                               T.C. Memo. 2014-205



                         UNITED STATES TAX COURT



      GUST KALAPODIS AND FRANCES L. KALAPODIS, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 26742-12.                          Filed October 6, 2014.



      Gust Kalapodis and Frances L. Kalapodis, pro se.

      Nancy P. Klingshirn and Dennis G. Driscoll, for respondent.



                           MEMORANDUM OPINION


      BUCH, Judge: Respondent issued Mr. and Mrs. Kalapodis a notice of

deficiency for the 2008 taxable year increasing their gross income, denying

various deductions, and imposing an addition to tax for failure to timely file under
                                        -2-

[*2] section 6651(a)(1).1 After concessions by the parties, the sole issue

remaining for decision is whether the Kalapodises are entitled to a charitable

contribution deduction for scholarship payments made by a trust. We hold that

they are not.

                                    Background

      In 2006 Mr. and Mrs. Kalapodis received $75,000 in life insurance proceeds

from the passing of their son. That same year, the Kalapodises used the life

insurance proceeds to establish the John Gust Kalapodis Memorial Scholarship

Fund in honor of their son. The scholarship fund was structured as an irrevocable

trust. The trust agreement states that income from the trust is to be used

exclusively for educational purposes. The trust is irrevocable, although the

Kalapodises reserved the right to amend the trust so long as all funds would be

distributed to students solely for educational purposes. The trust has not applied

for or received tax-exempt status as a charitable organization under section 501.

      During 2008 the trust made payments of $2,000 each to three high school

students. Each payment was by check directly to the student. The money for the


      1
       Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure. All monetary amounts are rounded to the
nearest dollar.
                                          -3-

[*3] payments came from the trust’s investment income, and the checks were

written on an account owned solely in the name of the trust.

      In filing their 2008 Form 1040, U.S. Individual Income Tax Return, the

Kalapodises did not include the investment income from the trust in their gross

income; however, they claimed the $6,000 of payments as a charitable

contribution deduction on their Schedule A, Itemized Deductions. On August 9,

2012, respondent issued the Kalapodises a notice of deficiency making multiple

adjustments. One of those adjustments was to disallow a significant amount of

their claimed charitable contribution deduction. As is relevant here, respondent

disallowed the portion of the claimed charitable contribution deduction that

originated in the trust. While living in Ohio, the Kalapodises timely petitioned.

After concessions by the parties, this case was submitted without trial under Rule

122 with the only remaining issue being whether the Kalapodises are entitled to

deduct the $6,000 paid by the trust.

                                       Discussion

I. Standard of Review

      Except in limited circumstances, in a deficiency proceeding the positions of

the parties are reviewed de novo and the Court will not “‘look behind a deficiency

notice to examine the evidence used or the propriety of respondent’s motives or of
                                         -4-

[*4] the administrative policy or procedure involved in making his

determinations.’”2 The rationale underlying this rule is that the taxpayer’s liability

must be based on the merits of the case before us and not any previous

administrative record.3

      Most of the Kalapodises’ brief addresses difficulties they encountered with

various people from the Internal Revenue Service. Our role here is to decide

whether the Kalapodises are entitled to the charitable contribution deduction and

not to revisit the manner in which the IRS conducted its audit.

II. Burden of Proof

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

presumed correct, and taxpayers bear the burden of proving otherwise.4 Although

the burden may shift to the Commissioner under section 7491(a) with respect to a

relevant factual issue, the Kalapodises do not claim that the burden has shifted to

respondent, and likewise we do not find it appropriate to shift the burden to

respondent.



      2
      TG Mo. Corp. v. Commissioner, 133 T.C. 278, 283 (2009) (quoting
Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974)).
      3
          Greenberg’s Express, Inc. v. Commissioner, 62 T.C. at 327.
      4
          Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
                                           -5-

[*5] III. Charitable Contribution Deduction

      Income tax deductions are a matter of legislative grace, and the burden of

proving entitlement to any claimed deduction rests on the taxpayer.5 Subject to

applicable limitations, section 170(a) allows a deduction for any charitable

contribution as long as the contribution can be verified under regulations

prescribed by the Secretary.6 In relevant part, section 170(c) defines a charitable

contribution as

      a contribution or gift to or for the use of--

                      (1) A State, a possession of the United States, or any
               political subdivision of any of the foregoing, or the United
               States or the District of Columbia, but only if the contribution
               or gift is made for exclusively public purposes.

                    (2) A corporation, trust, or community chest, fund, or
               foundation--

                             (A) created or organized in the United States or in
                      any possession thereof, or under the law of the United
                      States, any State, the District of Columbia, or any
                      possession of the United States;

                             (B) organized and operated exclusively for
                      religious, charitable, scientific, literary, or educational
                      purposes, or to foster national or international amateur


      5
       INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); see also Rule
142(a).
      6
          Sec. 170(a)(1), (b).
                        -6-

      [*6] sports competition (but only if no part of its
      activities involve the provision of athletic facilities or
      equipment), or for the prevention of cruelty to children
      or animals;

            (C) no part of the net earnings of which inures to
      the benefit of any private shareholder or individual; and

             (D) which is not disqualified for tax exemption
      under section 501(c)(3) by reason of attempting to
      influence legislation, and which does not participate in,
      or intervene in (including the publishing or distributing
      of statements), any political campaign on behalf of (or in
      opposition to) any candidate for public office.

A contribution or gift by a corporation to a trust, chest, fund, or
foundation shall be deductible by reason of this paragraph only
if it is to be used within the United States or any of its
possessions exclusively for purposes specified in subparagraph
(B). Rules similar to the rules of section 501(j) shall apply for
purposes of this paragraph.

       (3) A post or organization of war veterans, or an
auxiliary unit or society of, or trust or foundation for, any such
post or organization--

            (A) organized in the United States or any of its
      possessions, and

            (B) no part of the net earnings of which inures to
      the benefit of any private shareholder or individual.

       (4) In the case of a contribution or gift by an individual,
a domestic fraternal society, order, or association, operating
under the lodge system, but only if such contribution or gift is
to be used exclusively for religious, charitable, scientific,
                                     -7-

             [*7] literary, or educational purposes, or for the prevention of
             cruelty to children or animals.

                    (5) A cemetery company owned and operated exclusively
             for the benefit of its members, or any corporation chartered
             solely for burial purposes as a cemetery corporation and not
             permitted by its charter to engage in any business not
             necessarily incident to that purpose, if such company or
             corporation is not operated for profit and no part of the net
             earnings of such company or corporation inures to the benefit
             of any private shareholder or individual.

      For purposes of this section, the term “charitable contribution” also
      means an amount treated under subsection (g) [relating to amounts
      paid to maintain certain students as members of a taxpayer’s
      household] as paid for the use of an organization described in
      paragraph (2), (3), or (4).

      In order to substantiate monetary charitable contributions, the taxpayer must

maintain one of the following: (1) a canceled check; (2) a receipt from the donee

charitable organization showing the name of the donee, the date of the

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

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

amount of the contribution.7 However, a charitable contribution of $250 or more

must be substantiated by a contemporaneous written acknowledgment of the




      7
       Van Dusen v. Commissioner, 136 T.C. 515, 533 (2011); sec. 1.170A-
13(a)(1), Income Tax Regs.
                                         -8-

[*8] contribution by the donee organization.8 The acknowledgment must contain:

(1) a description of the amount of cash or a description of any property

contributed, (2) a statement as to whether the donee organization provided any

goods or services in consideration for any property contributed, and (3) a

description and good-faith estimate of the value of any provided goods or services

or if such goods or services consist of intangible religious benefits, a statement to

that effect.9 In order for the acknowledgment to be contemporaneous, it must be

obtained on or before the earlier of the date on which the taxpayer files a return for

the taxable year in which the contribution was made or the due date (including

extensions) for filing such return.10

      The Kalapodises are not entitled to the $6,000 charitable contribution

deduction for multiple reasons.

      First, it was the trust--not the Kalapodises--that paid the money out as

scholarships. Section 671 and the provisions that follow it lay out the rules for

when a taxpayer is treated as the owner of a trust.11 If treated as the owner of the


      8
          Sec. 170(f)(8)(A).
      9
          Sec. 170(f)(8)(B).
      10
           Sec. 170(f)(8)(C).
      11
           Secs. 671-679.
                                         -9-

[*9] trust, the Kalapodises might have been entitled to report the tax attributes of

the trust on their personal return when computing their personal tax liability. But

the trust agreement states that the trust is irrevocable; and in reviewing the trust

agreement, we do not see, nor have the Kalapodises directed us to, any provision

that would have the effect of allowing the Kalapodises to report the tax attributes

of the trust on their personal return. Just as they did not report the trust’s income

on their return, they are not entitled to deduct any charitable contributions the trust

might have made.

      Second, even if the Kalapodises could report the trust’s tax attributes on

their personal return, they would still not be entitled to a charitable contribution

deduction because the trust’s payments do not qualify as charitable contributions.

Section 170(c) lays out specific rules for who must be the recipient of a

contribution or gift in order for the payment to qualify as a charitable contribution

deduction. Here, the trust paid the money directly to the students, and the students

do not fall into any of the recipient categories under section 170(c).

      Lastly, the Kalapodises did not produce any evidence of a contemporaneous

written acknowledgment of the charitable contribution. The closest thing to a

contemporaneous written acknowledgment that the Kalapodises provided was the

list of charitable contributions that they attached to their 2008 Schedule A, which
                                         - 10 -

[*10] showed three $2,000 contributions. That document does not show the dates

of the contributions or any of the other information required to comply with the

more stringent substantiation requirements for contributions over $250.

IV. Conclusion

        The Kalapodises are not entitled to a charitable contribution deduction for

the three $2,000 payments by the trust. They are not treated as owners of the trust

and may not report its tax attributes. Even if they could report the trust’s tax

attributes, the payments made by the trust do not qualify as charitable

contributions. And even if those payments had qualified, the Kalapodises did not

meet the substantiation requirements for charitable contributions in excess of

$250.

        To reflect the foregoing and the concessions of the parties,



                                                  Decision will be entered

                                        under Rule 155.
