                    T.C. Summary Opinion 2006-9



                      UNITED STATES TAX COURT



    NORMAN JOHN HAAS III AND SUSAN RENEE HAAS, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1234-05S.              Filed January 26, 2006.


     Norman John Haas III and Susan Renee Haas, pro sese.

     Kelly M. Davidson, for respondent.




     DEAN, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code.

Unless otherwise indicated, subsequent section references are to

the Internal Revenue Code as in effect for the year at issue, and

all Rule references are to the 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.
                                - 2 -

     Respondent determined for 2001 a deficiency in petitioners’

Federal income tax of $3,015 and an accuracy-related penalty

under section 6662 of $603.

     Petitioners concede their deductions for:    (a) Medical

expenses; (b) personal property taxes of $126; (c) a charitable

contribution of $5,000 worth of numismatic items, and $4,106 in

carryover contributions from a prior year; and (d) “asset

protection expense”.   Respondent concedes that petitioners are

entitled to deductions for real estate taxes of $849 and a

charitable gift of $5,000 worth of philatelic items.

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

entitled to itemized deductions for (a) additional charitable

gifts in cash and in kind, and (b) a casualty or theft loss of

$5,679, and (2) whether petitioners are liable for the accuracy-

related penalty under section 6662 due to negligence.

     The stipulated facts and exhibits received in evidence are

incorporated herein by reference.    At the time the petition was

filed, petitioners resided in Phoenix, Arizona.

                              Background

     Petitioners were married in 1996 and “combined two adult

households into one small house.”    Norman John Haas III

(petitioner), worked for Honeywell International, Inc., and Susan

Renee Haas was employed as a registered nurse during 2001.
                                - 3 -

Petitioners’ Charitable Gifts

     On their Federal income tax return for 2001, petitioners

deducted on Schedule A, Itemized Deductions, gifts to charity of

$15,663.   Included in the total was $300 as “gifts by cash or

check” and $11,347 as gifts “other than by cash or check”.

     Petitioners also included with their return four Forms 8283,

Noncash Charitable Contributions.   Two of the Forms 8283 list

donations to the Salvation Army valued at $500 each on five

dates, consisting of “Misc. Antiques:   Furniture, Toys, Games,

Signs, Pottery, China, Glassware, Etc.”   A third form lists “Sun

Cities Animal Rescue” as the donee also of “Misc. Antiques:

Furniture, Toys, Games, Signs, Pottery, China, Glassware, Etc.”,

and Goodwill as the donee of “Like New TV & 5 Bags of Fashon

[sic] Clothes, Like New Coutch [sic] & 2 Chairs & 5 Boxes

Household Goods”.   As with the other two forms, the latter lists

donations on five dates, three valued at $500, one at $300, and

one at $200.   The fourth Form 8283 relates to philatelic and

numismatic gifts on which the parties have come to agreement.

Petitioners’ Casualty or Theft Loss

      Petitioners also deducted on Schedule A casualty and theft

losses of $5,679.   Form 4684, Casualties and Thefts, which was

included with petitioners’ tax return, described the affected

property as a 1991 Chevrolet Silverado Extra Cab pickup truck

(truck).   Petitioners reported on the form that the truck had a
                                - 4 -

cost basis of $20,000, a fair market value before the casualty or

theft of $13,000, and a fair market value after the casualty or

theft of $2,000.

     Petitioner filed a report of a stolen vehicle on February

10, 2001, with the Phoenix Police Department.    The report

includes, along with other information, a valuation of the truck

at $1,000 and states that the truck had been driven approximately

150,000 miles by the date of the theft.    Other notations in the

report indicate that there was a toolbox in the rear of the truck

and that the vehicle was insured by “Allstate”.

     According to a supplemental police report on the incident,

petitioners’ truck was recovered on February 12, 2001.    In

addition to repeating much of the information recorded in the

original report, the supplemental report states that “The vehicle

was stopped by the Border Patrol at the Sunsites Texaco Fuel

Station.    The vehicle has extensive damage to the exterior and

interior.    There was no toolbox in the bed of the truck.”

     The Certificate of Title for the truck indicates that the

“Factory List Price” was $13,065, and that title was transferred

to petitioner on June 14, 1994, with an odometer reading of

51,023 miles.    Judging from other information in the Certificate

of Title, petitioner is the third owner of the truck.    A copy of

the Cochise County Sheriff’s Department Vehicle Removal Report
                                 - 5 -

shows that the odometer indicated 152,759 miles when the truck

was recovered.

     The parties stipulated a portion of the January-April 2001

Edition of the Kelly Blue Book Older Car Guide 1981-1994 Models

(Blue Book) that provides a range of values in 2001 for 1991

model trucks, including petitioners’ make and model.

                              Discussion

     The Commissioner’s determinations are presumed correct, and

generally taxpayers bear the burden of proving otherwise.    Rule

142(a)(1).    Petitioners have neither argued for nor met the

requirements for the application of section 7491(a).    Because

section 7491(a) is not here applicable, the burden of proof does

not shift to the Commissioner.

Petitioners’ Charitable Gifts

     Respondent denied petitioners’ deduction for $300 of cash

gifts for lack of substantiation.    Petitioner testified that “me

and my wife gave $25 in cash at that time to our church.”    He

testified that they have no receipts and no letter from the

church.   “I mean you put the money in the basket”, he further

explained in his testimony.

     Taxpayers are required to keep records of charitable

contributions of money.    Section 1.170A-13(a)(1), Income Tax

Regs., requires substantiation for charitable contribution

deductions.    A taxpayer must maintain one of the following:    (1)
                                - 6 -

A canceled check; (2) a receipt or letter from the donee

charitable organization showing the name of the donee, and the

date and the amount of the contribution; or (3) other reliable

records showing the name of the donee, and the date and the

amount of the contribution.    Id.   Petitioners’ church donations

do not meet the requirements of section 1.170A-13(a)(1), Income

Tax Regs.   See Blair v. Commissioner, T.C. Memo. 1988-581.

     Where a charitable contribution is made of property other

than money, section 170 allows a deduction of the fair market

value of the property at the time of contribution.    See sec.

1.170A-1(c)(1), Income Tax Regs.     Petitioners bear the burden of

proving both the fact that the contribution was made and the fair

market value of the contributed property.    See Rule 142(a); Zmuda

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

(9th Cir. 1984).

     During the examination of petitioners’ return, respondent

asked them for an itemized list of the values of the items they

donated.    Petitioner testified that “And what I did at the time

was I divided it by the number of gifts that I had given to these

charities.”   He also testified that he was told that “certain

receipts I should only claim $200 because that’s the total value

of those gifts, and some gifts I could have claimed up to $499”,

but that he did not know it at the time.    Petitioner testified
                               - 7 -

that the gifts were valued based upon what one would pay at a

thrift shop or rummage sale.

     As evidence to substantiate their noncash gifts, petitioners

introduced an itemized list of what petitioner testified to be

the value of the gifts that they had claimed on their return.

Petitioners’ list gave only a general description of the items

that they donated.   One of the gift dates on petitioners’ list,

April 17, 2001, is not listed on the return.   Petitioners claimed

on their return $500 as the value for each of 10 gifts to the

Salvation Army.   Aside from the fact that the amounts on

petitioners’ list appear to be inflated, none of them are valued

by petitioners at $500.   Each of the three gifts to Sun Cities

Animal Rescue is reported on the return at a value of $500, but

on the list the gifts are valued at $736, $240, and $388.   The

values of the two Goodwill donations on the list, likewise, do

not jibe with the amounts on the return.

     While the Court believes that petitioners actually donated

the items on the list, petitioners offered no corroborating

evidence that the method they used to value the property was

accurate.   The Court finds that petitioners have failed to prove

the value of their contributions.   The Court further finds, using

its judgment, that the fair market value of the donated property

was $2,000.   Petitioners are entitled to a deduction in that

amount.   See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir.
                                - 8 -

1930); Zmuda v. Commissioner, supra; Fontanilla v. Commissioner,

T.C. Memo. 1999-156.

Petitioners’ Casualty or Theft Loss

     Respondent did not allow petitioners any deduction for the

damage caused as a result of the theft of their truck in 2001.

Respondent’s position is that petitioners’ loss, if any, was

covered by Allstate Insurance Company and that petitioners have

failed to show that they were not reimbursed by Allstate.

Respondent also argues that petitioners’ claim of loss is

excessive.

     Losses may be deductible under section 165 to the extent

that they are “not compensated for by insurance or otherwise.”

Petitioners produced at trial a letter from GEICO Insurance

Company stating that petitioners were insured for the period

during which the truck was stolen and that they filed no claims

during that period.    Respondent relies on the police report,

stating that petitioners were covered by Allstate, and argues

that petitioners did not provide evidence that they did not file

a claim with Allstate.   Petitioner testified that his only

automobile insurer was GEICO, with whom there was no theft

coverage for the truck in 2001.

     Respondent’s examining agent testified that petitioner told

her during the examination that it was too expensive to have full

coverage on the truck and that it was covered only by liability
                                - 9 -

insurance.    The Court accepts petitioners’ evidence and finds

that they were not compensated by insurance or otherwise for the

loss from damage to the truck caused by theft.

     In the case of an individual, section 165(c)(3) allows a

taxpayer to claim as a deduction any loss from theft or casualty

sustained during the taxable year.      The loss is allowed only to

the extent that it exceeds $100 and the net casualty loss is in

excess of 10 percent of the taxpayer’s adjusted gross income.

Sec. 165(h).    The amount of the loss allowable as a deduction is

the lesser of (1) the difference between the fair market value of

the property immediately before and immediately after the

casualty, or (2) the adjusted basis of the property.      Helvering

v. Owens, 305 U.S. 468 (1939); sec. 1.165-7(a)(2) and (b), Income

Tax Regs.    The fair market value of the property immediately

before and immediately after the casualty “shall generally be

ascertained by competent appraisal.”     Sec. 1.165-7(a)(2), Income

Tax Regs.

     Petitioners’ case is made difficult to decide in their favor

because they have no appraisals for the fair market value of the

truck immediately before and immediately after it was damaged.

Respondent argues for the use of the Blue Book as an appropriate

guide for determining the value of petitioners’ truck immediately

before the casualty.    Using the Blue Book, respondent would value
                                - 10 -

the truck immediately before the casualty at between $4,218 and

$6,612.

     Petitioners argue that, although generally useful, Blue Book

values in this case are inaccurate.      Petitioner testified that

the truck was literally a showpiece.     According to petitioner, it

had special paint, wheels, tires, and engine appearance items,

and extensive electronic gaming, music, lighting, and antitheft

systems.    Petitioner testified that he entered the truck in

various car shows, but he presented no pictures, trophies, or

other evidence of having entered his truck into the shows.1

Petitioners did produce receipts for the purchase of the

electronic gaming, music, lighting, and antitheft systems,

showing the total cost to be more than $16,000.      The electronics,

however, were installed in the truck in 1994, 7 years before the

theft.     The electronics would not have the same value in 2001 as

they did when new in 1994.

     Even more difficult is determining the fair market value of

the truck after the casualty.    Petitioners reported on their

return that the truck was only worth $2,000 after the theft.      But

the record contains no explanation of the derivation of

petitioners’ asserted valuation.    Petitioners produced no

pictures of the damage to the truck.      There is no insurance


     1
      The mileage accumulated on the truck and the carrying of a
toolbox, without further explanation, is more suggestive of a
working truck than a show truck.
                              - 11 -

company estimate of damage and no detailed and coherent

description of the damage by petitioners themselves.    The police

report states only that there was “extensive” damage to the

interior and exterior of the truck.    The notes of respondent’s

examining agent indicate that petitioners reported to her that,

as a result of the theft, they repaired the frame and body of the

truck and replaced the “stereo, glass, tires, engine, and seats”.

     Evidence of the cost of repair to damaged property is

acceptable as evidence of loss if:     (a) The repair was necessary

to restore the property to its condition just before the

casualty; (b) the repair costs are not excessive; (c) the repair

does not exceed the damage; and (d) the value of the property

after the repair does not, as a result of the repair, exceed the

precasualty value.   Sec. 1.165-7(a)(2)(ii), Income Tax Regs.

     Petitioners introduced into the record evidence in the form

of receipts for the repair and replacement of some items in

connection with the theft of and damage to the truck in 2001.

Most of the receipts represent expenditures for replacing the

engine and tires of the truck.   According to the supplemental

police report, however, the Border Patrol “stopped” the stolen

truck at a gas station.   The Court surmises that the truck was

being driven (with operating engine and tires) at the time it was

“stopped”.
                              - 12 -

     Petitioners have offered no evidence to show that the

replacement of the engine and tires of the truck was a result of

theft damage rather than the 150,000 miles accumulated before the

truck was stolen.   See Newton v. Commissioner, 57 T.C. 245, 248-

249 (1971); Leslie v. Commissioner, T.C. Memo. 1984-61.    Nor have

petitioners shown that the replacement of the engine and tires

did not exceed the damage or cause the truck to be restored to a

condition better than that which it was in immediately before the

theft.   See sec. 1.165-7(a)(2)(ii), Income Tax Regs.   They

provided no evidence regarding the replacement of the stereo and

“glass”.   Among the receipts presented by petitioners, however,

is one for $354.75 for the repair of the seats of the truck.   The

Court accepts the receipt as evidence of damage to the truck as a

result of the theft, and the amount on the receipt is deductible

to the extent permitted by section 165(h)(1) and (2).

The Accuracy-Related Penalty Under Section 6662

     Section 7491(c) imposes the burden of production in any

court proceeding on the Commissioner with respect to the

liability of any individual for penalties and additions to tax.

Higbee v. Commissioner, 116 T.C. 438, 446 (2001); Trowbridge v.

Commissioner, T.C. Memo. 2003-164, affd. 378 F.3d 432 (5th Cir.

2004).

     In order to meet the burden of production under section

7941(c), the Commissioner need only make a prima facie case that
                                - 13 -

imposition of the penalty or addition to tax is appropriate.

Higbee v. Commissioner, supra.     Once the Commissioner meets his

burden of production, the taxpayer must come forward with

evidence sufficient to persuade a court that the Commissioner’s

determination is incorrect.     Id. at 447.

     Respondent determined that a section 6662 accuracy-related

penalty is due with respect to petitioners’ tax return for 2001.

Section 6662 imposes a penalty equal to 20 percent of the portion

of the underpayment attributable to negligence or disregard of

rules or regulations.   Sec. 6662(a) and (b)(1).     The term

“negligence” is defined as any failure to make a reasonable

attempt to comply with the provisions of the Internal Revenue

Code, and the term “disregard” includes any careless, reckless,

or intentional disregard.     Sec. 6662(c).   Negligence also

includes any failure by the taxpayer to keep adequate books and

records or to substantiate items properly.      Sec. 1.6662-3(b)(1),

Income Tax Regs.   Respondent has carried his burden of production

in this case by showing that petitioners failed to fully

substantiate their itemized deductions in several categories.

     The accuracy-related penalty will apply unless petitioners

demonstrate that there was reasonable cause for the underpayment

and that they acted in good faith with respect to the

underpayment.   Sec. 6664(c).    Whether a taxpayer acted with

reasonable cause and good faith depends on the pertinent facts
                                - 14 -

and circumstances.   McCallson v. Commissioner, T.C. Memo. 1993-

528; sec. 1.6664-4(b)(1), Income Tax Regs.   Petitioners must show

that they were not negligent.    Cluck v. Commissioner, 105 T.C.

324, 339 (1995).

      Petitioners failed to establish that they were not

negligent in failing to retain documentation for their itemized

deductions.   They have failed to carry their burden of proof.     We

sustain respondent’s determination that they are liable for the

accuracy-related penalty for 2001.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                          Decision will be entered

                                     under Rule 155.
