                  T.C. Summary Opinion 2007-38



                     UNITED STATES TAX COURT



               CHRISTIANA STAMOULIS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18151-04S.            Filed March 8, 2007.



     Ronny Buni, for petitioner.

     Parker F. Taylor, for respondent.



     CARLUZZO, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for 2002, and Rule references are to the
                                  - 2 -

Tax Court Rules of Practice and Procedure.    The decision to be

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

should not be cited as authority.

      Petitioner, whose adjusted gross income for 2002 was less

than $115,000, claimed a $55,764 charitable contribution

deduction on her 2002 Federal income tax return.    As a result of

the disallowance of that deduction, respondent determined a

$14,6491 deficiency in petitioner’s 2002 Federal income tax and

imposed a $2,930 accuracy-related penalty pursuant to section

6662(a).

      The issues in dispute are as follows:   (1) Whether

petitioner is entitled to a charitable contribution deduction in

excess of the amount now allowed by respondent and (2) whether

the underpayment of tax required to be shown on petitioner’s 2002

Federal income tax return is due to negligence or intentional

disregard of rules or regulations.

                            Background

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

the time the petition was filed, petitioner resided in New York,

New York.




1
    Dollar amounts are rounded.
                               - 3 -

     Starting in June 2000, and at all relevant times, petitioner

was employed as an investment banker with Goldman Sachs in New

York, New York.   Petitioner’s 2002 return shows her adjusted

gross income as $114,819.   According to petitioner, her income

for that year represented a temporary, albeit significant drop in

her usual annual income due to the status of the economy at the

time.2

     Petitioner describes herself as an “impulsive buyer” whose

annual expenditures for clothing and shoes might be deemed by

some to be rather extravagant.3    Furthermore, it appears that her

wardrobe is constantly changing.    According to petitioner, she

routinely purchases designer clothing and shoes, wears the items

once or twice, and then donates them to an upscale thrift shop in

New York, New York.   Despite the fact that her 2002 income was

substantially less than usual, petitioner claims not to have

modified that routine during that year.

     Petitioner’s timely filed 2002 Federal income tax return

includes a Schedule A, Itemized Deductions, on which a $55,764




2
   For example, petitioner’s 2003 Federal income tax return shows
adjusted gross income of $192,535 and property gifts to charities
of $133,202.
3
   On the basis of her credit card charges, petitioner estimates
that she spent $53,916 on clothing and $9,253 on shoes during the
year in issue.
                               - 4 -

deduction for charitable contributions is claimed.   This amount

consists of $5,917 in cash contributions, $48,954 in property

contributions, and an $893 carryover from a prior taxable year.

      On several Forms 8283, Noncash Charitable Contributions,

which were also included with her 2002 return, petitioner shows

property donations to various organizations, including Housing

Works Thrift Shops and Used Book Café (Housing Works),4 the

Metropolitan Opera at Lincoln Center,5 the Lazaretto Orthodox

Church of Ithaki,6 and the Hellenic Redcross.7   Depending on the

items donated and the donee, the “method used to determine the

fair market value” of the items is shown on the Forms 8283 as

either “actual value” or “straight line depreciation”.

      A great majority of petitioner’s property contributions were

made to Housing Works, a “high-end” thrift store located in New

York, New York, that sells donated items to its customers.




4
   These were donations of clothing, shoes, rags, furniture,
jewelry, books, CDS, DVDs, tapes, a cellular phone, “kitchen
accessories/appliances” and “other accessories”, “household
goods”, antiques (e.g., vases, sculptures, and other “decorative
items”), and electronic devices.
5
    This was a donation of a “performance ticket”.
6
   This was a donation of “Church restoration materials”,
flowers, plants, and “church decorations”.
7
    This was a donation of food.
                               - 5 -

Housing Works provides the donors with a “Donation Inventory

List” form that is completed by the donor (the inventory list).

The inventory list invites the donor to make entries showing:

(1) The item(s) donated, whether specifically or by generic

category (e.g., clothing, furniture, housewares, etc.); (2) the

number of items donated; and (3) the value(s) of the donated

item(s).   Property descriptions and values are provided by the

donor, and Housing Works does not verify the accuracy of the

information reported on the inventory list.

     In the notice of deficiency, respondent disallowed, for lack

of substantiation and other reasons, the entire charitable

contribution deduction (i.e., $55,764) claimed on petitioner’s

2002 return and imposed a $2,930 accuracy-related penalty.

According to respondent, the underpayment of tax required to be

shown on petitioner’s 2002 return is due to negligence or

intentional disregard of rules or regulations.

                            Discussion

     Respondent now agrees that petitioner in entitled to a

charitable contribution deduction totaling $4,652.8   Petitioner

now concedes that the charitable contribution deduction claimed




8
   This amount consists of $1,053 in cash contributions and
$3,599 in property contributions.
                               - 6 -

on her return was excessive to the extent of $6,629.9   We proceed

to determine whether petitioner is entitled to a charitable

contribution deduction in an amount that lies somewhere in

between the parameters set by the parties, and we begin by noting

several fundamental and familiar principles of Federal income

taxation.

     Deductions are a matter of legislative grace, and taxpayers

who claim deductions must establish entitlement to them.10    Rule

142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992);

New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

Furthermore, a taxpayer is required to maintain records that are

sufficient to enable the Commissioner to determine the taxpayer’s

correct tax liability.   See sec. 6001; sec. 1.6001-1(a), Income

Tax Regs.   The taxpayer bears the burden of substantiating the

amount and purpose of the claimed deduction.   See Hradesky v.

Commissioner, 65 T.C. 87 (1975), affd. per curiam 540 F.2d 821

(5th Cir. 1976).

     The issues in this case arise as a result of the charitable

contribution deduction claimed on petitioner’s 2002 return.

Generally speaking, a taxpayer is allowed to deduct any

9
   This amount consists of $1,160 in cash contributions and
$5,469 in property contributions.
10
   Neither party suggests that sec. 7491(a) requires departure
from this general rule.
                               - 7 -

contributions or gifts made to qualifying organizations.

See sec. 170(a).   Subject to various exceptions, if property

other than money is donated, then “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.    The term

“fair market value” is defined as “the price at which the

property would change hands between a willing buyer and a willing

seller, neither being under any compulsion to buy or sell and

both having reasonable knowledge of relevant facts.”     Sec.

1.170A-1(c)(2), Income Tax Regs.

     A charitable contribution deduction, whether made by cash or

otherwise, must be substantiated by at least one of the

following:   (1) A canceled check; (2) a receipt from the donee

charitable organization showing the name of the donee, the date

of the contribution, and the amount of the contribution;11 or (3)

in the absence of a canceled check or receipt from the donee

charitable organization, other reliable written records showing

the name of the donee, the date of contribution, and the amount

of the contribution.   Sec. 1.170A-13(a)(1), Income Tax Regs.   The

reliability of the records is determined on the basis of all of


11
   A letter or other communication from the donee charitable
organization acknowledging receipt of the contribution and
showing the date and amount of the contribution constitutes a
“receipt”.
                               - 8 -

the relevant facts and circumstances.   See sec. 1.170A-13(a)(2),

Income Tax Regs.

     If the donation is a small amount, any written or other

evidence from the donee charitable organization acknowledging

receipt is generally sufficient.   See sec. 1.170A-13(a)(2)(i)(C),

Income Tax Regs.   On the other hand, with respect to a deduction

exceeding $500 for a charitable contribution of property,

additional information is required to support such a deduction.

Specifically, the taxpayer must also maintain written records

establishing:   (1) The item’s manner of acquisition as well as

either the item’s approximate date of acquisition or the

approximate date the property was substantially completed and (2)

the cost or other basis, adjusted as provided by section 1016, of

property donated by the taxpayer during the taxable year.   Sec.

1.170A-13(b)(3)(i)(A) and (B), Income Tax Regs.

     Set against these standards, we first consider petitioner’s

claim with regard to cash donations.    As noted above, respondent

now agrees that, during the year in issue, petitioner made cash

donations totaling $1,053.   Petitioner has failed to produce

substantiating evidence that would allow for a greater amount.

Consequently, the portion of petitioner’s allowable charitable

contribution deduction for 2002 that is attributable to cash

donations is limited to the amount allowed by respondent.
                               - 9 -

     In support of her donations of property to Housing Works,

petitioner produced several of the inventory list forms described

above.   We are satisfied that, for the most part and at least as

to form, the inventory lists conform to the requirements of the

above-cited regulations.   According to petitioner, she estimated

the fair market values of the donated items shown on the

inventory lists.   The actual costs of those items are not taken

into account in petitioner’s estimates, and petitioner did not

provide the prices at which the donated items, or items similar

to the donated items, were ultimately sold by Housing Works.12

The resale prices of the donated items, or similar items, would

certainly be relevant and persuasive evidence of the fair market

values of various items of property that petitioner donated to

Housing Works.13

     We are satisfied that the inventory list forms present a

fairly accurate description of the items donated.   Nevertheless,

given petitioner’s valuation methods, we have severe reservations

regarding the fair market values that petitioner assigned to


12
   According to petitioner, she checked the accuracy of her fair
market value estimates regarding various donated items through
Internet research that she performed in preparation for trial.
13
   Petitioner acknowledges the value of this information, as she
claims that she unsuccessfully attempted to determine the sale
prices set by Housing Works for the various items that she
donated.
                               - 10 -

those items.   We recognize that the determination of the fair

market value of an item involves an approximation, and is, at

best, an inexact science.   Stanley Works v. Commissioner, 87 T.C.

389, 407-408 (1986); see Colonial Fabrics v. Commissioner, 202

F.2d 105, 107 (2d Cir. 1953); Goldstein v. Commissioner, 89 T.C.

535, 544 (1987); Skripak v. Commissioner, 84 T.C. 285, 320

(1985); 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); see also Cooley v. Commissioner, 33 T.C.

223, 225 (1959), affd. 283 F.2d 945 (2d Cir. 1960).   However, we

cannot ignore that, more often than not, personal items, like

used clothing and household items, will be worth far less than

their original purchase price immediately after they are

purchased.   Furthermore, as best we can determine from

petitioner’s testimony, the original costs of the donated items

shown on the Forms 8283 are themselves not actual costs, but only

estimates based upon petitioner’s   optimistic estimates of the

items’ fair market values.14

     We cannot accept petitioner’s fair market value estimates of

the property that form the basis for a portion of the charitable



14
   Petitioner testified that she first determined the fair
market value of an item and then assumed that the cost of the
item was at least twice as much.
                                - 11 -

contribution deduction here in dispute.     On the other hand, we

are satisfied that petitioner made property contributions as

shown on her return, the fair market values of which would

exceed the amount now allowed by respondent.     After careful

consideration of the evidence, taking into account respondent’s

concession, and measuring petitioner’s claimed deduction against

the average for similarly situated taxpayers, we find that

petitioner is entitled to a charitable contribution deduction for

property contributions in the total amount of $8,949.15

     As previously noted, respondent imposed a section 6662(a)

accuracy-related penalty.     According to respondent, the

underpayment of tax required to be shown on petitioner’s 2002

return is due to either negligence or intentional disregard of

rules or regulations.   See sec. 6662(b)(1).    The burden of

production with respect to the imposition of this penalty is upon

respondent.   Sec. 7491(c).

     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



15
   Accordingly, petitioner’s charitable contribution deduction
for 2002 totals $10,002. This amount takes into account cash
donations of $1,053 and property donations of $8,949. Nothing in
the record supports the allowance of a carryover from a prior
year.
                                - 12 -

preparation of a tax return.”    Sec. 1.6662-3(b)(1), Income Tax

Regs.; see sec. 6662(c).    Furthermore, “any failure by the

taxpayer to keep adequate books and records or to substantiate

items properly” also constitutes “negligence”.    Sec. 1.6662-

3(b)(1), Income Tax Regs.    The section 6662(a) accuracy-related

penalty does not apply if the taxpayer demonstrates that there

was a reasonable cause for the underpayment and that the taxpayer

acted in good faith with regard to the underpayment.     Sec.

6664(c)(1); sec. 1.6664-4(a), Income Tax Regs.    The applicability

of this exception is made on a case-by-case basis and depends

upon all of the pertinent facts and circumstances, such as

whether the taxpayer made efforts to assess his proper tax

liability and whether there was an honest misunderstanding of

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

knowledge, and education of the taxpayer.    Higbee v.

Commissioner, 116 T.C. 438, 448 (2001); sec. 1.6664-4(b)(1),

Income Tax Regs.

     The charitable contribution deduction claimed on

petitioner’s return consists of the following three components:

(1) Cash donations, (2) donations of property, and (3) a

carryover from a prior year.    Petitioner failed to produce

sufficient substantiating evidence to support the amount claimed

for cash contributions and produced nothing with respect to the
                              - 13 -

carryover.   Therefore, petitioner is subject to the section

6662(a) accuracy-related penalty with respect to the portions of

the underpayment that are attributable to her overstatements of

these items.

     As previously noted, the determination of the fair market

values of personal items is less than an exact science.    In light

of the circumstances presented in this case, we are not persuaded

that petitioner’s overly optimistic valuation estimates of many

items of donated property constitutes “negligence” within the

meaning of section 6662(b)(1).    Accordingly, petitioner is not

liable for the section 6662(a) accuracy-related penalty with

respect to the portion of the underpayment of her 2002 tax that

is attributable to her overstatement of the fair market values of

the donated property.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,



                                      Decision will be entered

                                 under Rule 155.
