

amount determined to be the correct value.6   The accuracy-related

penalty under section 6662(a) does not apply to any portion of an

underpayment if the taxpayer shows that there was reasonable

cause for such portion and that the taxpayer acted in good faith.

Sec. 6664(c)(1).   Section 6664(c)(1), however, shall not apply in

the case of any underpayment attributable to a substantial or

gross valuation overstatement under chapter 1 with respect to any

property contributed by the taxpayer for which a deduction was

claimed under section 170 unless (1) the claimed value of the

property was based on a "qualified appraisal" made by a


     6
        Sec. 6662(e)(2) provides an exception that is not
applicable in the instant case.
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"qualified appraiser", and (2) in addition to obtaining such

appraisal, the taxpayer made a good faith investigation of the

value of the contributed property.     Sec. 6664(c)(2) and (3).

Qualified appraisers and qualified appraisals are defined under

the regulations under section 170(a)(1).     Sec. 6664(c)(3).

     First, among the information to be included on a qualified

appraisal is the date (or expected date) of the contribution.

See sec. 1.170A-13(c)(3)(ii)(C), Income Tax Regs.     The Hurt

appraisal does not include the date or expected date of

contribution of the boat to the donee.     Second, there is

insufficient evidence to determine whether Mr. Hurt is a

qualified appraiser.   See sec. 1.170A-13(c)(4), (c)(5), Income

Tax Regs. (discussing what an appraisal summary is and the

declarations required to be made by the preparer of the appraisal

summary in order to qualify as a qualified appraiser).7       Last,

there is no evidence that, in addition to obtaining the Hurt

appraisal, petitioners made a good faith investigation of the

value of the contributed property.     Thus, the reasonable cause

exception of section 6664(c) does not apply.

     The $75,100 claimed value of the boat exceeds 200 percent of

the correct value (i.e., $22,125).     Petitioners, therefore, are

liable for the penalty pursuant to section 6662 for a substantial

valuation misstatement.


     7
         An appraisal summary is not part of the record in this
case.
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To reflect the foregoing,

                                         Decision will be entered

                                    for respondent.
