                       T.C. Memo. 1998-324



                     UNITED STATES TAX COURT



     JOHN ANDREW DORRIS AND DONNA L. DORRIS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14522-96.               Filed September 15, 1998.



     John Andrew Dorris and Donna L. Dorris, pro se.

     Paul L. Dixon, for respondent.



                       MEMORANDUM OPINION


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

section 7443A(b)(3) of the Code and Rules 180, 181, and 182.   All

section references are to the Internal Revenue Code in effect for
                                - 2 -


the years in issue.    All Rule references are to the Tax Court

Rules of Practice and Procedure.    Respondent determined the

following deficiencies in income tax and accuracy-related

penalties:

                                Accuracy-related Penalty
Year             Deficiency           Sec. 6662
1991              $1,545                $309
1992               1,793                 359


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

entitled to charitable contribution deductions in the amounts of

$16,176 and $17,940 for 1991 and 1992, respectively, and (2)

whether petitioners are liable for accuracy-related penalties

under section 6662(a) for the taxable years at issue.

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

Petitioners resided in Reno, Nevada, at the time their petition

was filed.

       Petitioners, and a third person unrelated to the issues

before us, incorporated Agape Assemblies (Agape) under the laws

of Texas as a nonprofit organization in July 1986.    During the

taxable years at issue, petitioner John Andrew Dorris

(petitioner) served as Agape's president.

       Agape operated as a social ministry.   The purpose for which

Agape was organized was "to receive and maintain a fund or funds

of real or personal property, or both, and, * * * to use and

apply the whole or any part of the income therefrom and the
                               - 3 -


principal thereof exclusively for religious purposes either

directly or by contributions to organizations that qualify as

exempt organizations under Section 501(c)(3) of the Internal

Revenue Code and its Regulations * * * ."    During the taxable

years at issue, Agape was an organization described in sections

170(c)(2) and 501(c)(3) and listed in Publication 78.    Agape was

located on property owned by Reverend Robert L. McWilliams

(Reverend McWilliams) in Brazito, New Mexico.

     During 1991 and 1992, petitioners had canceled checks and

carbon copies of checks from their two personal checking accounts

on which they left the payee lines blank (blank checks).      The

blank checks were deposited into a bank account (TFC account) of

Twenty-First Century Corporation (TFC) by Ms. Thelma Spiegel (Ms.

Spiegel).   The record does not disclose the nature of TFC's trade

or business.

     Ms. Spiegel, inter alia, served as the bookkeeper for Agape

during the taxable years at issue.     She also had the authority to

make deposits to, and withdrawals from, the TFC account.      Ms.

Spiegel was a member of Agape during the taxable years at issue.

Ms. Spiegel also collected and recorded the weekly contributions

from Agape's congregation.   She deposited almost all of the

contributions into the TFC account.    Agape did not have a

checking account in its own name.
                                - 4 -


     After Ms. Spiegel deposited the money, she issued a check to

Reverend McWilliams in the same amount.   Ms. Spiegel and Reverend

McWilliams were the only two people who had signatory authority

over the TFC account.   Reverend McWilliams deposited the checks

into his personal account.   Reverend McWilliams never provided

Agape with an accounting of how the funds were used.

     Reverend McWilliams worked as Agape's minister.    There was

no employment contract.   Reverend McWilliams was hired as a

"private contractor".   In addition to performing social work in

Mexico and working with deprived and disadvantaged people,

Reverend McWilliams performed baptisms and marriages.   Reverend

McWilliams was neither a member of Agape, nor was he on Agape's

Board of Elders.

     Reverend McWilliams was the president of TFC at the time TFC

temporarily closed its business in December 1988.   Reverend

McWilliams also was in the business of providing food, shelter,

and medical care to various persons in a religious communal group

setting in exchange for payments.   He reported profits from this

business.

     During the taxable years at issue, petitioners and their

three children lived on the approximately 2-1/2 acre property

owned by Reverend McWilliams.   Situated on the property is an

approximately 5,500 square foot building that served as living

quarters.   The building consists of two wings and has a common
                               - 5 -


area, common court yard, large kitchen, dining and living rooms,

11 bedrooms, 6 or 7 bathrooms, private quarters for Reverend

McWilliams and his family, covered parking for 12 automobiles,

and a trailer in the back.   Petitioners occupied one room and

their three children occupied another room.   They shared a

bathroom.

     Petitioners made monthly rental payments to Reverend

McWilliams.   The rental payments covered room and board,

utilities, and other living expenses.   Petitioners claim they

paid rent to Reverend McWilliams in the amount of $14,300 per

year in 1991 and 1992 for these services.   The canceled checks

and carbon copies of checks placed in evidence do not add up to

this amount for claimed rental payments for either year.

     On Schedules A of their 1991 and 1992 Federal income tax

returns, petitioners claimed deductions for charitable

contributions in the amounts of $16,176.48 and $17,940.00,

respectively.

     Respondent disallowed the charitable contribution deductions

for 1991 and 1992 because the contributions were not made to a

qualified organization, because the contributions were made for

the benefit of a specified individual, and because petitioners

failed to establish that the amounts claimed were contributions

and were paid.   Respondent concedes that contributions that were
                                - 6 -


"to or for the use of" Agape were deductible under section 170(c).

     Deductions are strictly a matter of legislative grace.

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

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

Petitioners must substantiate the claimed deductions.     Hradesky

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

(5th Cir. 1976).

     Section 170 allows as a deduction any charitable

contribution actually paid during the taxable year.   Sec.

170(a)(1); sec. 1.170A-1(a), Income Tax Regs.   A taxpayer may

claim a deduction for a charitable contribution only if the

contribution is made "to or for the use of" a qualified

organization.   Sec. 170(c); Davis v. Commissioner, 495 U.S. 472,

478 (1990).

     The issue we must decide is the factual question whether, as

petitioners contend, petitioners contributed the amounts at issue

to or for the use of Agape.   If they did, they are entitled to

deduct those amounts under section 170(c).

     Petitioners introduced into evidence some canceled blank

checks for 1991.   We term these blank checks because for some

reason unknown to petitioners, no payee is named.   Because these

canceled blank checks fail to list Agape as the donee, these

checks do not establish that petitioners made donations

deductible under section 170.   Further, the blank checks were
                                - 7 -


deposited into the TFC account in the name of a company about

which the record discloses almost nothing.    We are not convinced

that the blank checks were "to or for the use" of Agape.     Davis

v. Commissioner, supra.    Petitioners also claim some carbon

copies of blank checks are proof of other 1991 contributions to

Agape, and for 1992, petitioners only have carbon copies of blank

checks, which for the same reasons are not proof of

contributions.    We also note that even though we cannot rely on

petitioners' alleged evidence, our computation of the amounts of

canceled blank checks and blank carbon copies for 1991 ($7,105)

and of the blank carbon copies for 1992 ($8,438) totals far less

than the amounts of $16,176.48 and $17,940.00 claimed as

contributions on petitioners' 1991 and 1992 returns,

respectively.

     At trial, we had reservations about Ms. Spiegel's testimony.

With respect to donation ledgers, she stated that she wrote the

numbers "On the date I received the money."   Yet examination of

these ledgers show they do not comport with the dates of the

alleged contributions made on a number of occasions.   Ms.

Spiegel's testimony about cash contributions by petitioners was

unsatisfactory.

     The amounts petitioners claimed as charitable contributions

to Agape in their returns for 1991 and 1992 are greater than the
                               - 8 -


total amounts listed in the respective donation ledgers.     The

record does not establish the reason for this difference.

     We also find petitioner not credible.     We are troubled by

petitioner's testimony that although he was Agape's president and

one of its incorporators, he had no knowledge of how much Agape

paid Reverend McWilliams for his services, nor did he know

whether or not Ms. Spiegel always deposited the contributions

into the TFC account.   Moreover, petitioner could not explain

where the money went after petitioners gave it to Ms. Spiegel.

Petitioner also had difficulty explaining why the payee lines

were left blank.

     On the basis of this record, we find that petitioners failed

to establish that the amounts of the purported charitable

contributions at issue were to or for the use of Agape within the

meaning of section 170(c).   Accordingly, respondent is sustained

on this issue.

     Finally, we must decide whether petitioners are liable for

accuracy-related penalties in the amounts of $309 and $359 for

1991 and 1992, respectively.   Section 6662(a) imposes an

accuracy-related penalty in the amount of 20 percent of the

portion of an underpayment of tax attributable to negligence or

disregard of rules or regulations.     Sec. 6662(a) and (b)(1).

Negligence is any failure to make a reasonable attempt to comply

with the provisions of the Internal Revenue laws.     Sec. 6662(c);
                               - 9 -


sec. 1.6662-3(b)(1), Income Tax Regs.   Moreover, negligence is

the failure to exercise due care or the failure to do what a

reasonable and prudent person would do under the circumstances.

Neely v. Commissioner, 85 T.C. 934, 947 (1985).     Disregard

includes any careless, reckless, or intentional disregard of

rules or regulations.   Sec. 6662(c); sec. 1.6662-3(b)(2), Income

Tax Regs.

     Under section 6664(c), no penalty will be imposed with

respect to any portion of any underpayment if it is shown that

there was a reasonable cause for such portion and that the

taxpayer acted in good faith with respect to such portion.      This

determination is based on all of the facts and circumstances.

Sec. 1.6664-4(b)(1), Income Tax Regs.   The most important factor

is the extent of the taxpayers' effort to assess their proper tax

liability for the years at issue.   Sec. 1.6664-4(b)(1), Income

Tax Regs.

     On the record before us, we sustain respondent's

determination of penalties under section 6662(a).    Petitioners

wrote checks for which they left the payee lines blank and

claimed those purported contributions as charitable contribution

deductions.   Petitioners claimed deductions in the amounts of

$16,176.48 and $17,940.00 for 1991 and 1992, respectively.

However, the documents that petitioners provided to support their

claimed deductions showed an amount less than that claimed.
                             - 10 -


Petitioners failed to offer any reasonable explanation or provide

any credible evidence to substantiate the deductions.    In this

regard, we find that petitioners' actions were not those of a

reasonable and prudent person under the circumstances.

Accordingly, we sustain respondent's determination on this issue.

     To reflect the foregoing,

                                        Decision will be entered

                                   for respondent.
