                             T.C. Memo. 2014-203



                        UNITED STATES TAX COURT



                THAD DESHAWN SMITH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 6195-13.                        Filed October 2, 2014.



      Thad Deshawn Smith, pro se.

      Nancy M. Gilmore, for respondent.



           MEMORANDUM FINDINGS OF FACT AND OPINION


      LAUBER, Judge: With respect to petitioner’s Federal income tax for 2009,

the Internal Revenue Service (IRS or respondent) determined a deficiency of
                                           -2-

[*2] $9,405 based on disallowed itemized deductions and a section 6662(a)1

accuracy-related penalty of $1,881. The parties now agree that petitioner is

entitled to itemized deductions of $4,619 for State and local taxes, $15,275 for

home mortgage interest, and $490 for noncash charitable contributions. The

issues for decision are: (1) whether petitioner is entitled to an additional

deduction of $27,277 for noncash charitable contributions (we hold that he is not);

and (2) whether petitioner is liable for the accuracy-related penalty (we hold that

he is).

                                 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. Petitioner

resided in Maryland when he filed his petition.

          Petitioner timely filed a Federal income tax return for 2009 on which he

claimed itemized deductions of $52,810. On audit, the IRS determined that

$35,238 of these deductions should be disallowed for lack of substantiation.

While the case was being considered by the IRS Appeals Office, petitioner sub-

mitted an amended 2009 return on which he increased his claimed deduction for

          1
       All statutory references are to the Internal Revenue Code as in effect for the
taxable year in issue. All Rule references are to the Tax Court Rules of Practice
and Procedure. We round all monetary amounts to the nearest dollar.
                                           -3-

[*3] noncash charitable contributions from $490 to $27,767. This additional

deduction is based on petitioner’s alleged contribution of clothes and household

items to the American Veterans National Service Foundation (AMVETS), an

organization eligible to receive tax-deductible contributions under section

170(c)(3).2

         Petitioner’s mother died intestate in July 2009. Petitioner’s father, in his

grief, asked petitioner to take everything out of the family house in Norfolk,

Virginia. Petitioner testified that he donated most of these items to AMVETS.

These items allegedly included seven sofas, four televisions, five bedroom sets, six

mattresses, a kitchen set, a dining room set, a china cabinet, and three rugs. For

charitable contribution purposes, petitioner placed a value of $11,730 on these

items.

         Petitioner testified that he also donated to AMVETS during 2009 numerous

items of clothing belonging to him and his children. These items allegedly inclu-

ded 180 shirts, 63 pairs of slacks, 153 pairs of jeans, 173 pairs of shoes, 51




         2
       The IRS did not address this additional claimed deduction in the notice of
deficiency, but petitioner raised it as an affirmative issue in his petition, and we
therefore have jurisdiction to consider it. See, e.g., Naftel v. Commissioner, 85
T.C. 527, 533 (1985).
                                        -4-

[*4] dresses, 35 sweaters, nine overcoats, and seven suits. For charitable

contribution purposes, petitioner placed a value of $14,487 on these items.

      Finally, petitioner testified that he donated to AMVETS during 2009 elec-

tronic equipment that included two computer systems, a printer, and a copier. The

record does not establish who previously owned this property. For charitable con-

tribution purposes, petitioner placed a value of $1,550 on these items.

      Petitioner testified that he had visited AMVETS on several occasions earlier

in 2009 and had obtained a number of blank “tax receipts” signed by AMVETS

representatives. The record includes two such blank receipts, one signed by

“Jose” and the other signed by “Amado M.” Petitioner testified that he

consolidated all of the contributions described above on these two blank receipts.

He filled out each receipt by identifying himself as the “donor,” inserting August

30, 2009, as the “date,” and indicating the donation values mentioned above. One

filled-out receipt, signed by “Jose,” shows a “total donation value” of $27,767.

The other filled-out receipt, signed by “Amado M,” also shows a “total donation

value” of $27,767, broken down into $14,487 for “clothing” and $13,280 for

“non-clothing.”

      Neither tax receipt identifies any specific items of donated property. To

identify the property he allegedly contributed, petitioner produced a spreadsheet,
                                         -5-

[*5] prepared by him, captioned “Thad Smith 2009 Tax Deductions.” The record

does not establish when this spreadsheet was prepared, and there is no evidence

that it was submitted to AMVETS.

      The tax receipts state that “[a]ll items donated to AMVETS are deductible

for income tax purposes at their present Fair Market Value.” They also inform the

donor that it is his responsibility to determine the fair market values of all items.

In determining that the items listed on his spreadsheet had a fair market values of

$27,767, petitioner testified that he used a Salvation Army Web site that lists esti-

mated “low” and “high” values for used property.

       The record includes a “Donation Value Guide” (guide) printed from the

Salvation Army Family Stores Web site on April 2, 2014. The values that

petitioner placed on his spreadsheet for many of the items he allegedly donated in

2009 are considerably higher than the “high” values shown in this guide for items

donated in 2014. For a men’s shirt, the guide shows a low value of $2.50 and high

value of $12; petitioner placed a value of $15 on all 77 men’s shirts that he

allegedly donated. For a pair of slacks, the guide shows a low value of $5 and a

high value of $12; petitioner placed a value of $18 on all 63 pairs of slacks that he

allegedly donated. Petitioner offered no explanation for this discrepancy. Peti-

tioner did not take photographs of any of the items he allegedly donated, and he
                                        -6-

[*6] introduced no evidence to establish their condition. He did not obtain an

appraisal of any item.

      Petitioner engaged at least two different tax return preparers over the years.

Because he was in the military and traveled often, these individuals generally pre-

pared and filed his Federal income tax returns without his reviewing them. Peti-

tioner acknowledged that his original return for 2009 had claimed deductions to

which he was not entitled. After the IRS commenced the audit of that return,

petitioner hired a new return preparer to prepare and file an amended 2009 return,

which claimed the additional deduction of $27,767 for property allegedly

contributed to AMVETS. Neither return preparer testified at trial.

                                     OPINION

I.    Burden of Proof

      The Commissioner’s determinations in a notice of deficiency are generally

presumed correct, and the taxpayer bears the burden of proving those determi-

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

Deductions are a matter of legislative grace; the taxpayer must demonstrate his

entitlement to deductions allowed by the Code and substantiate the amounts of

claimed deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992);

sec. 1.6001-1(a), Income Tax Regs. Petitioner does not contend that the burden of
                                        -7-

[*7] proof as to any factual issue should shift to respondent under section 7491(a).

He thus bears the burden of proving his entitlement to the noncash charitable con-

tribution deductions claimed on his amended 2009 return.

II.   Charitable Contributions

      A.     Statutory Framework

      Section 170 allows as a deduction any charitable contribution made within

the taxable year to specified entities, including war veterans organizations. Sec.

170(a)(1), (c)(3). Such deductions are allowable only if the taxpayer satisfies

statutory and regulatory substantiation requirements. See sec. 170(a)(1); sec.

1.170A-13, Income Tax Regs. The nature of the required substantiation depends

on the size of the contribution and on whether it is a gift of cash or property. For

all contributions of $250 or more, the taxpayer must obtain a contemporaneous

written acknowledgment from the donee. Sec. 170(f)(8). Additional substan-

tiation requirements are imposed for contributions of property with a claimed

value exceeding $500. Sec. 170(f)(11)(B). Still more rigorous substantiation

requirements are imposed for contributions of property with a claimed value

exceeding $5,000. Sec. 170(f)(11)(C).

      For contributions in excess of $250 but less than (or equal to) $500, each

contribution is treated separately for purposes of determining what substantiation
                                        -8-

[*8] is required. See sec. 1.170A-13(f)(1), Income Tax Regs. For contributions

exceeding $500, “similar items of property” are aggregated in making this

determination. Sec. 170(f)(11)(F) (“For purposes of determining thresholds under

this paragraph, property and all similar items of property donated to 1 or more

donees shall be treated as 1 property.”); sec. 1.170A-13(c)(1)(i), Income Tax Regs.

The term “similar items of property” is defined to mean “property of the same

generic category or type,” such as clothing, jewelry, furniture, electronic equip-

ment, household appliances, or kitchenware. Sec. 1.170A-13(c)(7)(iii), Income

Tax Regs.

       B.    Analysis

      Petitioner contends that he donated property to AMVETS on August 30,

2009, with a claimed value of $27,767. Because the value of the claimed con-

tribution exceeds $500, we must aggregate “similar items of property” to deter-

mine what substantiation was required. Petitioner’s self-created spreadsheet

shows three categories of similar items: clothing with an alleged value of

$14,487; household furniture with an alleged value of $11,730; and electronic

equipment with an alleged value of $1,550. For all three categories of items,

petitioner must meet the substantiation requirements imposed by section 170(f)(8)
                                          -9-

[*9] and (11)(B). For the first two categories of items, petitioner must also meet

the stricter substantiation requirements imposed by section 170(f)(11)(C).

             1.      Contributions of $250 or More

       Section 170(f)(8)(A) provides that an individual may deduct a gift of $250

or more only if he substantiates the deduction with “a contemporaneous written

acknowledgment of the contribution by the donee organization.” See Weyts v.

Commissioner, T.C. Memo. 2003-68 (discussing legislative history of this pro-

vision). This acknowledgment must: (1) include “a description (but not value) of

any property other than cash contributed”; (2) state whether the donee provided

any goods or services in exchange for the gift; and (3) if the donee did provide

goods or services, include a description and good-faith estimate of their value.

Sec. 170(f)(8)(B); sec. 1.170A-13(f)(2), Income Tax Regs. The acknowledgment

is “contemporaneous” if the taxpayer obtains it from the donee on or before the

earlier of: (1) the date the taxpayer files a return for the year of contribution; or

(2) the due date, including extensions, for filing that return. Sec. 170(f)(8)(C).

      Petitioner obtained blank signed forms from AMVETS and later filled them

out himself by inserting supposed donation values. Because these forms were

signed before the property was allegedly donated, we question whether they con-

stitute an “acknowledgment” by AMVETS that it received anything. Compare
                                        - 10 -

[*10] sec. 1.170A-13(f)(1), Income Tax Regs. (requiring “a contemporaneous

written acknowledgment from the donee organization” for contributions of $250

or more), with sec. 1.170A-13(b)(1), Income Tax Regs. (receipt not required for

smaller contributions “where it is impractical to obtain a receipt (e.g., by depos-

iting property at a charity’s unattended drop site)”).

      In any event, the AMVETS tax receipts do not contain a “description * * *

of any property * * * contributed.” Sec. 170(f)(8)(B)(i). Rather, petitioner

created, at a time that cannot be ascertained, a spreadsheet showing the property

he allegedly contributed, and there is no evidence that this spreadsheet was ever

provided to or seen by AMVETS. Moreover, the only evidence as to the

contemporaneity of the acknowledgment is the date--August 30, 2009--which

petitioner placed on the blank receipts himself. This evidence is not sufficiently

persuasive to satisfy his burden of proof. See Brown v. Commissioner, T.C.

Memo. 1980-553, 41 T.C.M. (CCH) 542. Petitioner has therefore failed to satisfy

the “contemporaneous written acknowledgment” requirement for substantiation of

contributions of $250 or more.

             2.     Contributions Exceeding $500

      Although petitioner’s failure to satisfy the substantiation requirements for

contributions of $250 or more is fatal to his claim of an additional deduction, we
                                        - 11 -

[*11] will briefly address, for sake of completeness, the other applicable

substantiation requirements. For noncash contributions in excess of $500,

taxpayers are required to maintain reliable written records with respect to each

item of donated property. Sec. 1.170A-13(b)(2) and (3), Income Tax Regs.; see

Gaerttner v. Commissioner, T.C. Memo. 2012-43. These records must include,

among other things: (1) the approximate date the property was acquired and the

manner of its acquisition; (2) a description of the property in detail reasonable

under the circumstances; (3) the cost or other basis of the property; (4) the fair

market value of the property at the time it was contributed; and (5) the method

used in determining its fair market value. Sec. 1.170A-13(b)(2)(ii)(C) and (D),

(3)(i)(A) and (B), Income Tax Regs. The taxpayer must include with his return “a

description of such property and such other information as the Secretary may

require.” Sec. 170(f)(11)(B).

      Petitioner allegedly made noncash contributions to AMVETS of clothing,

furniture, and electronic equipment, and for each category of items he claimed a

value exceeding $500. But he did not maintain written records establishing when

or how these items were acquired or what their cost bases were. (The clothing

appears to have been purchased; the furniture may have been acquired by gift or

inheritance; and the electronic equipment is of unknown provenance.) Nor did
                                       - 12 -

[*12] petitioner maintain written records establishing the items’ fair market values

at the time they were donated. He testified that he determined these values using a

guide from a Salvation Army Web site, but the values he used were considerably

higher than the “high” values the guide displays. He did not maintain photographs

or other records to establish the condition of the donated items, and he has thus

provided no reason to believe that each donated item should be accorded a “high”

rather than a “low” value.

      No deduction is allowed for contributions of clothing or “household items”

unless such items are “in good used condition or better.” Sec. 170(f)(16)(A).

“The term ‘household items’ includes furniture, furnishings, electronics,

appliances, linens, and other similar items.” Sec. 170(f)(16)(D). Most of the

items petitioner allegedly donated consisted of clothing and household items. He

presented no evidence that these items were “in good used condition or better,”

and he did not furnish a qualified appraisal with his return. See sec. 170(f)(16)(C)

(exception where “qualified appraisal” is supplied). For all these reasons,

petitioner has not satisfied the substantiation requirements for donations of

property valued in excess of $500.3

      3
       Failure to meet the requirement that the taxpayer maintain reliable written
records may be excused if his failure “is due to reasonable cause and not willful
                                                                      (continued...)
                                         - 13 -

[*13]         3.     Contributions Exceeding $5,000

        For contributions of property (other than publicly traded securities) or

similar items of property valued in excess of $5,000, the taxpayer must generally

satisfy the substantiation requirements discussed previously and must also: (1)

obtain a “qualified appraisal” of the items; and (2) attach to his tax return a fully

completed appraisal summary. Sec. 170(f)(11)(C); sec. 1.170A-13(c)(2), Income

Tax Regs.; Jorgenson v. Commissioner, T.C. Memo. 2000-38 (“The IRS has

prescribed Form 8283 [Noncash Charitable Contributions] to be used as the

appraisal summary.”). The requirements for a “qualified appraisal” are set forth in

section 1.170A-13(c)(3)(ii), Income Tax Regs. The requirements for an appraisal

summary are set forth in section 1.170-13(c)(4)(ii), Income Tax Regs. Petitioner

acknowledged that he did not obtain a qualified appraisal for any of the items and

did not attach a fully completed appraisal summary to his 2009 tax return. He thus




        3
       (...continued)
neglect.” Sec. 170(f)(11)(A)(ii)(II); see also Alli v. Commissioner, T.C. Memo.
2014-15, at *60. The burden of proving reasonable cause is on the taxpayer. Rule
142(a). Petitioner introduced no evidence that would enable this Court to
conclude that his failure to maintain written records was due to reasonable cause.
                                       - 14 -

[*14] failed to satisfy the substantiation requirements for his claimed contributions

of clothing ($14,487) and household furniture ($11,730).4

       The Court has no doubt that petitioner did donate property to AMVETS in

2009. Quite possibly, the fair market value of the property he donated exceeded

the $490 in noncash contributions claimed on his original return, which the IRS

allowed. But the Code imposes a series of increasingly rigorous substantiation

requirements for larger gifts, especially when they consist of property rather than

cash. Because petitioner did not satisfy these requirements, we are unable to allow

any portion of the additional deduction that he claimed on his amended 2009

return.

III.   Accuracy-Related Penalty

       Section 6662 imposes a 20% penalty upon the portion of any underpayment

attributable 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 tax laws, and “disregard” includes any careless, reckless, or

intentional disregard. Sec. 6662(c). Negligence also includes any failure to keep

       4
        Respondent contends that the deduction claimed for donating household
furniture should be denied because petitioner has not proven that he (as opposed to
his father or his mother’s estate) owned the contents of the family home in Nor-
folk, Virginia. Because we conclude that petitioner’s claimed deduction must be
denied for lack of substantiation, we need not address this issue.
                                       - 15 -

[*15] adequate books and records or to substantiate items properly. Sec. 1.6662-

3(b)(1), Income Tax Regs.; see Olive v. Commissioner, 139 T.C. 19, 43 (2012).

      With respect to an individual taxpayer’s liability for a penalty, section

7491(c) places on the Commissioner the burden of production, thereby requiring

the Commissioner to come forward with sufficient evidence indicating that

imposition of a penalty is appropriate. Higbee v. Commissioner, 116 T.C. 438,

446-447 (2001). Once the Commissioner meets his burden of production, the

taxpayer bears the burden of proving that the Commissioner’s determination is

incorrect. Ibid.; see Rule 142(a); Welch v. Helvering, 290 U.S. at 115.

      The notice of deficiency determined an accuracy-related penalty of $1,881

attributable to petitioner’s having claimed deductions for cash contributions, un-

reimbursed employee business expenses, mortgage interest “points,” and other

expenses for which he lacked substantiation. Petitioner acknowledged at trial that

he had no basis for claiming most of these deductions. Respondent has therefore

discharged his burden of production. See sec. 1.6662-3(b)(1), Income Tax Regs.

      Section 6664(c)(1) provides an exception to the imposition of the accuracy-

related penalty if the taxpayer establishes that there was reasonable cause for, and

that he acted in good faith with respect to, the underpayment. A taxpayer may be

able to demonstrate reasonable cause and good faith by showing reliance on pro-
                                        - 16 -

[*16] fessional advice. Sec. 1.6664-4(b)(1), Income Tax Regs. Although

petitioner’s original 2009 return appears to have been prepared by a tax pro-

fessional, that person did not testify at trial. Petitioner introduced no evidence of

the preparer’s qualifications; no evidence that he provided the preparer with all

relevant facts; and no evidence that the preparer provided tax advice on which he

reasonably relied. Petitioner admitted that his original 2009 return claimed

deductions to which he was not entitled and that he did not carefully review the

return before it was filed. The “reliance on professional advice” defense to the

accuracy-related penalty is not available in these circumstances. See Metra Chem

Corp. v. Commissioner, 88 T.C. 654, 662 (1987). We will accordingly sustain

respondent’s imposition of the section 6662(a) penalty.

      To reflect the foregoing,


                                                 Decision will be entered

                                        under Rule 155.
