                      T.C. Memo. 2010-264



                 UNITED STATES TAX COURT



   HARDY RAY MURPHY AND LAURA MURPHY, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 1393-09.                   Filed December 2, 2010.



     R disallowed Ps’ claimed charitable contribution
deduction of $27,727 and determined a deficiency in income
tax and an accuracy-related penalty under sec. 6662(a),
I.R.C., for Ps’ 2006 tax year.

     Held:   Ps are liable for the deficiency.

     Held, further, Ps are liable for the accuracy-related
penalty under sec. 6662(a), I.R.C.



Hardy Ray Murphy and Laura Murphy, pro sese.

R. Malone Camp, Jr., for respondent.
                                - 2 -

               MEMORANDUM FINDINGS OF FACT AND OPINION


     WHERRY, Judge:    This case is before the Court on a petition

for redetermination of respondent’s determination in a notice of

deficiency that petitioners owed an income tax deficiency for

their 2006 tax year.    The issues for decision are:   (1) Whether

petitioners are entitled to a deduction claimed on Schedule A,

Itemized Deductions, for charitable contributions and (2) whether

petitioners are liable for a section 6662(a) accuracy-related

penalty.1

                          FINDINGS OF FACT

     Some of the facts have been stipulated.    The stipulations of

the parties, with accompanying exhibits, are incorporated herein

by this reference.    Petitioners, husband and wife, resided in

California at the time they filed their petition with this Court.

     During 2006, petitioner Mr. Murphy was employed as an

attorney while petitioner Mrs. Murphy was a homemaker.    On their

2006 Form 1040, U.S. Individual Income Tax Return, petitioners

claimed on Schedule A a deduction of $27,727 for gifts to

charity.    This claimed deduction consisted of (1) a claimed

contribution of $27,229 for gifts to charity by cash or check and

(2) a claimed contribution of $498 for gifts to charity other



     1
      All section references are to the Internal Revenue Code of
1986, as amended and in effect for the year at issue. All Rule
references are to the Tax Court Rules of Practice and Procedure.
                               - 3 -

than by cash or check.   At trial, Mr. Murphy asserted that the

contributions included the following.

     First, he donated three paintings, The Graduate, Sugar

Shack, and the Ring Around the Roses, together with an

unspecified amount of money, to the Los Angeles Urban League.

The League planned to auction off the paintings, which Mr. Murphy

remembered purchasing for $125, $250, and $125, respectively, and

now claims were worth approximately $255.   He also claimed he

made monetary contributions to the Catholic Big Brothers and Big

Sisters.   Mr. Murphy stated the total amount of claimed cash

contributions to both the Los Angeles Urban League and the

Catholic Big Brothers and Big Sisters was about $1,500 for 2006.

     Second, Mr. Murphy claimed he bought unspecified lunches and

dinners for and gave cash to two homeless men, C.I. and Ken, the

total cost of which, during 2006, was approximately $4,000.

     Third, petitioners claimed they contributed about $750 worth

of various appliances and clothes to the Salvation Army.   There

is no record of these contributions or the specific items donated

because even though the Salvation Army offered receipts,

petitioners did not want to wait in line to get one.

     Fourth, petitioners indicated they donated $250 to each of

the five institutions of higher education they attended.   The

five were Glendale Community College, the University of Southern

California, the University of California Los Angeles Law School,
                                - 4 -

Pasadena Community College, and California State University Los

Angeles.   These gifts were made with checks, but the checks were

not available at trial.    Mr. Murphy indicated that the briefcase

containing journal records concerning his deductions was stolen

and that because of the financial failure of his bank, Indy Mac,

he has been unable to get copies of his checks.

     Fifth, Mr. Murphy claimed they made contributions to various

churches, most of which consisted of tithing to Lake Avenue

Church.    Petitioners attended church regularly during 2006

because they were discussing a possible divorce and relied on

their church and other spiritual counseling to get through the

difficult time.   Petitioners and their child/ren attended church

as a family on Sundays, and Mr. Murphy would go to church by

himself during the week.

     Mr. Murphy claims he contributed between $100 and $200 each

time he went to church for a total of $300 to $500 each week.

While Lake Avenue Church did provide envelopes for contributions,

petitioners did not use them.    In addition to contributions to

Lake Avenue Church, petitioners contend they made small

contributions to San Gabriel Union Church and St. Mark’s

Episcopal School.    Both Mr. Murphy and his daughter attended St.

Mark’s Episcopal School.    Mr. Murphy asserted that the total

amount of tithing to the two churches and the school was

approximately $20,000.
                               - 5 -

     Mr. Murphy claimed that throughout 2006 he maintained a

journal in which he recorded his charitable contributions,

listing the date, amount, and description of each.    Mr. Murphy

stated that this journal was among items stolen from his car in

April 2007.

     Petitioners timely filed their 2006 tax return.    Respondent

disallowed the charitable contribution deduction claimed on

Schedule A and on October 20, 2008, issued a notice of deficiency

showing a deficiency in income tax of $9,011 and an accuracy-

related penalty under section 6662(a) of $1,802.20.    The

deficiency resulted solely from disallowance of the charitable

contribution deduction.   Petitioners timely petitioned this

Court, and a trial was held on February 26, 2010, in Los Angeles,

California.2




     2
      Whereas respondent disallowed deductions for all of
petitioners’ claimed charitable contributions of $27,727,
petitioners’ Tax Court petition challenged respondent’s
determination only with regard to petitioners’ claimed cash
contributions of $27,229. Thus, we assume that petitioners have
either conceded the disallowance of the claimed noncash
contribution of $498 or inadvertently contested only the cash
donation amount. Because of Mr. Murphy’s testimony at trial
regarding donated paintings, appliances, and clothes, we assume
the latter. Even reading the petition as challenging the
disallowance of all claimed contributions, including the noncash
contribution, we would still deny all of petitioners’ claims for
the reasons set forth herein.
                                   - 6 -

                                  OPINION

I.      Whether Petitioners Are Entitled to a Deduction for
        Charitable Contributions

        Deductions are a matter of legislative grace, and taxpayers

bear the burden of proving entitlement to any claimed deduction.

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

(1992).       Taxpayers are required to keep books or records to

substantiate all claimed deductions.3       Sec. 6001; Roberts v.

Commissioner, 62 T.C. 834, 836 (1974).

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

contribution as defined in section 170(c) if verified under

applicable regulations.       Generally a cash contribution can be

substantiated by (1) a canceled check, (2) a receipt from the

donee organization, or (3) other reliable written records showing

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

amount of the contribution.4      Sec. 1.170A-13(a)(1), Income Tax

Regs.       A gift of property, other than cash, of less than $5,000

may be substantiated by a receipt from the donee showing the



        3
      Petitioners have not raised the issue of sec. 7491(a),
which shifts the burden of proof to the Commissioner in certain
situations. We conclude that sec. 7491(a) does not apply here
because petitioners have not produced credible evidence, nor have
they satisfied the other conditions for the application of sec.
7491(a). See sec. 7491(a)(2).
        4
      The taxpayer bears the burden of proving that the written
records are reliable. The determination of reliability is made
on the basis of all the facts and circumstances of a particular
case. Sec. 1.170A-13(a)(2)(i), Income Tax Regs.
                               - 7 -

donee’s name, the date and location of the contribution, and a

description of the property contributed.     Sec. 1.170A-13(b)(1),

Income Tax Regs.

     For a contribution of $250 or more, a taxpayer must

substantiate the contribution by a contemporaneous written

acknowledgment by the donee organization.5    Sec. 170(f)(8)(A).

The written acknowledgment must include:

          (i) The amount of cash and a description (but not
     value) of any property other than cash contributed.

          (ii) Whether the donee organization provided any goods
     or services in consideration, in whole or in part, for any
     property described in clause (i).

          (iii) A description and good faith estimate of the
     value of any goods or services referred to in clause (ii)
     or, if such goods or services consist solely of intangible
     religious benefits, a statement to that effect.

Sec. 170(f)(8)(B).   To be considered contemporaneous, the written

acknowledgment must be obtained by the taxpayer before the

earlier of the due date of the return, including extensions, or

the filing of the return.   Sec. 170(f)(8)(C).

     Petitioners have not met the requirements of section 170.

First, although churches, universities or colleges, and the

Salvation Army obviously are section 170(c) organizations,

petitioners failed to prove that all of their charitable


     5
      Separate contributions of less than $250 are not subject to
the requirements of sec. 170(f)(8), regardless of whether the sum
of the contributions made by a taxpayer to a donee organization
during a taxable year equals $250 or more. See sec. 1.170A-
13(f)(1), Income Tax Regs.
                                - 8 -

contributions were made to organizations specified in section

170(c).   They failed to adequately substantiate their claimed

charitable contributions.   The record relating to the claimed

charitable contributions is limited to Mr. Murphy’s trial

testimony and is unsupported by any written substantiation in the

form of canceled checks, bank records, or receipts from the donee

organizations.

     Mr. Murphy asserts that he kept a journal of his charitable

contributions and that the journal was stolen.     When a taxpayer’s

records are lost or destroyed through circumstances beyond his

control, the taxpayer is entitled to substantiate deductions by

reconstructing expenditures through credible evidence.

Villarreal v. Commissioner, T.C. Memo. 1998-420 (citing

Malinowski v. Commissioner, 71 T.C. 1120, 1125 (1979)).     However,

this Court is not bound to accept unverified, undocumented

testimony of a taxpayer.    Id. (citing Hradesky v. Commissioner,

65 T.C. 87, 90 (1975), affd. per curiam 540 F.3d 821 (5th Cir.

1976)).   Petitioners did not introduce evidence to substantiate

their claimed charitable contributions other than Mr. Murphy’s

self-serving and unsupported testimony at trial.    Petitioners

apparently made no attempt to contact any of the recipient

charities to obtain records of their contributions.    Moreover,

neither a representative of any of the donee organizations nor

Mrs. Murphy testified to corroborate the claimed charitable
                                 - 9 -

contributions or even the fact that petitioners attended church

regularly.   For the reasons set forth above, we sustain

respondent’s determination and disallow all of the charitable

contribution deductions.6

II.   Whether Petitioners are Liable for the Section 6662
      Accuracy-Related Penalty

      Under section 7491(c), respondent bears the burden of

production with respect to petitioners’ liability for the section

6662(a) penalty.    This means that respondent “must come forward

with sufficient evidence indicating that it is appropriate to

impose the relevant penalty” but “need not introduce evidence

regarding reasonable cause, substantial authority, or similar

provisions * * * it is the taxpayer’s responsibility to raise

those issues.”     Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

Once the Commissioner has met this “burden of production, the

taxpayer must come forward with evidence sufficient to persuade a



      6
      Petitioners urge application of the doctrine of Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). Under the
Cohan doctrine, if a taxpayer claims a deductible expense and
cannot fully substantiate it, the court may approximate the
allowable amount. However, the taxpayer must provide reasonable
evidence from which to estimate the deductible amount, and even
then the court will bear heavily against the taxpayer. Vanicek
v. Commissioner, 85 T.C. 731, 742-743 (1985). The complete lack
of evidence with respect to the claimed charitable contributions
in this case precludes us from even attempting to approximate the
allowable amounts of deductions. We further recognize that this
Court has never “squarely [addressed] the potential conflict
between section 170(a)(1) and our application of Cohan to
unverified or inadequately substantiated charitable
contributions.” Kendrix v. Commissioner, T.C. Memo. 2006-9.
                               - 10 -

court that the Commissioner’s determination is incorrect.”     Id.

at 447.

     Section 6662(a) imposes an accuracy-related penalty of 20

percent on any underpayment that is attributable to causes

specified in subsection (b).   Respondent asserts petitioners are

liable as a result of “Negligence or disregard of rules or

regulations” under section 6662(b)(1).

     “‘[N]egligence’ includes any failure to make a reasonable

attempt to comply with the provisions of * * * [the Internal

Revenue Code]”.   Sec. 6662(c).   Under caselaw, “‘Negligence is a

lack of due care or failure to do what a reasonable and

ordinarily prudent person would do under the circumstances.’”

Freytag v. Commissioner, 89 T.C. 849, 887 (1987) (quoting

Marcello v. Commissioner, 380 F.2d 499, 506 (5th Cir. 1967),

affg. on this issue 43 T.C. 168 (1964) and T.C. Memo. 1964-299),

affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991).

Negligence can also include any failure by the taxpayer to keep

adequate records and to substantiate items properly.    Sec.

1.6662-3(b)(1), Income Tax Regs.    In the light of petitioners’

failure to substantiate their claimed deductions, respondent has

carried his burden of production.

     There is an exception to the section 6662(a) penalty when a

taxpayer can demonstrate:   (1) Reasonable cause for the

underpayment and (2) that the taxpayer acted in good faith with
                               - 11 -

respect to the underpayment.   Sec. 6664(c)(1).    Regulations

promulgated under section 6664(c) further provide that the

determination of reasonable cause and good faith “is made on a

case-by-case basis, taking into account all pertinent facts and

circumstances.”   Sec. 1.6664-4(b)(1), Income Tax Regs.    We

therefore consider, among other factors, the experience,

education, and sophistication of the taxpayer.

     Petitioners did not have any records substantiating their

claimed charitable contribution deductions.     Presumably, Mr.

Murphy believed, and would like us to hold, that his testimony

regarding his maintaining the journal and the theft of the

journal is sufficient to meet the requisite reasonable cause and

good faith showing.   Mr. Murphy is mistaken.    Even if Mr.

Murphy’s journal was in fact stolen, there is no evidence that he

made a reasonable attempt to reconstruct his contributions.       We

therefore hold that petitioners failed to meet their burden of

showing that the reasonable cause and good faith exception

applies.   Accordingly, the Court concludes that petitioners are

liable for the section 6662 accuracy-related     penalty for their

2006 tax year.
                             - 12 -

     The Court has considered all of petitioners’ contentions,

arguments, requests, and statements.    To the extent not discussed

herein, we conclude that they are meritless, moot, or irrelevant.

     To reflect the foregoing,


                                      Decision will be entered

                                 for respondent.
