                        T.C. Memo. 2004-156



                      UNITED STATES TAX COURT



        JERRY L. HILL AND VALERIE J. HILL, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7058-03.             Filed June 30, 2004.



     Joe Alfred Izen, Jr., for petitioners.

     Huong Duong, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:   Petitioners petitioned the Court to

redetermine a $130,260 deficiency in their 1999 Federal income

tax and a $26,052 accuracy-related penalty under section 6662(a).

Following concessions, including petitioners’ concession that the

trust at hand (Re-Cap Trust) is disregarded for Federal income

tax purposes, we decide whether petitioners may deduct certain
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amounts as charitable contributions.    We hold they may not.

We also decide whether petitioners are liable for the

accuracy-related penalty determined by respondent under section

6662(a).   We hold they are.   Unless otherwise noted, section

references are to the applicable versions of the Internal Revenue

Code.   Rule references are to the Tax Court Rules of Practice and

Procedure.

                         FINDINGS OF FACT

     Some facts were stipulated.    The stipulated facts and the

exhibits submitted therewith are incorporated herein by this

reference.   We find the stipulated facts accordingly.

Petitioners, husband and wife, resided in San Jose, California,

when their petition was filed.    They filed a joint 1999 Form

1040, U.S. Individual Income Tax Return.    That return reported

that petitioners’ 1999 total income was $19,504 and that their

total tax for that year was $1,024.    That return reported that

their total income was attributable to (1) $19,365 of

compensation received by petitioner Jerry L. Hill (Hill) from

Re-Cap Trust and (2) $139 of tax-exempt interest.

     Hill is a college-educated individual who has worked in

California for more than 2 decades as a real estate broker.      In

or about 1995, he attended some seminars promoting the use of

trusts to shelter his liability for Federal income taxes.    He

shortly thereafter formed Re-Cap Trust and transferred most if
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not all of petitioners’ personal assets to Re-Cap Trust.    Neither

Hill nor his wife had beforehand consulted a competent

professional concerning the Federal income tax consequences of

Re-Cap Trust.

     As to the subject year, Re-Cap Trust filed a 1999 Form 1041,

U.S. Income Tax Return for Estates and Trusts, that reported

total income of $332,520 and total deductions of $330,818.      With

the exception of interest income of $435, the total income was

all attributable to commissions for realtor services performed by

Hill.    The deductions claimed by Re-Cap Trust were in part for

petitioners’ personal expenses, including many of their personal

living expenses.    Re-Cap Trust reported on this Form 1041 that

its 1999 total tax was $255.

     Re-Cap Trust also claimed on that form a deduction for gifts

and donations totaling $21,439.    The record does not identify the

individual amounts which go into the $21,439.1   Nor does the

record include a “written acknowledgment”, sec. 170(f)(8), from

any recipient who received a payment of $250 or more.




     1
       Although petitioners have referred to various purported
charities and note that the record contains checks drawn on the
checking account of Re-Cap Trust, we are unable to reconcile our
total of the checks payable to those referenced “charities” to
the $21,439 claimed by petitioners.
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                                OPINION

1.   Charitable Contributions

      Respondent argues that petitioners may not deduct any

charitable contribution of $250 or more in that petitioners do

not have the requisite written acknowledgment for any of these

amounts.   (Respondent has conceded that petitioners may deduct

all other charitable contributions claimed as such.)    Petitioners

in their brief make no mention of the written acknowledgment

requirement but argue that Hill’s testimony coupled with canceled

checks in evidence entitles them to deduct all of the claimed

contributions in dispute.   Petitioners’ counsel conceded at trial

that petitioners bear the burden of proof as to this issue.

      We agree with respondent that the disputed amounts are not

deductible given the absence of a written acknowledgment.     Under

section 170(f)(8)(A), an individual taxpayer may deduct a

contribution of $250 or more only if he or she substantiates the

deduction with a contemporaneous written acknowledgment by the

donee that meets the requirements of that section.     Addis v.

Commissioner, 118 T.C. 528, 533-534 (2002); Berry v.

Commissioner, T.C. Memo. 2003-331; Stussy v. Commissioner, T.C.

Memo. 2003-232; see also Weyts v. Commissioner, T.C. Memo.

2003-68 (discussion of legislative history underlying the

enactment of section 170(f)).    That acknowledgment, which must be

furnished by the donee organization, must state the amount of
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cash and describe other property contributed, indicate whether

the donee organization provided any goods or services in

consideration for the contribution, and provide a description and

good faith estimate of the value of any goods or services

provided by the donee organization.    Sec. 170(f)(8)(B); sec.

1.170A-13(f)(2), Income Tax Regs.     Given that petitioners do not

have such a written acknowledgment from any of the recipients of

the disputed amounts, and have not established any exception to

this written acknowledgment requirement, see, e.g., sec.

170(f)(8)(D), we conclude that petitioners are precluded by the

statute from deducting the disputed amounts as charitable

contributions.

2.   Accuracy-Related Penalty

      Respondent also determined that petitioners are liable for

the accuracy-related penalty under section 6662(a).    In relevant

part, section 6662(a) and (b) imposes an accuracy-related penalty

if any portion of an underpayment is attributable to negligence

or a substantial understatement of income tax.    Negligence

includes any failure to make a reasonable attempt to comply with

the provisions of the internal revenue laws, any failure to keep

adequate books and records, and any failure to substantiate items

properly.   Sec. 1.6662-3(b), Income Tax Regs.   An understatement

of income tax is substantial if it exceeds 10 percent of the tax

required to be shown on the return or $5,000.    Sec. 6662(d)(1).
                                  -6-

     Respondent bears the burden of production under section

7491(c) and must come forward with sufficient evidence indicating

that it is appropriate to impose an accuracy-related penalty.

Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).     Once

respondent has met this burden, the taxpayer must come forward

with persuasive evidence that the accuracy-related penalty does

not apply.    Id.   The taxpayer may establish, for example, that

part or all of the accuracy-related penalty is inapplicable

because it is attributable to an understatement for which the

taxpayer acted with reasonable cause and in good faith.    Sec.

6664(c)(1).   Whether a taxpayer acted as such is a factual

determination, sec. 1.6664-4(b)(1), Income Tax Regs., for which

the taxpayer’s effort to assess the proper tax liability is a

very important consideration.

     Here, petitioners concede that respondent has met his burden

of production in that the parties agree that the understatement

on petitioners’ return is “substantial” within the meaning of

section 6662(d)(1).    Petitioners argue that they acted reasonably

as to the subject matter of the deficiency in that, they assert,

Hill relied reasonably upon his tax preparer to prepare

petitioners’ 1999 tax return correctly.    Although reliance on the

advice of a professional as to the tax treatment of an item may

sometimes be enough to escape the imposition of a section 6662(a)

accuracy-related penalty, see United States v. Boyle, 469 U.S.
                                -7-

241 (1985); sec. 1.6664-4(b), Income Tax Regs., individual

taxpayers relying upon this exception must prove by a

preponderance of evidence:   (1) The adviser was a competent

professional who had sufficient expertise to justify reliance;

(2) the taxpayer provided necessary and accurate information to

the adviser; and (3) the taxpayer actually relied in good faith

on the adviser’s judgment, Neonatology Associates, P.A. v.

Commissioner, 115 T.C. 43, 99 (2000), affd. 299 F.3d 221 (3d Cir.

2002); Ellwest Stereo Theatres, Inc. v. Commissioner, T.C. Memo.

1995-610; see also Rule 142(a)(1).    On the basis of the credible

evidence in the record, which we do not find includes the

testimony of Hill, we are unable to conclude that each of these

requirements has been met.   To say the least, Hill is a

college-educated individual who for many years has known about

his obligation to pay Federal income taxes on the income

generated from his services, yet neither he nor his wife ever

consulted a competent professional concerning the Federal income

tax consequences of Re-Cap Trust, which, according to their

reporting position, now conceded by them to be wrong, allowed

them to deduct otherwise nondeductible personal expenses and

ultimately pay only $1,279 of income taxes ($1,024 + $255) on

$332,085 of personal service income ($332,520 - $435).     We

sustain respondent’s determination as to the accuracy-related

penalty.
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     All arguments made by the parties have been considered, and

those arguments not discussed herein have been found to be

without merit.   To reflect respondent’s concessions,



                                           Decision will be entered

                                      under Rule 155.
